Earnings call transcript Q2 2023

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Operator

Good morning and welcome to the Hope Bancorp 2023 Second Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would like now to turn the conference over to Angie Yang, Director of Investor Relations. ahead. go Please

Angie Yang

Good us Alan. investor and you thank call. Thank the morning Hope joining for quarter Bancorp for you, everyone XXXX conference second

As the Presentations presentation of our a this be which page usual, website. our morning, on accompany discussion slide available is IR we will to using

may begin events. two, of materially projections statement regarding risks differ financial a performance regarding These may forward-looking results on slide certain with today forward-looking Beginning remarks. company contain future and the statements let me actual to the brief The call from future due uncertainties. and

of information some addition, this In financial the call non-GAAP today are on measures. referenced

with For forward-looking today's today. Harbor Hope risk press to non-GAAP the factors well earlier a as GAAP statements the revise obligation release any refer to issued may call. description made financial of more that of and measures, in a filings to our SEC, Bancorp the detailed on as Safe no be reconciliation please projections assumes company's the

have President Now, Peter Officer Chairman, the the be Bancorp's Hope allotted Presenting our Julianna Officer; here our Operating also session. Kevin as us Koh, will with and be Kim, Chief today available from Chief this management Balicka, Financial side call. CEO; is will we usual Q&A and and hour for one for

me the let Kim. call turn that, Kevin? With over to Kevin

Kevin Kim

thank joining us for everyone, today. you Thank and you, morning, and Angie, good

the quarter. Now let's of begin on overview with slide brief three a

diluted of XXXX, per second quarter income $X.XX. $XX and For net earnings the was million share were our our

the an of from quarter. $XX first million, was revenue net increase pre-provision Our XX%

for and are levels risk maintaining second in net recorded to focused on recoveries strong be quarter. liquidity challenging and $XXX,XXX we asset Our healthy continues quality high building The environment operating banks remains capital. the prudent and management, regional we of

X.XX% a detailed on Quarter-over-quarter ratios our XXth March review four to for strong capital capital June Our XXXX, risk basis XX from more our slide increased and expanded. at of Continuing XXst. points position. up equity based ratio tangible common grew of

quarter-over-quarter. Our at capital billion X% was growing XXXX, company's total $X.X June XXth,

equity up losses hypothetical our our ratio capital for credit our up capital points basis allowance June the ratios XX.XX%, for including X XXst, investment for and security XX.XX%, ratio from XX was Adjusting Tier and At points was total marks, all XXth, quarter-over-quarter. basis adjustments high. common XX remain March of

quarterly Given the dividend a of strength Xrd. of on of per record August of XXth declared common of share, $X.XX capital, Board to the Directors our our August stockholders payable as stock

slide Moving five. on to

level cash quarter, believe environment. During a our of the to balance the in on continued second sheet. equivalents and is a And cash we -- banking usual than we current higher maintain is prudent this this

our of XXXX, cash billion equivalents $X.X $X.XX and borrowing quarter, with deposit XXth uninsured end well June XX% cash At of our March the available cash the with $X.X billion second At together unpledged billion equivalent XXst. total and capacity, balances. equivalents deposits exceeding cash at was and and securities of were our our compared investment to

notes our paid existing cash. $XXX we May, In of convertible off million with

total deposits of our $XX.X year-over-year. benefited X% our Hope to from X% and At quarter-over-quarter were cycle, has up of granularity this XXXX, deposits. June navigating XXth down continuing six. billion, Now Bank of the slide modestly In

depositors. are our year-over-year. average account is and We consumer is Over balances approximately up with reflective Our of our this average and year-to-date $XXX,XXX strength size longevity believe commercial of $XX,XXX. consumer XX% our a X% are the the is third approximately of account relationships which and size deposits,

franchise on relationships bank's of XXXX, strengthening uninsured deposit with expanding at ratio compared XXth the our our our are the was XX% and deposit clients. we organization, XX%, June March with Across focused At XXst.

growth have been demand in treasury deposits. the the increasing efforts pace have of of TMS our of number our services and a products We in team management new of been investing our the and steady relationships, steadily stickiness generating

Now to loan in the loans, production including market in quarter, dynamics, including reflects second a customer pricing and current rate seven. $XXX as new in underwriting. $XXX million declining production. million funded we industrial high slide our In demand environment, decrease disciplined well loan moving and interest conservative The on as in commercial

The rate points quarter, the production on average first XX new loan quarter. in our was basis the up second X.XX% from

up were slide to loans XXth, billion, receivable X% At quarter-over-quarter on Moving decrease $XX.X our June and XXXX, of X% a eight. year-over-year.

