Q3 2024 Hope Bancorp Inc Earnings Call
Speaker Change: Music
Speaker Change: Good day and welcome to the Hope Ann Corp 2024 3rd quarter earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions to ask a question you may press star then one on a touch tone phone. To withdraw your question, please press star then two.
Speaker Change: Please note this event is being recorded.
Speaker Change: I would now like to turn the conference over to Angie Yang, Director of Investor Relations. Please go ahead.
Angie Yang: Thank you Nick
Angie Yang: Good morning everyone and thank you for joining us for the Hope Bank, where up 2024, third, quarter investor conference call. As usual, we will be using a slide presentation to accompany our discussions this morning, which is available in the presentations page of our Investor Relations website.
Angie Yang: Beginning on Fly 2, let me start with the brief.
Angie Yang: Statement, regarding Ford-looking remarks. The call today contains Ford-looking projections, regarding the future financial performance of the company and future events, as well as statements regarding the pending transaction between Health Bank, Corp, and Territorial Bank Corp.
Angie Yang: The closing of the pending transaction is subject to regulatory approvals, the approval of the stockholders of territorial bank form and other customary closing conditions.
Angie Yang: Board-looking statements are not guarantees of future performance.
Angie Yang: Actual outcomes and results may differ materially. Hope thank for a soon snow obligation to revise any forward-looking projections that may be made on today's call.
Angie Yang: In addition, some of the information referenced on this call today are non-gap financial measures.
Angie Yang: for more detailed description of the risk factors and a reconciliation of gap to non-gap financial measures. Please refer to the company's filings with the SEC, as well as the safe harbor statements in our press release issued this morning.
Angie Yang: Now we have a lot of one hour for this call.
Angie Yang: Presenting from the Management side today will be Kevin Kim.
Kevin Kim: Hope Bank works Chairman, President and CEO.
Angie Yang: and Julianna Balicka, our chief financial officer. Peter Co, our chief operating officer, is also here with us as usual and will be available for the Q&A session. With that, let me turn the call over to Kevin Kim. Kevin?
Kevin Kim: Thank you, Angie. Good morning everyone and thank you for joining us today.
Kevin Kim: Let us begin on slide 3 with a brief overview of the quarter.
Kevin Kim: Our 2024, Third Quarter of Financial Results, were highlighted by continued success in our core deposit growth and a turnaround in our long growth trend reflecting higher levels of productivity for more banking teams.
Kevin Kim: Customer deposits grew a strong 11% annualized from June 30, 2024, supporting loan growth and offsetting a planned reduction in bulk deposits.
Kevin Kim: Loans receivable, which excludes Loans Health Oceo, grew 2% annualized from June 30, 2024. For the third quarter of 2024, we earned net income of $24.2 million, or 20 cents per due load of share.
Kevin Kim: Excluding notable items, our net income was $25.2 million, and our earnings for share were 21 cents.
Kevin Kim: Noodlebladoms this quarter, what primarily, merger related. On Slice 4.
Kevin Kim: Home Backwops, September 30, 2024, risk-based capital ratios were highest yet since merging with Wolfshar in 2016.
Kevin Kim: All our risk-based, risk-based, capital ratios expanded, quarter of a quarter from June 30, 2024.
Kevin Kim: As of September 30, our total categorization was 14.8% and our tangible common equity ratio was 10.1%.
Kevin Kim: together with our prudent balance management and ample liquidity. Our strong capital ratios position us well to increase our market share, support merger activity, add new client relationships.
Kevin Kim: and Generate Profitable Growth as Economic Conditions and Long Demand, improving the coming year.
Kevin Kim: Our Board of Directors declared a quarterly common stock dividend of 14 cents per share, Hable on November 21st to stockholders of record as of November 7th 2024.
Kevin Kim: Continuing to slide five.
Kevin Kim: As September 30, 2024, our total deposits were $14.7 billion. Essentially stable, affordable quarter, with robust growth and customer deposits, offsetting a $351 million-sland reduction of broker deposits.
Kevin Kim: You can see on this slide that we reduce broker deposits in our mix to 7% as of September 30, 2024, down from 14% as of June 30, 2023.
