Release Date: October 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hope Bancorp Inc (HOPE, Financial) reported a strong 11% annualized growth in customer deposits, supporting loan growth and reducing reliance on brokered deposits.
- The company's risk-based capital ratios reached their highest levels since the merger with Wilshire in 2016, with a total capital ratio of 14.8% and a tangible common equity ratio of 10.1%.
- Net income for the third quarter was $24.2 million, or $0.20 per diluted share, with adjusted net income at $25.2 million and earnings per share at $0.21, excluding merger-related notable items.
- Noninterest income increased by 7% from the previous quarter, driven by higher gains on the sale of SBA loans.
- Asset quality remained stable, with 98% of commercial real estate loans pass-graded and a low weighted average loan-to-value ratio of approximately 47%.
Negative Points
- Net interest income decreased by $1 million from the previous quarter due to increased interest expenses, resulting in a decline in net interest margin by seven basis points to 2.55%.
- Nonperforming assets increased to $104 million due to one relationship being placed on nonaccrual status, although these loans are well-secured.
- Total criticized loans increased by $58 million quarter-over-quarter, with a rise in substandard loans.
- The provision for credit losses increased to $3.3 million from $1.4 million in the previous quarter.
- The company's average total deposit cost increased by five basis points quarter-over-quarter, indicating pressure on deposit pricing.
Q & A Highlights
Q: Can you provide an update on the loan portfolio, specifically the percentage of floating rate loans and the fixed rate loans repricing in 2025?
A: The portfolio consists of 45% variable rate loans, 31% hybrid loans still in the fixed period, and 24% fixed rate loans. Approximately $766 million of the fixed rate loans are set to reprice in 2025. - Julianna Balicka, CFO
Q: What changes have been made to deposit pricing following the September rate cut, particularly for CDs rolling over in the fourth quarter?
A: Deposit costs for money market, savings, and CDs have been reduced. The beta on accounts where rates were moved down was approximately 60%. CDs are currently being originated at a blended rate of about 4.25%. - Julianna Balicka, CFO
Q: What are the assumptions for full cycle deposit betas in your modeling?
A: We are assuming a high 60% beta on interest-bearing deposit costs by the end of the cycle, although it will take some time to reach that level. - Julianna Balicka, CFO
Q: Can you provide more details on the relationship added to nonaccrual status and its impact on asset quality?
A: The relationship involves three commercial real estate loans that are well secured with minimal loss content. The borrower is actively selling the properties, and we are managing the situation proactively. - Peter Koh, COO
Q: What is the current spot yield on the investment portfolio, and are there plans for further restructuring?
A: The spot yield on the investment portfolio is 2.96%, up from 2.89% at the end of September. We are not planning a large restructuring but are incrementally repositioning securities to improve yields. - Julianna Balicka, CFO
Q: Is the 45% variable rate loan portfolio truly floating, or does it include adjustable rates?
A: The 45% represents truly floating rate loans. The 31% hybrid loans are fixed to floating in the future. - Julianna Balicka, CFO
Q: What was the net interest margin for September, and is it adjusted for any interest reversals?
A: The net interest margin for September was 2.51%, and it is adjusted for any interest reversals. The margin is trending up month-to-date. - Julianna Balicka, CFO
Q: What is the offer rate for CDs rolling over in the fourth quarter?
A: CDs are being originated at an approximately 4.25% blended rate. - Julianna Balicka, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
