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 full year ended December 31, 2018.

For the three months ended December 31, 2018, net income totaled $44.4 million, or $0.35 per diluted common share. This compares with net income of $46.4 million, or $0.36 per diluted common share, in the 2018 third quarter and $18.0 million, or $0.13 per diluted common share, in the 2017 fourth quarter(1). Net income for 2018 totaled a record $189.6 million, or $1.44 per diluted common share, compared with 2017 net income(1) of $139.4 million, or $1.03 per diluted common share.

“We completed the year with another strong quarter of new loan originations, reflecting a 25 basis point increase in average rates on new loans and a well diversified mix of commercial real estate, commercial and consumer loans,” said President and Chief Executive Officer Kevin S. Kim. “Our asset quality improved with decreases achieved in nonaccrual loans and total criticized loans, and net charge offs were minimal. While a $1.7 million restructuring charge related to our branch rationalization plan impacted our efficiency ratio for the quarter, our expense management efforts are being well implemented, and we are confident that they will lead to improved efficiencies in the coming years. Notwithstanding the significant investments we made in 2018 to strengthen the long-term prospects of our organization, we are pleased to have concluded the year with record net income of $190 million.

“As we move forward into 2019, we continue to operate our business for the long term. We expect the retention of the guaranteed portion of our SBA loans in our portfolio will have a positive effect on our overall strategies to support our net interest margin and enhance profitability. With our proactive efforts managing our asset quality in this late stage of the economic growth cycle, we believe Bank of Hope is well positioned for long-term success,” said Kim.

__________________

(1)

  

The Company’s fourth quarter 2017 financial results included a non-cash, incremental income tax expense in the Company’s consolidated statements of income of $25.4 million resulting from the revaluation of its deferred tax assets and liabilities (the “DTA”) and low income housing tax credit (the “LIHTC”) investments due to the enactment of the Tax Cuts and Jobs Act (the “Tax Act”) on December 22, 2017.

 
 

Financial Highlights

(dollars in thousands, except per share data) (unaudited)   At or for the Three Months Ended
12/31/2018   9/30/2018   12/31/2017
Net income $ 44,449 $ 46,378 $ 17,984
Diluted earnings per share $ 0.35 $ 0.36 $ 0.13
Tax reform adjustments:
Deferred tax asset $ 442 $ — $ 23,835
Investments in affordable housing partnerships $ — $ — $ 1,588
Net income, excluding tax reform adjustments (1) $ 44,891 $ 46,378 $ 43,407
Diluted earnings per share, excluding tax reform adjustments (1) $ 0.35 $ 0.36 $ 0.32
Net interest income before provision for loan losses $ 121,893 $ 123,147 $ 126,392
Net interest margin 3.41 % 3.47 % 3.84 %
Noninterest income $ 11,614 $ 13,447 $ 16,451
Noninterest expense $ 70,189 $ 67,455 $ 73,028
Net loans receivable $ 12,005,558 $ 11,836,553 $ 11,018,034
Deposits $ 12,155,656 $ 12,045,619 $ 10,846,609
Nonaccrual loans (2) $ 53,286 $ 56,299 $ 46,775
ALLL to loans receivable 0.77 % 0.76 % 0.76 %
ALLL to nonaccrual loans (2) 173.70 % 160.98 % 180.74 %
ALLL to nonperforming assets (2) (3) 81.92 % 76.67 % 67.51 %
Provision for loan losses $ 2,800 $ 7,300 $ 3,600
Net charge offs $ 872 $ 6,552 $ 2,692
Return on assets (“ROA”) 1.17 % 1.24 % 0.51 %
Return on equity (“ROE”) 9.42 % 9.76 % 3.70 %
Noninterest expense / average assets 1.85 % 1.80 % 2.08 %
Efficiency ratio 52.57 % 49.38 % 51.12 %
 
(1)   Net income and diluted earnings per share excluding tax reform adjustments are non-GAAP financial measures. See the Company’s reconciliation of the GAAP to non-GAAP financial measures in the accompanying financial information.
(2) Excludes delinquent SBA loans that are guaranteed and currently in liquidation.
(3) Excludes purchased credit-impaired loans.
 

Operating Results for the 2018 Fourth Quarter

The comparability of the Company’s operating results with past performance is impacted by acquisition accounting adjustments and merger-related expenses associated with past and current acquisitions. The Company provides the following supplemental information to facilitate a better understanding of financial performance. Net interest income and operating income for the three months ended December 31, 2018, September 30, 2018 and December 31, 2017 included the following pre-tax acquisition accounting adjustments and merger-related expenses associated with past acquisitions:

 
(dollars in thousands) (unaudited) Three Months Ended
12/31/2018   9/30/2018   12/31/2017
Accretion on purchased non-impaired loans $ 2,360 $ 2,969 $ 7,629
Accretion on purchased credit-impaired loans 4,867 5,239 5,167
Amortization of premium on low income housing tax credits (85 ) (84 ) (85 )
Amortization of premium on acquired FHLB borrowings 357 357 353
Accretion of discount on acquired subordinated debt (272 ) (271 ) (263 )
Amortization of premium on acquired time deposits and savings — — 3
Amortization of core deposit intangibles   (615 )   (615 )   (675 )
Total acquisition accounting adjustments $ 6,612   $ 7,595   $ 12,129  
Merger-related expenses   —     —     (12 )
Total $ 6,612   $ 7,595   $ 12,117  
 

Net Interest Income. Net interest income before provision for loan losses for the 2018 fourth quarter totaled $121.9 million, compared with $123.1 million in the 2018 third quarter and $126.4 million in the year-ago fourth quarter.