and loan million $XXX exceeded paydowns of volume of originations. the payoffs quarter new Second

multi-family residential commercial between is owner-occupied commercial loan loans. well-balanced portfolio and estate and real and mortgage, industrial including estate, real mortgage Our the major commercial types of

industrial industry. by Our loan diversified commercial and portfolio is well

Moving slide real XX and portfolio. for nine on overview commercial an estate our to of

loans estate and all diversified have real to across value low type property loan well are commercial Our segments. by ratios

estate million Less $XXX real of commercial Office our loans of to total the central a loan than The has vast exposure. estate loans no ratio over is full segment small X% real representing a XX%. and portfolio district majority of of with recourse with guarantees. value personal X% commercial business are

our XXXX, office past-graded. XXth portfolio XX% of was June At of

estate in loans size. granular $XX commercial is over very real million Our portfolio with few very

or We the geographically to the district exposure Manhattan business across in Angeles. and with diversified small sub well Los to market as markets footprint such are San central no our in very Downtown Francisco exposure

quarter. on provide that I for Julianna With details additional the second our ask performance Julianna? financial to will

Julianna Balicka

Thank million slide the X% first representing of you, good quarter Kevin, morning XXXX, decrease interest second XX, everyone. quarter. of our for income the from a $XXX and totaled with net Beginning

an and growth cash of a second and equivalents. by Our net This XX was expanding funds average in loan basis higher interest X.XX% partially down cost average yields quarter offset margin reflects borrowing, and in interest earning increase quarter-over-quarter. points

and equivalent income. a in contributor volatility. the to was reflects net market cash average a to approach through earning of interest cash increase current level interest elevated The navigating conservative borrowings, Funded positive

Moving onto slide XX.

to quarter quarter basis X.XX%, of increased yield loans portfolio second points average average XX XXXX up X% our billion, linked quarter-over-quarter. $XX.X the Our decreased and on

were XX, $XX On average essentially from our XXXX basis income the slide million average The in the first non-interest On in see at $XX up second in billion the $XX.X million XX quarter. quarter. XX, our X.XX%, to increased of second was slide deposits you stable can quarter cost points deposits that up quarter-over-quarter.

income an in included million income fee distribution $X.X quarter fees on an housing accounts a gain investment customer Quarter-over-quarter, partnership. service affordable and swap Second a cash from deposit grew on increased.

XX. to on slide expense Moving on noninterest

X% Our noninterest by the points. partially lower expense benefits of FDIC was an This of assessment quarter annual offset of reflected basis industry-wide and XXXX, increase decrease $XX rate expense base million the second two in a salary quarter-over-quarter. in

from quarter. to the quarter first XXXX in XX.X% in efficiency the basis Our ratio down second points improved XXX XX.X%,

XXXX to asset recorded quarter, be allowance which credit XX. a our review slide million on office continues moving I'll $X.X for credit Now for to to our XXXX. for million the provision quality, of building at $XXX XXth, healthy. second losses June We

prior at to of Our up the quarter. from X.XX% X.XX% the end increased coverage ratio

the of basis our up of the XX assets points recorded net end were June second quarter-over-quarter total $XX In million, At average quarter-over-quarter a quarter, XXth X% loans quarter, assets $XXX,XXX, was we down criticized annualized. second were year-over-year. and XX%. X.X%, of nonperforming one Total to equivalent the down decrease to assets. ratio our Year-over-year, of equivalent nonperforming recoveries of basis at loans point and

loans Quarter-over-quarter, Our March our June increased from special substandard were mention million $XXX and increased. at criticized XXth, up loans XXXX, $XXX loans XXst. million at

at the have loan financial improving place. loans the are and/or is concern special systemic takeouts loans, within any broader the not note Looking borrower's Overall, that portfolio. for we performance in our we generally mention of seeing we issues

back call Kevin turn the to of me With that, let outlook. our a discussion for

Kevin Kim

Julianna. you, Thank

a comments of wrap Moving on to about XXXX. few second slide with for I XX. the outlook our up will half

of Given a pace high now paydowns the market pricing expect June interest competitive XXth. payoffs our loans the year to in second relative in the be loan of customers, lower our generally rate demand environment, level an and that total and elevated stable will of from we half

expectation year. interest the the for rates modestly through anticipate interest of income With we year, the second will of in of pressure half balance the higher our net the that longer

and to the essentially the second quarter quarterly housing We affordable expect income on a stable be our basis to noninterest excluding relative gain.

