Hope Bancorp Reports 2020 Fourth Quarter Financial Results
Hope Bancorp, Inc. (NASDAQ: HOPE) reported Q4 2020 net income of $28.3 million, down from $30.5 million in Q3 2020 and $43.0 million in Q4 2019, with diluted EPS at $0.23. For the year, net income totaled $111.5 million, down from $171.0 million in 2019. Notable highlights include strong loan originations of $844 million, a 2% increase in total deposits quarter-over-quarter, and a net interest margin expansion to 3.02%. However, noninterest income decreased significantly due to a lack of securities sales. The allowance for credit losses rose to $206.7 million amid ongoing market challenges.
- Loan originations reached $844 million, contributing to a quarterly loan receivable increase of 3.4%.
- Total deposits grew 2% quarter-over-quarter, with noninterest bearing deposits accounting for a record 34% of total deposits.
- Net interest margin expanded by 11 basis points to 3.02%, driven by reduced deposit costs.
- Net income declined 7% from Q3 2020 and 34% from Q4 2019.
- Noninterest income fell significantly to $11.4 million from $17.5 million in the previous quarter.
- Provision for credit losses increased to $27.5 million from $22 million in Q3 2020, reflecting pandemic-related risks.
Hope Bancorp, Inc. (the “Company”) (NASDAQ: HOPE), the holding company of Bank of Hope (the “Bank”), today reported unaudited financial results for its fourth quarter and year ended December 31, 2020.
For the three months ended December 31, 2020, net income totaled
“Fourth quarter results represent a continuation of the many positive trends we have delivered in 2020 and underscore how well we have been able to manage through a year that has been plagued by a global pandemic,” said Kevin S. Kim, Chairman, President and Chief Executive Officer of Hope Bancorp, Inc. “Notwithstanding the challenging business environment, we recorded very strong loan originations of
“With the highly effective vaccines in distribution and the support of additional government stimulus programs, it appears the groundwork for a faster economic recovery is being paved, and we believe we are well positioned with a stronger allowance coverage ratio that we have prudently built to date,” said Kim. “2020 required more commitment and dedication from our employees than any period in the history of our Bank, and I am extremely proud of how we, as a team, adapted and succeeded this last year. As a result of all of the challenges we have successfully endured this year, I have great conviction that we are a stronger franchise today than ever before, and we move forward in 2021 with cautious optimism that we will indeed get through this unprecedented period of time together and deliver increased value to all the stakeholders of Bank of Hope.”
Q4 2020 Highlights
-
Net interest income before provision for credit losses increased
3% quarter-over-quarter to$120.8 million , largely reflecting reduced interest expense due to lower cost of deposits. - Net interest margin expanded 11 basis points quarter-over-quarter.
-
Noninterest bearing demand deposits increased
7% quarter-over-quarter and accounted for34% of total deposits at year-end. - Total cost of deposits decreased 16 basis points quarter-over-quarter benefiting from an on going positive mix-shift to lower-cost core deposits.