The net interest margin (net interest income divided by average interest earning assets) for the 2018 fourth quarter declined 6 basis points to 3.41% from 3.47% in the preceding 2018 third quarter, as deposit rates increased at a higher pace than loan yields. In the year-ago fourth quarter, the net interest margin was 3.84%.

The weighted average yield on loans for the 2018 fourth quarter increased 5 basis points to 5.21% from 5.16% in the preceding third quarter and rose 9 basis points from 5.12% in the 2017 fourth quarter. The increases in the weighted average yield on loans largely reflects the benefits to the variable rate portion of the Company’s loan portfolio resulting from the increases in the fed funds rate in March, June, September and December 2018 of 25 basis points each.

The weighted average cost of deposits for the 2018 fourth quarter increased to 1.40%, up 16 basis points from 1.24% in the 2018 third quarter and up 60 basis points from 0.80% in the fourth quarter a year ago. The increase in the weighted average cost of deposits reflects the highly competitive deposit market, as well as a shift to the higher-rate time deposit balances in the rising interest rate environment.

Noninterest Income. Noninterest income for the 2018 fourth quarter decreased to $11.6 million from $13.4 million in the 2018 third quarter and $16.5 million in the year-ago fourth quarter. The decreases in noninterest income largely reflects variances in net gains on sales of SBA and mortgage loans, as well as other income and fees.

As previously announced, the Company is discontinuing its practice of regularly selling SBA loans due to the significantly reduced premiums available in the secondary market. Early in the 2018 fourth quarter and prior to this strategic change, the Company recognized net gains on sales of SBA loans of $447,000. This compares with net gains on sales of SBA loans of $2.3 million and $2.6 million in the preceding third quarter and 2017 fourth quarter, respectively. Net gains on the sales of residential mortgage loans amounted to $381,000, $477,000 and $1.3 million for the 2018 fourth quarter, 2018 third quarter and 2017 fourth quarter, respectively.

In addition, the Company incurred a $453,000 reduction to other noninterest income to record the net fair value reduction on its equity investments for the 2018 fourth quarter. This compares with a $1.6 million fair value reduction on equity investments for the 2018 third quarter. In the 2017 fourth quarter, there were no fair adjustments recorded on equity investments and the Company recorded a $592,000 gain on the sale of fixed assets.

Noninterest Expense. Noninterest expense for the 2018 fourth quarter increased to $70.2 million from $67.5 million in the preceding third quarter. In addition to higher professional fees, 2018 fourth quarter noninterest expense includes a one-time pre-tax restructuring charge of $1.7 million, related to a branch rationalization plan, which is subject to regulatory non-objection and is expected to be implemented by the second quarter of 2019. In the year-ago fourth quarter, noninterest expense totaled $73.0 million, and included a $3.3 million impairment on its LIHTC investments as a result of the enactment of the Tax Cuts and Jobs Act (the “Tax Act”) on December 22, 2017.

Salaries and employee benefits expense decreased to $36.6 million for the 2018 fourth quarter from $37.0 million in the preceding third quarter and from $39.6 million in the 2017 fourth quarter.

Income Tax Provision. The effective tax rate for the 2018 fourth quarter was 26.6%, compared with 25.0% in the preceding 2018 third quarter and 72.8% in the 2017 fourth quarter. Excluding the $25.4 million charge related to the revaluation of the Company’s DTA and LIHTC investments, the effective tax rate for the 2017 fourth quarter would have been 34.4%.

Balance Sheet Summary

Loans receivable increased 1% to $12.10 billion at December 31, 2018 from $11.93 billion at September 30, 2018, reflecting a 6% annualized growth rate. Year-over-year, loans receivable increased 9% from $11.10 billion at December 31, 2017.

New loan originations funded during the 2018 fourth quarter totaled $667.3 million and included SBA loan production of $81.5 million and residential mortgage loan originations of $162.3 million. This compares with 2018 third quarter originations of $784.1 million, which included SBA loan production of $71.4 million and residential mortgage loan originations of $165.6 million. In the year-ago fourth quarter, new loan originations funded totaled $663.5 million, including SBA loan production of $66.7 million and residential mortgage loan originations of $193.0 million.