stable earned which second continue to and changes, to will and our expect be quality manage credits, tightly to expect relative expenses are a fully rate subject excluding basis the we noninterest to continue be essentially on to asset interest We healthy. quarter, interest expenses our quarterly to

in with opportunities challenges, operating the conservative Hope Korean-American and to largest the sheet we but management, environment strongest are to afforded well our bank the presents current nation. approach of on The balance to capitalize as Bank positioned

happy requested. please Operator, With up to color additional the would and as be that, take any add questions call. we open your

Operator

will of [Operator question first KBW. begin comes ahead. session. the The We question-and-answer Instructions] from McGratty Chris now Go

Christopher McGratty

of few in any CD like see interest with And maturity the look start to terminal Julianna, deposit your like guidance, Maybe, in guess, morning. also you. in the assumptions. Thanks. Good I'm migration the income interested a interested net schedule what's I'm The for then betas, I CDs? you further mix. growth, Great. the

Julianna Balicka

Hi, Chris.

the beta response second -- between of promotions our interest-bearing in Our are CDs. they And year this the elevated stabilize the product to for in the the half started distributed. to an we actively assumptions they But started there's evenly the CDs, level originating other time. rate approximately That's -- deposit although of in XX%. predominantly CDs that are and have were shift maturities schedule, the done we at related are total has year. to XX-month than well The maturity the for more mix that are terminal accounts. popular stabilize shorter in to that, duration point deposits, change maturities most DDA And last of

Christopher McGratty

XX total Thank on number heard bid. Okay. CDs that right you. I that But the the was XX.

Julianna Balicka

approximately XX%. I said No,

Christopher McGratty

XX%. Oh,

Okay. Got it.

Julianna Balicka

That's total deposit. Yeah.

Christopher McGratty

about the follow-up How -- you more could you of your for stable mix a we think a June margin given comments on like that bit share? about do have do little the getting the Maybe margin. month the

Julianna Balicka

three of yes, was month-to-date change basis margin our Actually basis deposits XX XX on less June the is than Yes, than in total. points. X.XX%. interest-bearing. cost and Less And, points our

Christopher McGratty

quarter. June, have -- for So the X.XX% the I I know mean you for X.XX%

Julianna Balicka

June I for X.XX% said.

Christopher McGratty

a have I I guess. Okay. bad connection

Julianna Balicka

is deposits through June, XXth July June and spot rates. points for total X.XX% basis our rates from three up spot

Christopher McGratty

Okay. we if about can of have just then Got week Can your back out. noninterest-bearing much how the jump remind it. deposits how line I for the this moves more that. that And us for you QX? and if one ECR think should Fed ECRs maybe new line The

Julianna Balicka

in of up will So so. or the -- $XXX moves cost the week. million Fed the that this line, as go And terms

Christopher McGratty

lot. Okay. Thanks a

Operator

comes question Our Go of ahead. next Piper Matthew from Sandler. Clark

Matthew Clark

whatever XXth, we're have Hey, quarter. give to the deposits not Julianna. rate? you sure the of you rate us just you -- on number the you I'm the can to just clarify Thank if at you Can can you rate Do end the all. month July the the Julianna, give? comparing want give spot us or spot

Julianna Balicka

Yes. question. Thanks. No, good

cost as total of rate XXth is Our as X.XX%. June X%. was deposit spot And XXth, July of

Matthew Clark

Got Thank you. it.

Julianna Balicka

So the just now, we're month whole change last the change was And nearly XX is spot context, three for but bps. through quarter, bps.

So the is rate change or stabilizing slowing. of

Matthew Clark

it. Got Yes.

And it then sense that of Okay. the lot a give drove this us on step-up you quarter. for build, a can reserve what as decent

haven't much. businesses what that special then increase the And You in elsewhere industries underlying seen mention. as or drove

Julianna Balicka

C&I quantitative So of but the macroeconomic increase variety qualitative, of and for our was an mention, related special concentration reserve and industry know, a which, has to the forecast. model, and quarter-over-quarter reserves change CECL as not particular the you specific through outcome a was factors changes loans,

is manage think the cycle. whole we mix to us in at build way point prudent So our enabled that economic a which reserves to this reserve,

Matthew Clark

for Okay. there's -- do here? But just less of you deposits assumptions. On forward. of your me. last your going from one Great. a do assume stabilize sounds for It balances on mix kind in -- balances And like outlook then embedded change

Julianna Balicka

I is deposit you think can relative definitely our $XXX place I to XXth, that we goals balances. grow initiatives that programs But are close and date -- month up have million. and to to June in what some to well balances our tell

receive more So we happen earlier as making year are in certainly the to that of industry having positive kind into on the starts the the deposits background. volatility are in going trends in to our

Matthew Clark

you. Thank Perfect.

