Hope Bancorp, Inc.

Excuse me, this is a conference operator. Thank you for your patience. The call will begin shortly. Please continue to hold. Thank you. Thank you. Good day and welcome to the Hope Bancorp 2022 Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Angie Yang, Director of Investor Relations and Corporate Communications. Please go ahead.

Thank you, Andrew. Good morning, everyone, and thank you for joining us for the HOPE Bancorp 2022 fourth quarter investor conference call. As usual, we will be using a slide presentation to accompany our discussion this morning. If you have not done so already, please visit the presentations page of our investor relations website to download a copy of the presentation. Or if you are listening in through the webcast, You should be able to view the slides from your computer screen as we progress through the presentation. Beginning on slide two, let me begin with a brief statement regarding forward-looking remarks. The call today may contain forward-looking projections regarding the future financial performance of the company and future events. These statements are based on current expectations, estimates, forecasts, projections, and management assumptions about the future performance of Hope Bancorp, otherwise referred to as the company, as well as the businesses and markets in which the company does and is expected to operate. These statements constitute forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance. Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. We refer you to the documents the company files periodically with the SEC, as well as the safe harbor statements in our press release issued yesterday. Hope Bancorp assumes no obligation to revise any forward-looking projections that may be made on today's call. The company cautions that the complete financial results to be included in the annual report on Form 10-K for the year ended December 31, 2022 could differ materially from the financial results being reported today. In addition, some of the information referenced on this call today are non-GAAP financial measures. Please refer to our 2022 fourth quarter earnings release for management's reasons and purposes for using non-GAAP figures and the reconciliation of GAAP to non-GAAP financial measures. Now, we have allotted one hour for this call. Presenting from the management side today will be Kevin Kim, Hope Bancorp's Chairman, President, and CEO, and Dave Malone, Interim Chief Financial Officer. Peter Koh, Senior Vice President and Chief Operating Officer, is 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?

Thank you, Angie. Good morning, everyone, and thank you for joining us today. Let's begin on slide three with a brief overview of our financial results. Despite the operating environment becoming more challenging during the fourth quarter, we delivered solid financial results, which reflect the benefits of the lower risk, more diversified loan portfolio that we have built, and continued improvements in asset quality. Given the market's expectations, for the economic conditions to weaken further in 2023, we became even more selective in terms of new loan production, favoring businesses that are less impacted by consumer spending trends and are more recessionary resistant. Importantly, the lower risk, more diversified loan portfolio we have built continues to improve with our criticized and classified loans consistently decreasing over the course of the year. In the fourth quarter, we reported net income of $51.7 million, or 43 cents per share, while our pre-provision net revenue, or PPNR, was $78.1 million. Both net income and PPNR were slightly lower than the preceding quarter, primarily associated with an increase in deposit costs attributed to the highly competitive market for deposits. However, with our solid financial performance, as well as a positive shift in AOCI, we generated a 2.2% increase in book value per share and a 2.9% increase in tangible book value per share, while also increasing our risk-based regulatory capital ratios. Moving on to slide four. In the fourth quarter, we funded $793 million in new loans which is lower than the preceding quarter, as it reflects a more selective approach to new loan production and our overall goal to target higher yielding floating loan assets, as well as a lower level of loan demand resulting from higher interest rates, particularly for commercial real estate loans. The fourth quarter also tends to be a seasonally slower period for CNI loan production, which has become a major driver of our overall loan production volumes. As a result of the lower level of loan fundings, we had a slight decline in total loans from the end of the prior quarter, although for the full year, total loans increased in excess of 10% or 12.2% excluding PPP loans, which is in the top range of our estimated target. Consistent with the trend that we have seen over the past several quarters, as a result of the investments we have made to build our CNI lending capabilities, CNI loans continue to account for the majority of our new loan production. In the fourth quarter, CNI loans represented 54% of our total loan fundings, and the average rate of new CNI loans increased 162 basis points over the preceding quarter, largely reflecting increase in sulfur rates. In line with our focus on developing relationships with larger, stronger commercial enterprises, our corporate banking group accounted for 79 percent of our CNI loan fundings in the fourth quarter. We experienced the strongest contributions this quarter from our healthcare and telecom teams. And from a geographic perspective, we are starting to see growing contributions from the new additions we have made to expand our middle market lending in the southeast and upper Midwest areas of the United States. In terms of commercial real estate loans, we had $324 million of funding, which reflects a decrease from the preceding quarter due to lower loan demand. We attribute this decrease to industry-wide trends as a result of the higher interest rates. In addition, we are targeting lower risk property types and focusing on obtaining wider spreads as part of our cautious approach to risk management while at the same time improving our profitability. With the targeted segments and increased loan pricing, the average rate of our new CRE loans increased 100 basis points compared with the preceding quarter. Overall, we saw increasing trends in loan pricing in all asset classes during the fourth quarter. Combined with the higher mix of CNI loan production, this resulted in our average rate on total new loan production increasing by 134 basis points over the preceding third quarter to 6.71%. Moving on to slide five. Demonstrating our ongoing transformation to a lower risk loan portfolio, CNI loans increased by 21.4% over the course of 2022. At the same time, commercial real estate loans grew by just 3.4% during the year, all in all resulting in loan growth of 10.4% for the full year. As a result, CNI loans, as of December 31 of 2022, accounted for 33% of total loans, an increase from 30% a year earlier. And commercial real estate loans decreased to 61% of total loans, down from 65% at year-end 2021. We have also had success in improving the diversification within each of the buckets of our loan portfolio. In particular, our hotel-motel portfolio represented just 10% of our CRE loan portfolio compared with 14% a year earlier. At the same time, our multifamily portfolio increased to 14% of our total loan portfolio at year end of 2022 from 8% as of year end 2021. These results are due to two primary factors. The first being the success we are having with our efforts to target more lower risk CRA property types, and the second being the growing benefits of the investments that we have made over the years to enhance our CNI lending capabilities. Now, I will ask David to provide additional details on our financial performance for the fourth quarter. David?