Sales of SBA loans to the secondary market and gains derived from those sales are based substantially on the production of SBA 7(a) loans. SBA 7(a) loan originations totaled $44.7 million for the 2018 fourth quarter, compared with $52.2 million for the third quarter of 2018 and $66.7 million for the year-ago fourth quarter. During the 2018 fourth quarter, the Company sold $10.2 million of its SBA loans held for sale, compared with $48.5 million in the immediately preceding third quarter and $36.6 million in the 2017 fourth quarter.

Aggregate loan pay offs and pay downs in the 2018 fourth quarter totaled $431.6 million, compared with $495.3 million for the immediately preceding third quarter and $380.9 million in the year-ago fourth quarter.

Total deposits at December 31, 2018 amounted to $12.16 billion, up 1% from $12.05 billion at September 30, 2018 and up 12% from $10.85 billion at December 31, 2017.

Credit Quality

The provision for loan and lease losses for the 2018 fourth quarter was $2.8 million, compared with $7.3 million for the immediately preceding 2018 third quarter and $3.6 million for the year-ago fourth quarter.

For a more detailed understanding of the changes in the allowance for loan and lease losses (“ALLL”), the composition of the ALLL has been segmented for disclosure purposes between loans accounted for under the amortized cost method (referred to as “legacy loans”) and loans acquired through the Wilshire Bancorp, Center Financial, Pacific International and Foster Bankshares transactions (referred to as “purchased loans”). The purchased loans are further segregated between non-impaired and credit-impaired loans.

The composition of the ALLL as of December 31, 2018, September 30, 2018 and December 31, 2017 is as follows:

     
(dollars in thousands) (unaudited) 12/31/2018 9/30/2018 12/31/2017
Legacy loans (1) $ 78,259 $ 75,364 $ 67,648
Purchased non-impaired loans (2) 2,135 2,411 4,853
Purchased credit-impaired loans (2)   12,163     12,854     12,040  
Total ALLL $ 92,557   $ 90,629   $ 84,541  
 
Loans receivable $ 12,098,115 $ 11,927,182 $ 11,102,575
ALLL coverage ratio (excluding loans held for sale) 0.77 % 0.76 % 0.76 %
 
(1)   Legacy loans include loans originated by the Bank’s predecessor banks, loans originated by Bank of Hope and loans that were acquired that have been refinanced as new loans.
(2) Purchased loans were marked to fair value at acquisition date, and the ALLL reflects provisions for credit deterioration since the acquisition date.
 

The Company defines nonperforming loans to include delinquent loans on nonaccrual status, delinquent loans past due 90 days or more on accrual status (excluding purchased credit-impaired loans) and accruing restructured loans. Nonaccrual loans declined 5% to $53.3 million at December 31, 2018 from $56.3 million at September 30, 2018 and decreased as a percentage of loans receivable to 0.44% from 0.47%. At December 31, 2017, nonaccrual loans amounted to $46.8 million, or 0.42% of loans receivable. Accruing restructured loans at December 31, 2018 decreased to $50.4 million from $52.5 million at September 30, 2018 and $67.3 million at December 31, 2017. Total nonperforming loans at December 31, 2018 amounted to $105.2 million, or 0.87% of loans receivable, down 4% from $109.2 million, or 0.92% of loans receivable, at September 30, 2018 and down 8% from $114.4 million, or 1.03% of loans receivable, at December 31, 2017.

Nonperforming assets, including nonperforming loans and OREO, totaled $113.0 million at December 31, 2018, reflecting a 4% decrease when compared with $118.2 million at September 30, 2018 and a 10% decrease when compared with $125.2 million December 31, 2017. As a percentage of total assets, nonperforming assets declined to 0.74% at December 31, 2018 from 0.78% at September 30, 2018 and 0.88% at December 31, 2017.

Following are the components of criticized loan balances as of December 31, 2018, September 30, 2018 and December 31, 2017:

     
(dollars in thousands) (unaudited) 12/31/2018 9/30/2018 12/31/2017
Special Mention (1) $ 163,089 $ 217,746 $ 214,891
Classified (1)   318,327   302,719   353,584
Criticized $ 481,416 $ 520,465 $ 568,475
 
(1)   Balances include purchased loans which were marked to fair value on the date of acquisition.
 

For the 2018 fourth quarter, the Company recorded net charge offs of $872,000 or 0.03% of average loans receivable on an annualized basis. This compares with net charge offs of $6.6 million, or 0.22% of average loans receivable on an annualized basis, for the 2018 third quarter and $2.7 million, or 0.10% of average loans receivable on an annualized basis, for the 2017 fourth quarter.

The ALLL at December 31, 2018 was $92.6 million, or 0.77% of loans receivable (excluding loans held for sale), compared with $90.6 million, or 0.76% of loans receivable (excluding loans held for sale), at September 30, 2018 and $84.5 million, or 0.76% of loans receivable (excluding loans held for sale), at December 31, 2017. The coverage ratio of the ALLL to nonperforming loans (excluding purchased credit-impaired loans) was 87.96% at December 31, 2018, 82.98% at September 30, 2018 and 73.88% at December 31, 2017.