Operator

D.A. ahead. Go [Operator Gary comes Instructions] Our Tenner next Davidson. of question from

Gary Tenner

morning. Good Thanks.

maturing a tell about what us the are Just this question half follow-up that could the CD maturities. of rate year? on is Julianna on you CDs back those

Julianna Balicka

One second.

quarter in fourth average X.XX%. the the be will So X.XX%. quarter, third the in CDs rate And on the be maturing will

Gary Tenner

or just given Any And still is stock on of XX% you. buyback tangible then Thank buyback? trading where book. Okay. the the thoughts utilizing

Kevin Kim

the Our capital all time, at are like we ratios I think anticipating saw repurchases saw that we we growth quarter. strong this soon. don't this are and anytime But

Gary Tenner

question. then And last Great.

commercial your and this multi-tenant the of retail of because the terms largest amount In reprice of estate loans segments, XXXX. of scheduled talk year of to those mature back real in you are kind it's about half just can what

Julianna Balicka

but don't handy follow up Well, one of can the specifics the segment. offline have very us by property that type property now, we with you we right very specifics on with particular

Gary Tenner

this then maybe terms real over time you out maturing going back their point? analyzing credits? service rates, commercial borrowers et a Are in you to just with those about this terms far you and half think XXXX repricing in going ability of into out and the as kind period, Well, kind where cetera? and Julianna, higher better in of really estate year lie at Or of general, are stressing of just sense of getting how a of and similar at

Peter Koh

one. I'll take Maybe Peter. This Yes. that is

up to So CRE good portfolio now. I think pretty performing is overall

we're that there. I risk as looking of refi think you're sort referencing that think I at

maybe I a in higher we stress much to dive terms year, pretty initial through of and this went think rates a in and the that stages, things. deep early tried interest very portfolio

to And this I think the point, we are our able right refinance. now pretty majority that confident feel of customers at

flows just due even the improving rates. refinance to post-pandemic and gives them that have partly to seen think we ability LTVs us higher that I with lower the at cash

are -- customers, potential the vast is but are refi there workouts that, things, there where So and majority majority our low. that pretty we're of cases risk seeing one-off

Julianna Balicka

to of maturities And Gary are coming add just the CREs up. that to

million of another XXXX million $XXX and XXXX $XXX and remainder in multi- our total $XX in and XXXX. in XXXX at of $XXX million. is But then will million asked specifically the You CRE maturities in be retail tenant or then those

Gary Tenner

Thank you.

Operator

of [Operator KBW. Instructions] McGratty Our ahead. Go next question Chris comes from

Christopher McGratty

follow-up. Thanks for the

you the quarterly. the can off size, alluded of coming you or the cash us do Kevin you balance that the to And portfolio part terms In foreseeable that's work for being that's monthly appearing? bond cash you then future? what narrative being think excess just just right remind the is held like of of that kind down? Is margin this sheet level the Do see cash of amount they of stability

Kevin Kim

are But those Yes. response also we earlier And when coming been in stabilized, situation industry-wide. deposit levels to year and elevated normalized growth Deposit return an the think being, of starting failures have accelerates is deposit the place. of for we and we that more see time I actually the we prudent, we have this in back the outflows deposits cash level think to campaigns will bank, and normalizes, to think of liquidity. bank and to some case product the

So we will being improve. time decrease higher as situations for deposit that the the cash level will our of hold gradually

Julianna Balicka

question, cash a cash other average book targeting And of million we're million to our $XX $XX with to flow. $XX bond your coming million million that the purchasing off And about month. to $XX is investments flow

million our securities, replacing by So book building investment $XX also month. about up but per that

our discussion. investment securities larger of kind kind longer-term mix industry book optimal sized this in of sheet post a banking for balance So terms of

Christopher McGratty

helpful. lot. That's a Thanks Okay.

Operator

session. conference like This closing I the back would to management question-and-answer remarks. any concludes for turn to over our

Kevin Kim

look joining Once and next you again, quarter. today, again Bye, us for thank everyone. forward speaking to you all we with

Operator

The now today's you Thank conference for has concluded. presentation. attending

You may now disconnect.

Hope Bancorp (HOPE) 24 Jul 232023 Q2 Earnings call transcript