Hope Bancorp, Inc. — 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023; the filing also reports unaudited fourth-quarter results. Hope Bancorp is the holding company for Bank of Hope, a California-chartered commercial bank operating across multiple U.S. states and in Seoul, South Korea.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income | $525.9 million | $578.4 million |
| Net interest margin | 2.81% | 3.36% |
| Provision for credit losses | $29.1 million | $9.6 million |
| Noninterest income | $45.6 million | $51.4 million |
| Noninterest expense | $364.5 million | $324.2 million |
| Net income | $133.7 million | $218.3 million |
| Diluted earnings per share | $1.11 | $1.81 |
| Return on average assets / equity | 0.67% / 6.48% | 1.20% / 10.73% |
- Interest income rose 46% to $1.05 billion, but interest expense increased 280% to $523.0 million as funding costs surged. Average cost of interest-bearing deposits was 3.92%, versus 1.20% in 2022.
- Fourth-quarter net income was $26.5 million, or $0.22 per diluted share, versus $51.7 million, or $0.43, in Q4 2022. Fourth-quarter net interest income was $125.9 million versus $150.5 million.
- At year-end, assets were $19.13 billion, loans net of allowance were $13.69 billion, deposits were $14.75 billion, and stockholders’ equity was $2.12 billion. Gross loans declined 10% year over year; deposits declined 6%.
- Cash and cash equivalents increased to $1.93 billion from $506.8 million. Year-end liquid assets were $2.47 billion. The Bank had $1.70 billion of FRB borrowings, principally BTFP advances maturing in the first half of 2024; reported remaining available FHLB and FRB capacity was $4.71 billion in MD&A.
- Operating cash flow was $473.8 million; investing activities provided $1.29 billion; financing activities used $341.5 million. The financing outflow included deposit decline, debt repayments and $67.1 million of dividends.
- Hope Bancorp’s regulatory capital ratios were 12.28% CET1, 12.96% Tier 1 and 13.92% total capital; Bank of Hope’s were 12.75%, 12.75% and 13.71%, respectively. Management said both met applicable capital requirements, including the conservation buffer.
Material changes and notable items
- Net income fell 39%, chiefly reflecting higher deposit and borrowing costs, increased credit-loss provision and higher operating expenses. The efficiency ratio rose to 63.78% from 51.47%.
- Noninterest expense included $11.6 million of restructuring costs, $4.0 million for the FDIC special assessment and higher deposit-related interest credits. The October reorganization included staffing reductions and planned branch consolidations in the first half of 2024; year-end full-time equivalent staff was 1,244, down from 1,549.
- The credit-loss provision included a $23.4 million full charge-off tied to a borrower entering Chapter 7 liquidation. Net charge-offs were $32.4 million, compared with net recoveries of $12.2 million in 2022.
- Nonperforming assets declined to $45.5 million from $69.4 million, while criticized loans increased to $322.4 million from $261.3 million. The allowance for credit losses was $158.7 million, or 1.15% of loans, versus $162.4 million, or 1.05%.
- Commercial real estate made up 64% of loans; total real estate lending was also reported as 64% of the portfolio excluding one-to-four-family residential mortgages. The company exited its residential mortgage warehouse line business and retained SBA 7(a) production on balance sheet in the second half as secondary-market premiums weakened.
- Available-for-sale securities had $284.7 million of net unrealized losses at year-end; management attributed declines principally to interest rates and reported no credit-loss allowance on AFS or HTM securities.
- Most holders exercised the put on convertible notes in May 2023; the Company repaid $197.1 million principal in cash and repurchased and canceled another $19.9 million. Remaining carrying value was $444,000.
Outlook, risks and contingencies
- The filing provides no quantified earnings or balance-sheet guidance. Management described liquidity sources as stable and adequate and said it knew of no demands or trends reasonably likely to materially adversely affect liquidity at year-end. These are management assessments, not guarantees.
- Key exposures include rising or volatile rates and deposit competition, liquidity and deposit outflows, credit deterioration, and commercial real estate conditions. The company noted that a more adverse Moody’s scenario would increase estimated loan allowances by approximately $21.6 million versus its consensus scenario.
- Uninsured deposits were approximately $5.67 billion, or 38% of deposits; brokered deposits were $1.54 billion, or 10.43% of deposits. Time deposits of $5.91 billion were scheduled to mature in 2024.
- Legal loss contingencies accrued were $535,000. Additional losses were considered reasonably possible, but the Company said it could not estimate their range and did not expect the claims to be material.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Credit-loss estimation and goodwill impairment were identified as critical audit matters; goodwill was $464.5 million and was not impaired.
Most important facts for investors to verify
- How the Bank will refinance or repay the $1.70 billion of BTFP advances maturing in the first half of 2024, and whether liquidity remains adequate as deposits reprice or mature.
- Deposit stability, uninsured and brokered deposit trends, funding costs, and the effect of time-deposit renewals on net interest margin.
- Commercial real estate and C&I portfolio performance, including criticized-loan growth, collateral values, charge-offs and allowance adequacy.
- Whether restructuring and branch consolidation deliver sustainable savings, and the resulting effect on expenses, staffing and customer relationships.
- The distinction between the $4.71 billion remaining borrowing capacity stated in MD&A and the $5.02 billion available capacity shown in the borrowing table; confirm the applicable definition and availability.
- Dividend sustainability: quarterly dividends were $0.14 per share, but payment remains subject to earnings, capital, liquidity and regulatory limits.