Impaired loans (defined as loans for which it is probable that not all principal and interest payments due will be collected in accordance with the contractual terms) totaled $104.0 million at December 31, 2018, compared with $109.2 million at September 30, 2018 and $114.3 million at December 31, 2017.

Capital

At December 31, 2018, the Company and the Bank continued to exceed all regulatory capital requirements to be classified as an “adequately capitalized” or “well-capitalized” financial institution, as summarized in the following table:

       
Minimum Guideline for
“Well-Capitalized”
12/31/2018 9/30/2018 12/31/2017 Institution
Common Equity Tier 1 Capital 11.44 % 11.61 % 12.30 % 6.50 %
Tier 1 Leverage Ratio 10.55 % 10.80 % 11.54 % 5.00 %
Tier 1 Risk-based Ratio 12.21 % 12.38 % 13.11 % 8.00 %
Total Risk-based Ratio 12.94 % 13.10 % 13.82 % 10.00 %
 

Tangible common equity per share and as a percentage of tangible assets are summarized in the following table:

     
12/31/2018 9/30/2018 12/31/2017
Tangible common equity per share (1) $ 11.25 $ 10.96 $ 10.68
Tangible common equity to tangible assets (2) 9.61 % 9.66 % 10.54 %
 
(1)   Tangible common equity represents common equity less goodwill and net other intangible assets. Tangible common equity per share represents tangible common equity divided by the number of shares issued and outstanding. Both tangible common equity and tangible common equity per share are non-GAAP financial measures. A reconciliation of the Company’s total stockholders’ equity to tangible common equity, including and excluding tax reform adjustments, is provided in the accompanying financial information on Table Page 7.
(2) Tangible assets represent total assets less goodwill and net other intangible assets. Tangible common equity to tangible assets is the ratio of tangible common equity over tangible assets. Tangible common equity to tangible assets is a non-GAAP financial measure. A reconciliation of the Company’s total assets to tangible assets, including and excluding tax reform adjustments, is provided in the accompanying financial information on Table Page 7.
 

Management reviews tangible common equity per share and the tangible common equity to tangible assets ratio in evaluating the Company’s and the Bank’s capital levels and has included these figures in response to market participant interest in tangible common equity as a measure of capital. A reconciliation of the GAAP to non-GAAP financial measures is provided in the accompanying financial information.

Investor Conference Call

The Company previously announced that it will host an investor conference call on Wednesday, January 23, 2019 at 9:30 a.m. Pacific Time / 12:30 p.m. Eastern Time to review financial results for its fourth quarter and full year ended December 31, 2018. Investors and analysts are invited to access the conference call by dialing 866-235-9917 (domestic) or 412-902-4103 (international) and asking for the “Hope Bancorp Call.” A presentation to accompany the earnings call will be available at the Investor Relations section of Hope Bancorp’s website at www.ir-hopebancorp.com. Other interested parties are invited to listen to a live webcast of the call available at the Investor Relations section of Hope Bancorp’s website. After the live webcast, a replay will remain available in the Investor Relations section of Hope Bancorp’s website for one year. A telephonic replay of the call will be available at 877-344-7529 (domestic) or 412-317-0088 (international) for one week through January 30, 2019, replay access code 10127445.

About Hope Bancorp, Inc.

Hope Bancorp, Inc. is the holding company of Bank of Hope, the first and only super regional Korean-American bank in the United States with $15.3 billion in total assets as of December 31, 2018. Headquartered in Los Angeles and serving a multi-ethnic population of customers across the nation, Bank of Hope operates 63 full-service branches in California, Washington, Texas, Illinois, New York, New Jersey, Virginia, Georgia and Alabama. The Bank also operates SBA loan production offices in Seattle, Denver, Dallas, Atlanta, Portland, Oregon, New York City, Northern California and Houston; commercial loan production offices in Northern California and Seattle; residential mortgage loan production offices in Southern California; and a representative office in Seoul, Korea. Bank of Hope specializes in core business banking products for small and medium-sized businesses, with an emphasis in commercial real estate and commercial lending, SBA lending and international trade financing. Bank of Hope is a California-chartered bank, and its deposits are insured by the FDIC to the extent provided by law. Bank of Hope is an Equal Opportunity Lender. For additional information, please go to bankofhope.com.

Forward-Looking Statements

Some statements in this press release may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to, among other things, expectations regarding the business environment in which we operate, projections of future performance, perceived opportunities in the market and statements regarding our business strategies, objectives and vision. Forward-looking statements include, but are not limited to, statements preceded by, followed by or that include the words “will,” “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions. With respect to any such forward-looking statements, the Company claims the protection provided for in the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties. The Company’s actual results, performance or achievements may differ significantly from the results, performance or achievements expressed or implied in any forward-looking statements. The risks and uncertainties include, but are not limited to: possible deterioration in economic conditions in our areas of operation; interest rate risk associated with volatile interest rates and related asset-liability matching risk; liquidity risks; risk of significant non-earning assets, and net credit losses that could occur, particularly in times of weak economic conditions or times of rising interest rates; and regulatory risks associated with current and future regulations. For additional information concerning these and other risk factors, see the Company’s most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.