Kevin Kim: In addition, I would highlight that more than two-thirds of the non-interest bearing demand the public growth disorder came from our small business accounts.
Kevin Kim: On October 12, 2024, the sale of our two branches in Virginia closed, totaling approximately $129 million of deposits. This outflow will be offset by organic customer deposit growth from elsewhere in our network.
Kevin Kim: Moving on to slide 6.
Kevin Kim: As September 30, 2024, our loans receivable, excluding loans help for sale, increased by $51 million from June 30, equivalent to 2% annualized growth and reflecting higher balances of residential mortgage and commercial loans.
Kevin Kim: During the third quarter, we sold $41 million of SPA loans.
Kevin Kim: Porter, Comocial, and SBA loan production increased while residential mortgage loan production was relatively consistent.
Kevin Kim: On Slice, 7 and 9.
Kevin Kim: I'm sorry, 7 and 8.
Kevin Kim: We provide more details on our commercial real estate loans which are well diversified by property type and granular in size. The loan to values remain low with a weighted average of approximately 47% as September 30, 2024 and the profile of our commercial real estate portfolio has not changed.
Kevin Kim: As a quality, remains stable with 98% of the commercial real estate loans has traded as September 30, 2024. With that, I will ask Julianna to provide additional details on our financial performance for the quarter.
Kevin Kim: Juliana.
Juliana: and good morning everyone.
Juliana: Beginning with Slide 9.
Juliana: Our net interest income totaled $105 million for the third quarter of 2024, down by $1 million from the preceding second quarter, as growth and interest income was offset by increased interest expense, which reflected higher average deposit costs and growth and balances.
Juliana: Average total deposit costs increased five basis points quarter over quarter. However, our end of period total deposit costs decreased by nine basis points from June 30th to September 30th, indication and an indicating and inflection point in our deposit cost by this loss of type.
Juliana: Our third quarter net interest margin declined by 7 basis points quarter over quarter to 2.55%.
Juliana: On Flight 10, we show you the quarterly trends in our average loan and deposit balances.
Juliana: and our weighted average yields and costs.
Juliana: On this slide 11.
Juliana: are not interested in com with 11.8 million dollars for the third quarter, an increase of 7% from the second quarter.
Juliana: The increase is primarily attributable to a higher level of gain on sale that's the A-Loaves.
Juliana: In the third quarter, we sold 41 million dollars of SDA loans for a gain of 2.7 million compared with 30 million dollars of SDA loan sold for a gain of 2 million in the second quarter.
Juliana: Moving on to 9 interest expense in slide 12.
Juliana: Our 9-inch of suspense was 81.3 million in a second quarter.
Juliana: Excluding notable items which were primarily murder related are adjusted not interested expense to 79.8 million.
Juliana: which compares with 79.1 million excluding notable items for the second quarter. On a year over year basis, our non-interest expense, excluding notable items is down 8%. Reflecting the impact of the restructuring we executed as late last year.
Juliana: Now moving on to slide 13, I will review our after quality.
Juliana: Now, performing assets at September 30, 2024, or $104 million. The quarter-over-quarter change was due to the placement of one relationship, a non-accrual status after its loans matured.
Juliana: This relationship consists of three commercial real estate loans that are well secured by properties and primary locations with minimal to no loss content. The borrower is actively in the process of selling these properties.
Juliana: Holdable criticized loans increased by $58 million quarter of a quarter, consisting of an e-crease and special mention loans and an increase in substandard loans. We continue to work out previously identified problem loans.
Juliana: Fourth quarter to date, we have had favorable resolutions of more than $40 million of problem loans with more expected before year end.
Juliana: Net Chargerals for the 2024-3rd quarter, are moderate and manageable at $5.7 million, or annualized 17 basis points of average loans.
Juliana: This compares with 13 basis points annualized in the second quarter. For the third quarter, the provisions for credit losses was $3.3 million. Compared with 1.4 million in the preceding second quarter.
Juliana: Act, September 30th, 2024, our allowance for credit losses was $153 million.
Juliana: representing 113 basis points of loans receivable.
Juliana: compared with 115 basis points of June 30, 2024 or 111 basis points as of September 30, 2023.