-
Loan originations totaled
$844.2 million and contributed to a3.4% increase in loans receivable quarter-over-quarter, or13.5% annualized. -
Noninterest expenses continued to be well managed with efficiency ratio improving to
53.77% from54.31% quarter-over-quarter and noninterest expense to average assets improving to1.69% from1.73%
Financial Highlights |
|||||||||||
(dollars in thousands, except per share data) (unaudited) |
At or for the Three Months Ended |
||||||||||
|
12/31/2020 |
|
9/30/2020 |
|
12/31/2019 |
||||||
Net income |
$ |
28,319 |
|
|
$ |
30,490 |
|
|
$ |
43,009 |
|
Diluted earnings per share |
$ |
0.23 |
|
|
$ |
0.25 |
|
|
$ |
0.34 |
|
Net interest income before provision for loan losses |
$ |
120,756 |
|
|
$ |
117,637 |
|
|
$ |
113,508 |
|
Net interest margin |
|
3.02 |
% |
|
|
2.91 |
% |
|
|
3.16 |
% |
Noninterest income |
$ |
11,415 |
|
|
$ |
17,513 |
|
|
$ |
12,979 |
|
Noninterest expense |
$ |
71,063 |
|
|
$ |
73,406 |
|
|
$ |
70,429 |
|
Net loans receivable |
$ |
13,356,472 |
|
|
$ |
12,940,376 |
|
|
$ |
12,181,863 |
|
Deposits |
$ |
14,333,912 |
|
|
$ |
14,008,356 |
|
|
$ |
12,527,364 |
|
Total cost of deposits |
|
0.48 |
% |
|
|
0.64 |
% |
|
|
1.49 |
% |
Nonaccrual loans (1) (2) |
$ |
85,238 |
|
|
$ |
69,205 |
|
|
$ |
54,785 |
|
Nonperforming loans to loans receivable (1) (2) |
|
0.91 |
% |
|
|
0.81 |
% |
|
|
0.80 |
% |
ACL to loans receivable (3) |
|
1.52 |
% |
|
|
1.37 |
% |
|
|
0.77 |
% |
ACL to nonaccrual loans (1) (2)(3) |
|
242.55 |
% |
|
|
259.88 |
% |
|
|
171.84 |
% |
ACL to nonperforming assets (1) (2)(3) |
|
144.24 |
% |
|
|
144.36 |
% |
|
|
77.08 |
% |
Provision for credit losses |
$ |
27,500 |
|
|
$ |
22,000 |
|
|
$ |
1,000 |
|
Net charge offs |
$ |
608 |
|
|
$ |
3,922 |
|
|
$ |
738 |
|
Return on average assets (“ROA”) |
|
0.67 |
% |
|
|
0.72 |
% |
|
|
1.13 |
% |
Return on average equity (“ROE”) |
|
5.54 |
% |
|
|
5.98 |
% |
|
|
8.46 |
% |
Return on average tangible common equity (“ROTCE”) (4) |
|
7.21 |
% |
|
|
7.80 |
% |
|
|
11.04 |
% |
Noninterest expense / average assets |
|
1.69 |
% |
|
|
1.73 |
% |
|
|
1.85 |
% |
Efficiency ratio |
|
53.77 |
% |
|
|
54.31 |
% |
|
|
55.68 |
|
(1) |
Excludes delinquent SBA loans that are guaranteed and currently in liquidation |
(2) |
Excludes purchased credit-impaired loans for December 31, 2019 |
(3) |
Allowance for credit losses for current-year periods were calculated under the CECL methodology while allowance for loan losses for the prior-year period was calculated under the incurred loss methodology. |
(4) |
Return on average tangible common equity is a non-GAAP financial measure. A reconciliation of the Company’s return on average tangible common equity is provided in the accompanying financial information on Table Page 10. |
Operating Results for the 2020 Fourth Quarter
Net interest income before provision for credit losses for the 2020 fourth quarter increased
The net interest margin for the 2020 fourth quarter increased 11 basis points to
The weighted average yield on loans for the 2020 fourth quarter was
The weighted average cost of deposits for the 2020 fourth quarter decreased for the fifth consecutive quarter to
Noninterest income totaled
Noninterest expense for the 2020 fourth quarter decreased to
Salaries and employee benefits expense totaled
Noninterest expense as a percentage of average assets improved to
The effective tax rate for the 2020 fourth quarter was
Balance Sheet Summary
New loan originations funded during the 2020 fourth quarter totaled
At December 31, 2020, loans receivable increased
Total deposits at December 31, 2020 increased