 
Hope Bancorp, Inc.
Selected Financial Data

Unaudited (dollars in thousands, except share data)

 
Assets   12/31/2018   9/30/2018   % change   12/31/2017   % change
Cash and due from banks $ 459,606 $ 522,710 (12 )% $ 492,000 (7 )%
Securities available for sale, at fair value 1,846,265 1,854,250 — % 1,720,257 7 %
Federal Home Loan Bank (“FHLB”) stock and other investments 104,705 106,243 (1 )% 83,142 26 %
Loans held for sale, at the lower of cost or fair value 25,128 15,023 67 % 29,661 (15 )%
Loans receivable 12,098,115 11,927,182 1 % 11,102,575 9 %
Allowance for loan losses   (92,557 )   (90,629 ) (2 )%   (84,541 ) (9 )%
Net loans receivable   12,005,558     11,836,553   1 %   11,018,034   9 %
Accrued interest receivable 32,225 33,338 (3 )% 29,979 7 %
Premises and equipment, net 53,794 55,178 (3 )% 56,714 (5 )%
Bank owned life insurance 75,219 76,081 (1 )% 74,915 — %
Goodwill 464,450 464,450 — % 464,450 — %
Servicing assets 23,132 24,354 (5 )% 24,710 (6 )%
Other intangible assets, net 14,061 14,677 (4 )% 16,523 (15 )%
Other assets   201,809     226,638   (11 )%   196,332   3 %
Total assets $ 15,305,952   $ 15,229,495   1 % $ 14,206,717   8 %
 
Liabilities
Deposits $ 12,155,656 $ 12,045,619 1 % $ 10,846,609 12 %
Borrowings from FHLB & fed funds purchased 821,280 836,637 (2 )% 1,227,593 (33 )%
Convertible debt 194,543 193,332 1 % — 100 %
Subordinated debentures 101,929 101,657 — % 100,853 1 %
Accrued interest payable 31,374 31,717 (1 )% 15,961 97 %
Other liabilities   97,959     115,953   (16 )%   87,446   12 %
Total liabilities   13,402,741     13,324,915   1 %   12,278,462   9 %
 
Stockholders’ Equity
Common stock, $0.001 par value 136 136 — % 136 — %
Capital surplus 1,423,405 1,422,685 — % 1,405,014 1 %
Retained earnings 662,375 636,080 4 % 544,886 22 %
Treasury stock, at cost (150,000 ) (100,000 ) (50 )% — 100 %
Accumulated other comprehensive loss   (32,705 )   (54,321 ) 40 %   (21,781 ) (50 )%
Total stockholders’ equity   1,903,211     1,904,580   — %   1,928,255   (1 )%
Total liabilities and stockholders’ equity $ 15,305,952   $ 15,229,495   1 % $ 14,206,717   8 %
 
Common stock shares - authorized 150,000,000 150,000,000 150,000,000
Common stock shares - outstanding 126,639,912 130,074,103 135,511,891
Treasury stock shares 9,002,453 5,565,696 —
 
 
Hope Bancorp, Inc.
Selected Financial Data

Unaudited (dollars in thousands, except per share data)

 
  Three Months Ended   Twelve Months Ended
12/31/2018   9/30/2018   % change   12/31/2017   % change 12/31/2018   12/31/2017   % change
Interest income:
Interest and fees on loans $ 156,606 $ 153,366 2 % $ 141,129 11 % $ 594,103 $ 529,760 12 %
Interest on securities 12,385 11,957 4 % 10,523 18 % 45,342 36,917 23 %
Interest on federal funds sold and other investments   3,035   2,503   21 %   1,533 98 %   10,727     5,427 98 %
Total interest income   172,026   167,826   3 %   153,185 12 %   650,172     572,104 14 %
 
Interest expense:
Interest on deposits 42,477 37,022 15 % 21,901 94 % 134,958 74,902 80 %
Interest on other borrowings and convertible debt   7,656   7,657   — %   4,892 57 %   27,287     15,822 72 %
Total interest expense   50,133   44,679   12 %   26,793 87 %   162,245     90,724 79 %
 
Net interest income before provision for loan losses 121,893 123,147 (1 )% 126,392 (4 )% 487,927 481,380 1 %
Provision for loan losses   2,800   7,300   (62 )%   3,600 (22 )%   14,900     17,360 (14 )%
Net interest income after provision for loan losses   119,093   115,847   3 %   122,792 (3 )%   473,027     464,020 2 %
 
