The six Korean-American banks in Southern California continued their sluggish performance, with net profits plunging by 19.4% year-over-year in 2023. The rise in market interest rates, coupled with the negative financial environment resulting from the economic downturn, has severely impacted the small and mid-sized banking sector.

On February 2, six Korean-American banks headquartered in Southern California—Bank of Hope, Hanmi Bank, PCB Bank, Open Bank, CBB Bank, and US Metro Bank—released their financial results. Their combined net profit for the entire year of 2023 amounted to $470.57 million, representing a 19.4% decrease from the previous year's figure of $584.16 million.

For Q4 2023, the six banks posted a combined net profit of $61.5 million, down 6.3% from $65.66 million in Q4 2022. A positive takeaway, however, is that the rate of quarterly profit decline is slowing. The year-over-year quarterly net profit decline for the six banks stood at 20.3% in Q1 2023, followed by 21.3% in Q2, 34.2% in Q3, and 39.8% in Q4. The decline continued in 2024, with Q1 seeing a 34.9% drop, Q2 at 27.2%, Q3 at 11.9%, and Q4 at 6.3%.

Among the six banks, most reported a decline in net profits in Q4 2023 compared to the previous year. US Metro Bank experienced the steepest drop at -29.6%, followed by CBB Bank (-18.4%), Bank of Hope (-8.1%), Hanmi Bank (-5.0%), and Open Bank (-3.9%). Notably, PCB Bank was the only institution to see an increase in net profit, standing out among its peers.

Asset Decrease vs. Deposit and Loan Growth
Key financial indicators showed contrasting trends, with assets declining while deposits and loans saw modest growth. As of Q4 2023, the total assets of the six Korean-American banks stood at $33.49 billion, marking a 3.5% decrease from the $34.62 billion recorded in Q4 2022. The decline in assets is attributed to risk-reduction strategies, such as scaling back lending amid growing concerns over economic slowdown.

On the other hand, deposits increased despite the turbulence in the banking sector following the 2023 collapse of Silicon Valley Bank (SVB). Total deposits reached $28.11 billion, up 1.5% from $27.71 billion in the previous year. Loans also saw a slight increase, reaching $26.70 billion—up 0.2% from $26.65 billion in the prior year.

The loan sector has faced challenges due to tightened screening criteria by banks and weak overall demand. The banking industry has pointed to declining net interest margins (NIM) as a major factor in the decline of net profits. With rising interest rates, borrowing costs have surged while profit margins have remained constrained, putting pressure on overall earnings.

Outlook for 2024 and Beyond
Moving forward, Korean-American banks are expected to focus on financial stability and solid business fundamentals to ensure steady growth. However, Wall Street analysts predict a potential recovery in bank performance, driven by factors such as financial deregulation under a possible second Trump administration and policy measures aimed at boosting economic growth.

According to Wall Street forecasts, the banking sector is expected to have hit rock bottom in 2023, with improvement anticipated in 2024 and 2025. Specifically, for Bank of Hope, the projected earnings per share (EPS) for the full year 2024 stands at $0.96, with an expected increase to $1.28 in 2025. Hanmi Bank's EPS is also expected to rise from $2.41 in 2024 to $2.55 in 2025.

Similarly, PCB Bank's EPS forecast for 2025 is set at $2.34, up from $1.95 in 2024, representing a significant increase. Open Bank is also expected to see an increase in EPS, reaching $1.82 in 2025 compared to $1.46 in 2024—an uptick of $0.36.

By: Hongyong Park

<Hongyong Park>