Juliana: The change in our allowance coverage reflects positive impact from improved macroeconomic variables. Notably, the CRE price index partially offset by increased qualitative and individually evaluated loan reserves.
Speaker Change: With that, let me turn the call back to Kevin.
Kevin Kim: Thank you, Julianna.
Kevin Kim: Moving on to the outlook on slide 14, our balance management has positioned us well to grow our market share and expand our client relationships in the coming year, generating profit of a growth. For now, let me provide a brief update for the quarter ahead.
Kevin Kim: For simplicity, given that we have less than 1.5 years in the year, we are presenting our outlook for the 4th quarter of 2024 compared with the 3rd quarter of 2024. Our outlook does not include the impact of mergers and acquisitions.
Kevin Kim: As is our custom, we will present the 2025 and medium-term expectations when we report for quarter results.
Kevin Kim: Our outlook for every alone is to grow at a percentage rate in the low single digits, quarter of a quarter, building on our momentum from the third quarter.
Kevin Kim: That's interesting come for the footquarter of 2024 is expected to grow in the low-single digits, quarter of a quarter. We expect interesting come to benefit from positive loan growth and interest expense to benefits from continued deposit rate management.
Kevin Kim: Our Fed funds rate expectations are consistent with the current Ford Interest Rate Curve, which implies a full point 5% Fed funds are part target rate as of December 31, 2024.
Kevin Kim: We expect a similar level of gain on sale of SBA loans in the fourth quarter as in the third quarter.
Kevin Kim: We expect operating expenses, excluding not-of-lidens, to be essentially stable quarter of a quarter, and net net, we are looking forward to positive operating leverage quarter of a quarter.
Kevin Kim: Lastly, we continue to assume an essentially stable reserve coverage, which was 113 basis points of loans as of September 30, 2024.
Kevin Kim: We are excited about our pending merger with territorial bank work and the value created through this compelling combination. However, we will not be taking questions about the transaction, even that the purpose of this call today is to discuss our financial results for the third quarter.
Kevin Kim: With that operator, please open up the call for questions.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch tone phone.
Speaker Change: If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then too.
Speaker Change: In the interest of time, we ask that you please let me yourself to one question and one follow-up.
Speaker Change: At this time we will pause momentarily to assemble our roster.
Speaker Change: And our first question today comes from Gary Tenner with DA Davidson. Please go ahead.
Speaker Change: Thanks for morning.
Gary Tenner: I wanted to see if you could give us an update. I guess first on the long portfolio in terms of floating rate and then an idea of the history and hyperbillion repressing in 2025.
Speaker Change: I'm going to be a little bit more nervous than I thought.
Speaker Change: i
Speaker Change: Sorry, in 2025.
Speaker Change: Cherry, Sega.
Speaker Change: Are you talking about 25?
Speaker Change: Well, I was wanting to get the updated percentage of floating rate loans in the Portfolio, but then the amount of fixed rate repricing in 2020 back.
Speaker Change: All right, the amount of variable rate on in our portfolio is 45 percent.
Speaker Change: and the remainder are fixed and hybrid, 31% hybrid, fill a fixed period and 24 is fixed. And that percentage of fixed that's replacing in 2025 is busy.
Speaker Change: 766 million dollars.
Speaker Change: Thank you. And then just on the positive side, you know, gave us the, you know, quarter decline in a spot rate. Can you just, it's all just kind of where, uh,
Speaker Change: What you were able to do on the pricing side in the wake of the September Reca and the ticker laser relates to kind of CDs that were wrong over in the fourth quarter. What your offer rate is on those right now.
Speaker Change: So we moved all of our deposit costs down in terms of the deposit costs and money market savings and CDs and...
Speaker Change: For the, for example, I'll say that for money market accounts and savings accounts, or we move great down.
Speaker Change: for the accounts, because some accounts, obviously we're already low rate to begin with, so you wouldn't move or write down for an account with like a 3% handle rate, right? But for that account, where we moved rates down, the beta on those accounts is approximately 60%.
Speaker Change: and I'll say that our CDs continue to roll over and repricate down. So, you know, quarter to date.
Speaker Change: are average CD costs are down another six basis points in October from September 30th.
Speaker Change: and we continue to evaluate and reduce rates across the board.