Noninterest income:
Service fees on deposit accounts 4,568 4,569 — % 4,951 (8 )% 18,551 20,619 (10 )%
Net gains on sales of SBA loans 447 2,331 (81 )% 2,626 (83 )% 9,708 12,774 (24 )%
Net gains on sales of other loans 381 477 (20 )% 1,308 (71 )% 2,485 2,927 (15 )%
Net gains on sales of securities available for sale — — 100 % 301 (100 )% — 301 (100 )%
Other income and fees   6,218   6,070   2 %   7,265 (14 )%   29,436     29,794 (1 )%
Total noninterest income   11,614   13,447   (14 )%   16,451 (29 )%   60,180     66,415 (9 )%
 
Noninterest expense:
Salaries and employee benefits 36,594 36,969 (1 )% 39,570 (8 )% 153,523 144,669 6 %
Occupancy 7,877 7,837 1 % 7,108 11 % 30,371 28,587 6 %
Furniture and equipment 3,448 3,710 (7 )% 4,032 (14 )% 14,902 14,643 2 %
Advertising and marketing 2,392 1,986 20 % 2,246 7 % 9,414 10,281 (8 )%
Data processing and communications 3,650 3,513 4 % 2,676 36 % 14,232 12,179 17 %
Professional fees 4,756 3,950 20 % 4,553 4 % 16,286 14,954 9 %
FDIC assessment 1,406 1,788 (21 )% 1,897 (26 )% 6,572 5,173 27 %
Credit related expenses 507 658 (23 )% 1,073 (53 )% 2,863 582 392 %
Other real estate owned (“OREO”) expense, net 302 (56 ) N/A 237 27 % 187 3,100 (94 )%
Branch restructuring costs 1,674 — 100 % — 100 % 1,674 — 100 %
Merger-related expenses — — 100 % 12 (100 )% (7 ) 1,781 N/A
Other   7,583   7,100   7 %   9,624 (21 )%   27,709     30,652 (10 )%
Total noninterest expense   70,189   67,455   4 %   73,028 (4 )%   277,726     266,601 4 %
Income before income taxes 60,518 61,839 (2 )% 66,215 (9 )% 255,481 263,834 (3 )%
Income tax provision   16,069   15,461   4 %   48,231 (67 )%   65,892     124,389 (47 )%
Net income $ 44,449 $ 46,378   (4 )% $ 17,984 147 % $ 189,589   $ 139,445 36 %
 
Earnings Per Common Share:
Basic $ 0.35 $ 0.36 $ 0.13 $ 1.44 $ 1.03
Diluted $ 0.35 $ 0.36 $ 0.13 $ 1.44 $ 1.03
 
Average Shares Outstanding:
Basic 128,115,170 130,268,992 135,505,041 131,716,726 135,348,938
Diluted 128,261,998 130,525,474 135,752,978 131,954,192 135,684,969
 
 
Hope Bancorp, Inc.
Selected Financial Data

Unaudited

 
  At or for the Three Months Ended   At or for the Twelve
(Annualized) Months Ended
Profitability measures: 12/31/2018   9/30/2018   12/31/2017 12/31/2018   12/31/2017
ROA 1.17 % 1.24 % 0.51 % 1.29 % 1.02 %
ROE 9.42 % 9.76 % 3.70 % 9.92 % 7.31 %
Return on average tangible equity 1 12.62 % 13.06 % 4.92 % 13.25 % 9.78 %
Net interest margin 3.41 % 3.47 % 3.84 % 3.53 % 3.80 %
Efficiency ratio 52.57 % 49.38 % 51.12 % 50.67 % 48.67 %
Noninterest expense / average assets 1.85 % 1.80 % 2.08 % 1.88 % 1.95 %
                     
1   Average tangible equity is calculated by subtracting average goodwill and average core deposit intangibles assets from average stockholders’ equity. This is a non-GAAP measure that we believe provides investors with information that is useful in understanding our financial performance and position.
 
 
Hope Bancorp, Inc.
Selected Financial Data

Unaudited (dollars in thousands, except share data)

 
  Three Months Ended
12/31/2018   9/30/2018   12/31/2017
  Interest   Annualized   Interest   Annualized   Interest   Annualized
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Yield/Cost Balance Expense Yield/Cost Balance Expense Yield/Cost
INTEREST EARNING ASSETS:
Loans receivable, including loans held for sale $ 11,935,109 $ 156,606 5.21 % $ 11,781,091 $ 153,366 5.16 % $ 10,931,523 $ 141,129 5.12 %
Securities available for sale 1,835,218 12,385 2.68 % 1,844,493 11,957 2.57 % 1,794,260 10,523 2.33 %
FRB and FHLB stock and other investments   431,901   3,035 2.79 %   446,390   2,503 2.22 %   345,363   1,533 1.76 %
Total interest earning assets $ 14,202,228 $ 172,026 4.81 % $ 14,071,974 $ 167,826 4.73 % $ 13,071,146 $ 153,185 4.65 %
 
