Hope Bancorp(US:HOPE)2023-01-24 20:01Financial Data and Key Metrics Changes - The company reported net income of $51.7 million, or $0.43 per share, with a decrease in pre-provision net revenue (PPNR) to $78.1 million, attributed to increased deposit costs in a competitive market [42][95] - Net interest income totaled $150.5 million for Q4 2022, representing a decrease of 1.7% from the previous quarter, despite a 2.1% increase in average earning assets [95] - The net interest margin (NIM) decreased by 13 basis points quarter-over-quarter to 3.36%, with an overall increase of 23 basis points for 2022 [21][28] Business Line Data and Key Metrics Changes - C&I loans represented 54% of total loan fundings in Q4, with an average rate increase of 162 basis points over the preceding quarter [18][43] - Total criticized and classified loans decreased by 8% in Q4 and by 48% for the full year, reflecting improved asset quality and proactive derisking efforts [25][56] - Commercial real estate loans funded in Q4 were $324 million, reflecting a decrease due to lower loan demand attributed to higher interest rates [19][43] Market Data and Key Metrics Changes - The company’s total deposits increased by 1.5% from the previous quarter, while the net loan to deposit ratio decreased to 97.2% [50] - Non-interest income for Q4 was $12.1 million, a decrease of 9% from the previous quarter, primarily due to lower gains on SBA loan sales [49] - The average rate on total new loan production increased by 134 basis points to 6.71% in Q4 [45] Company Strategy and Development Direction - The company plans to maintain a selective approach to new loan production, focusing on higher yielding C&I loans that are more resistant to recessionary pressures [30][57] - There is an emphasis on building a lower risk, diversified loan portfolio, with C&I loans increasing by 21.4% in 2022 [20] - The company expects to generate mid-single digit loan growth in 2023, funded primarily by deposit growth [70][97] Management Comments on Operating Environment and Future Outlook - Management acknowledged that 2023 will be challenging due to economic uncertainty but expressed confidence in the company’s ability to manage through downturns [32][30] - The expectation is that pressures on margins and profitability from rising deposit costs will diminish as the year progresses [32] - The company is focused on disciplined expense controls while leveraging investments made in talent and capabilities over the past few years [58] Other Important Information - The Board of Directors declared a quarterly cash dividend of $0.14 per share, unchanged from the previous quarter [26] - The company recorded a provision for credit losses of $8.2 million in Q4, with an allowance for credit loss coverage ratio of 1.05% of total loans [52] Q&A Session Summary Question: What drove the decline in non-interest bearing deposits? - Management indicated that the decline was largely due to the macroeconomic and market interest rate environment, with a migration from non-interest bearing to interest-bearing deposits [33][35][61] Question: What are the expectations for balance sheet growth in 2023? - The company plans to fund new loan production mainly with deposits, expecting deposit growth to be comparable to loan growth [70] Question: Can you provide color on the current lending pipeline? - Management noted that the pipeline is smaller due to a selective lending practice and the impact of higher interest rates on loan demand [72][89]