Speaker Change: [inaudible]
Speaker Change: Thank you.
Speaker Change: Again, if you have a question, please press star and then one.
Speaker Change: And our next question today comes from Chris McGraddy with KBW. Please go ahead.
Chris McGraddy: Oh, great. Thanks. Julianna, sticking with the margin for something. What do you assuming for full cycle deposit rate is? I mean, you mentioned 60% on the stuff you move. What's your, either total or intersperey deposit rate that you're assuming in your model?
Speaker Change: Yeah, one second. And that was just on the incremental that I was sharing, right? Not like the whole. Obviously, because you can see the change in the numbers. So, um, one second.
Speaker Change: Ah!
Speaker Change: By the time we get to a full cycle data, we're assuming a high 60% on the interest sparing deposit costs, but it's going to take us a while to get there.
Speaker Change: Great. And then if we could maybe switch to the credit discussion for a minute, the relationship that was added to non-accorrel, we can no loss anymore.
Speaker Change: and the detail on what drove it, whether it was the surprise or the reserves on those clones already, any color there would be helpful.
Speaker Change: This is Peter. We're a little limited right now because it's an active workout, but again, these are well secured, you know, very well positioned properties. Really don't anticipate much loss and the borrowers in the process of selling the properties.
Speaker Change: We feel like it's a manageable situation right now, but we are being proactive with this resolution.
Speaker Change: In our next question today comes from Gary Tenner of DA Davidson with the follow-up. Please go ahead.
Gary Tenner: Thanks, that's wonderful I'm not CD question that I had. I guess first I know that last quarter the projected fourth quarter CD maturity is we're around a five twenty rate I think.
Gary Tenner: Could you be a little more specific as to what your offer rate is? I mean, are they for an quarter right now? What level are our cities running down to in quarter? Based on what you see today?
Speaker Change: Yeah, just opening up my right here.
Speaker Change: I'm a little bit nervous, but I'm not nervous.
Speaker Change: [inaudible]
Speaker Change: We are originating CDs in a...
Speaker Change: and approximately, I would say, four and a quarter of London rate.
Speaker Change: Again, if you have a question, please press star and then one.
Speaker Change: And our next question today comes from Chris McGraday of KBW with the follow up. Please go ahead.
Speaker Change: Go Great!
Chris McGraday: really quick on the look-of-the-giddle mini bond structure in the quarter. It's interested in kind of spot yields on the investment portfolio and whether this is you be considering potentially more into the year.
Speaker Change: Well, the average, I mean, hold on for a second.
Speaker Change: Yeah
Speaker Change: [inaudible]
Speaker Change: Spot yield on our loan portfolio, I mean, excuse me, investment portfolio was 2.96%.
Speaker Change: at the moment, which is up from 2.89 at the end of September. Bear in mind, we have quite a bit of low-yielding securities in our portfolio that are pulling down the blended spot yields of the whole portfolio.
Speaker Change: While we are not at the moment considering a bigger transaction of the kind that perhaps you are referring to in your question than other banks may have done, we are incrementally taking advantage of moments where we can reposition security.
Speaker Change: Thanks, Jules.
Speaker Change: And our next question today comes from Matthew Clark of Piper Sandler. Please go ahead.
Speaker Change: Good morning, everyone.
Matthew Clark: The contribution of truly floating rate loans that you said, I think variable you said was 40-45% or so, is that truly all floating or is there adjustables in there?
Matthew Clark: or is that what?
Matthew Clark: Are there adjustables in that variable?
Speaker Change: No, that's the truly floating. The hybrid, the 30% hybrid, that's the fix to floating in the future. The variable that we quoted is truly variable.
Speaker Change: Okay, okay and then the average margin in September if you had it on an adjusted basis or unadjusted either one?
Speaker Change: The net interest margin? Our net interest margin...
Speaker Change: for September was 2.51.
and Justin Martin, but it's trending up, month-to-date is up nicely.
Speaker Change: Okay, that's adjusted for any interest reversals.
Speaker Change: That's right.
Speaker Change: Okay, great. Thank you.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.
Speaker Change: Thank you. Once again, thank you all for joining us today, and we look forward to speaking with you again next quarter. Bye, everyone.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: Incarnate