INTEREST BEARING LIABILITIES:
Deposits:
Demand, interest bearing $ 3,127,598 $ 12,425 1.58 % $ 3,237,673 $ 11,526 1.41 % $ 3,538,995 $ 8,564 0.96 %
Savings 225,746 537 0.94 % 228,218 486 0.84 % 241,667 439 0.72 %
Time deposits   5,626,355   29,515 2.08 %   5,344,464   25,010 1.86 %   4,072,565   12,898 1.26 %
Total interest bearing deposits   8,979,699   42,477 1.88 %   8,810,355   37,022 1.67 %   7,853,227   21,901 1.11 %
FHLB advances & fed funds purchased 824,995 3,674 1.77 % 837,412 3,703 1.75 % 1,003,951 3,531 1.40 %
Convertible debt 193,749 2,299 4.64 % 192,541 2,299 4.67 % — — — %
Subordinated debentures   97,856   1,683 6.73 %   97,589   1,655 6.64 %   96,786   1,361 5.50 %
Total interest bearing liabilities   10,096,299 $ 50,133 1.97 %   9,937,897 $ 44,679 1.78 %   8,953,964 $ 26,793 1.19 %
Noninterest bearing demand deposits   3,018,672   3,041,489   3,029,958
Total funding liabilities/cost of funds $ 13,114,971 1.52 % $ 12,979,386 1.37 % $ 11,983,922 0.89 %
Net interest income/net interest spread $ 121,893 2.84 % $ 123,147 2.95 % $ 126,392 3.46 %
Net interest margin 3.41 % 3.47 % 3.84 %
 
Cost of deposits:
Noninterest bearing demand deposits $ 3,018,672 $ — — % $ 3,041,489 $ — — % $ 3,029,958 $ — — %
Interest bearing deposits   8,979,699   42,477 1.88 %   8,810,355   37,022 1.67 %   7,853,227   21,901 1.11 %
Total deposits $ 11,998,371 $ 42,477 1.40 % $ 11,851,844 $ 37,022 1.24 % $ 10,883,185 $ 21,901 0.80 %
 
 
Hope Bancorp, Inc.
Selected Financial Data

Unaudited (dollars in thousands, except share data)

 
  Twelve Months Ended
12/31/2018   12/31/2017
  Interest     Interest  
Average Income/ Average Average Income/ Average
Balance Expense Yield/Cost Balance Expense Yield/Cost
INTEREST EARNING ASSETS:
Loans receivable, including loans held for sale $ 11,547,022 $ 594,103 5.15 % $ 10,642,349 $ 529,760 4.98 %
Securities available for sale 1,772,080 45,342 2.56 % 1,679,468 36,917 2.20 %
FRB and FHLB stock and other investments   487,922   10,727 2.20 %   360,086   5,427 1.51 %
Total interest earning assets $ 13,807,024 $ 650,172 4.71 % $ 12,681,903 $ 572,104 4.51 %
 
INTEREST BEARING LIABILITIES:
Deposits:
Demand, interest bearing $ 3,276,815 $ 43,252 1.32 % $ 3,490,440 $ 31,856 0.91 %
Savings 229,608 1,889 0.82 % 268,292 1,354 0.50 %
Time deposits   5,107,698   89,817 1.76 %   4,037,259   41,692 1.03 %
Total interest bearing deposits   8,614,121   134,958 1.57 %   7,795,991   74,902 0.96 %
FHLB advances & fed funds purchased 870,124 15,127 1.74 % 787,119 10,706 1.36 %
Convertible debt 123,040 5,797 4.65 % — — — %
Subordinated debentures   97,455   6,363 6.44 %   96,363   5,116 5.24 %
Total interest bearing liabilities   9,704,740 $ 162,245 1.67 %   8,679,473 $ 90,724 1.05 %
Noninterest bearing demand deposits   3,014,056   2,955,895
Total funding liabilities/cost of funds $ 12,718,796 1.28 % $ 11,635,368 0.78 %
Net interest income/net interest spread $ 487,927 3.04 % $ 481,380 3.46 %
Net interest margin 3.53 % 3.80 %
 
Cost of deposits:
Noninterest bearing demand deposits $ 3,014,056 $ — — % $ 2,955,895 $ — — %
Interest bearing deposits   8,614,121   134,958 1.57 %   7,795,991   74,902 0.96 %
Total deposits $ 11,628,177 $ 134,958 1.16 % $ 10,751,886 $ 74,902 0.70 %
 
 
Hope Bancorp, Inc.
Selected Financial Data

Unaudited (dollars in thousands)