Following is the deposit composition as of December 31, 2020, September 30, 2020 and December 31, 2019:
(dollars in thousands) (unaudited) |
12/31/2020 |
|
9/30/2020 |
|
% change |
|
12/31/2019 |
|
% change |
||||||||
Noninterest bearing demand deposits |
$ |
4,814,254 |
|
|
$ |
4,488,529 |
|
|
7 |
% |
|
$ |
3,108,687 |
|
|
55 |
% |
Money market and other |
5,232,413 |
|
|
4,763,893 |
|
|
10 |
% |
|
3,985,556 |
|
|
31 |
% |
|||
Saving deposits |
300,770 |
|
|
308,943 |
|
|
(3 |
)% |
|
274,151 |
|
|
10 |
% |
|||
Time deposits |
3,986,475 |
|
|
4,446,991 |
|
|
(10 |
)% |
|
5,158,970 |
|
|
(23 |
)% |
|||
Total deposit balances |
$ |
14,333,912 |
|
|
$ |
14,008,356 |
|
|
2 |
% |
|
$ |
12,527,364 |
|
|
14 |
% |
Following is the deposit composition as a percentage of total deposits as of December 31, 2020, September 30, 2020 and December 31, 2019 and a breakdown of cost of deposits for the quarters ended December 31, 2020, September 30, 2020 and December 31, 2019:
|
Deposit Breakdown |
|
Cost of Deposits |
||||||||||||||
(dollars in thousands) (unaudited) |
12/31/2020 |
|
9/30/2020 |
|
12/31/2019 |
|
Q4 2020 |
|
Q3 2020 |
|
Q4 2019 |
||||||
Noninterest bearing demand deposits |
33.6 |
% |
|
32.1 |
% |
|
24.8 |
% |
|
— |
% |
|
— |
% |
|
— |
% |
Money market and other |
36.5 |
% |
|
34.0 |
% |
|
31.8 |
% |
|
0.45 |
% |
|
0.53 |
% |
|
1.61 |
% |
Saving deposits |
2.1 |
% |
|
2.2 |
% |
|
2.2 |
% |
|
1.17 |
% |
|
1.19 |
% |
|
1.12 |
% |
Time deposits |
27.8 |
% |
|
31.7 |
% |
|
41.2 |
% |
|
0.98 |
% |
|
1.30 |
% |
|
2.29 |
% |
Total deposit balances |
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
0.48 |
% |
|
0.64 |
% |
|
1.49 |
% |
Allowance for Credit Losses
The 2020 fourth quarter provision for credit losses under the CECL methodology was
The provision for credit losses for the 2020 fourth quarter generally utilizes the most recent available Moody’s Analytics Baseline scenario, as well as more specific information, including updated CRE market data which reflects deterioration primarily in the hospitality industry, updated qualitative factors in the Company’s ACL methodology, and downgrades following the receipt of updated financial statements of the borrowers. As such, the buildup of the reserves in the 2020 fourth quarter was largely driven by additional allocations made to the hotel and motel portfolio as the Company continued to assess the full impact of the pandemic on this sector of its portfolio.
Following is the Allowance for Credit Losses as of December 31, 2020, September 30, 2020 and December 31, 2019:
(dollars in thousands) (unaudited) |
12/31/2020 |
|
9/30/2020 |
|
12/31/2019 |
||||||
Allowance for credit losses |
$ |
206,741 |
|
|
$ |
179,849 |
|
|
$ |
94,144 |
|
Allowance for credit loss/loans receivable |
|
1.52 |
% |
|
|
1.37 |
% |
|
|
0.77 |
% |
Allowance for credit losses/nonperforming loans |
|
167.80 |
% |
|
|
169.40 |
% |
|
|
96.03 |
% |
Credit Quality
Following are the components of nonperforming assets as of December 31, 2020, September 30, 2020 and December 31, 2019:
(dollars in thousands) (unaudited) |
12/31/2020 |
|
9/30/2020 |
|
12/31/2019 |
|||
Loans on nonaccrual status (1) |
$ |
85,238 |
|
$ |
69,205 |
|
$ |
54,785 |
Delinquent loans 90 days or more on accrual status (2) |
|
614 |
|
|
1,537 |
|
|
7,547 |
Accruing troubled debt restructured loans |
|
37,354 |
|
|
35,429 |
|
|
35,709 |
Total nonperforming loans |
|
123,206 |
|
|
106,171 |
|
|
98,041 |
Other real estate owned |
|
20,121 |
|
|
18,410 |
|
|
24,091 |
Total nonperforming assets |
$ |
143,327 |
|
$ |
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| |||