 
  Three Months Ended   Twelve Months Ended
AVERAGE BALANCES: 12/31/2018   9/30/2018   % change   12/31/2017   % change 12/31/2018   12/31/2017   % change
Loans receivable, including loans held for sale $ 11,935,109 $ 11,781,091 1 % $ 10,931,523 9 % $ 11,547,022 $ 10,642,349 9 %
Investments 2,267,119 2,290,883 (1 )% 2,139,623 6 % 2,260,002 2,039,554 11 %
Interest earning assets 14,202,228 14,071,974 1 % 13,071,146 9 % 13,807,024 12,681,903 9 %
Total assets 15,152,946 15,019,224 1 % 14,043,102 8 % 14,749,166 13,648,963 8 %
 
Interest bearing deposits 8,979,699 8,810,355 2 % 7,853,227 14 % 8,614,121 7,795,991 10 %
Interest bearing liabilities 10,096,299 9,937,897 2 % 8,953,964 13 % 9,704,740 8,679,473 12 %
Noninterest bearing demand deposits 3,018,672 3,041,489 (1 )% 3,029,958 — % 3,014,056 2,955,895 2 %
Stockholders’ equity 1,888,053 1,899,853 (1 )% 1,944,404 (3 )% 1,910,224 1,907,746 — %
Net interest earning assets 4,105,929 4,134,077 (1 )% 4,117,182 — % 4,102,284 4,002,430 2 %
 
LOAN PORTFOLIO COMPOSITION: 12/31/2018 9/30/2018 % change 12/31/2017 % change
Commercial loans $ 2,324,820 $ 2,318,213 — % $ 1,947,533 19 %
Real estate loans 8,721,600 8,639,857 1 % 8,508,222 3 %
Consumer and other loans   1,051,486     969,835   8 %   647,102   62 %
Loans outstanding 12,097,906 11,927,905 1 % 11,102,857 9 %
Unamortized deferred loan fees - net of costs   209     (723 ) 129 %   (282 ) 174 %
Loans, net of deferred loan fees and costs 12,098,115 11,927,182 1 % 11,102,575 9 %
Allowance for loan losses   (92,557 )   (90,629 ) (2 )%   (84,541 ) (9 )%
Loan receivable, net $ 12,005,558   $ 11,836,553   1 % $ 11,018,034   9 %
 
REAL ESTATE LOANS BY PROPERTY TYPE: 12/31/2018 9/30/2018 % change 12/31/2017 % change
Retail buildings $ 2,379,589 $ 2,388,343 — % $ 2,375,588 — %
Hotels/motels 1,694,696 1,663,543 2 % 1,631,314 4 %
Gas stations/car washes 980,619 964,019 2 % 964,246 2 %
Mixed-use facilities 698,779 694,961 1 % 624,401 12 %
Warehouses 966,413 927,767 4 % 915,465 6 %
Multifamily 453,555 457,282 (1 )% 455,463 — %
Other   1,547,949     1,543,942   — %   1,541,745   — %
Total $ 8,721,600   $ 8,639,857   1 % $ 8,508,222   3 %
 
DEPOSIT COMPOSITION 12/31/2018 9/30/2018 % change 12/31/2017 % change
Noninterest bearing demand deposits $ 3,022,633 $ 3,020,819 — % $ 2,998,734 1 %
Money market and other 3,036,653 3,247,420 (6 )% 3,332,703 (9 )%
Saving deposits 225,746 229,081 (1 )% 240,509 (6 )%
Time deposits   5,870,624     5,548,299   6 %   4,274,663   37 %
Total deposit balances $ 12,155,656   $ 12,045,619   1 % $ 10,846,609   12 %
 
DEPOSIT COMPOSITION (%) 12/31/2018 9/30/2018 12/31/2017
Noninterest bearing demand deposits 24.9 % 25.1 % 27.6 %
Money market and other 25.0 % 27.0 % 30.7 %
Saving deposits 1.8 % 1.9 % 2.2 %
Time deposits   48.3 %   46.0 %   39.5 %
Total deposit balances   100.0 %   100.0 %   100.0 %
 
 
Hope Bancorp, Inc.
Selected Financial Data

Unaudited (dollars in thousands, except per share data)

 
CAPITAL RATIOS:   12/31/2018   9/30/2018   12/31/2017
Total stockholders’ equity $ 1,903,211 $ 1,904,580 $ 1,928,255
Common equity tier 1 ratio 11.44 % 11.61 % 12.30 %
Tier 1 risk-based capital ratio 12.21 % 11.61 % 13.11 %
Total risk-based capital ratio 12.94 % 13.10 % 13.82 %
Tier 1 leverage ratio 10.55 % 10.13 % 11.54 %
Total risk weighted assets $ 12,748,658 $ 12,747,343 $ 11,965,215
Book value per common share $ 15.03 $ 14.64 $ 14.23
Tangible common equity to tangible assets 2 9.61 % 9.66 % 10.54 %
Tangible common equity per share 2 $ 11.25 $ 10.96 $ 10.68
 

2

  

Tangible common equity to tangible assets is a non-GAAP financial measure that represents common equity less goodwill and core deposit intangible assets, net divided by total assets less goodwill and core deposit intangible assets, net. Management reviews tangible common equity to tangible assets in evaluating the Company’s capital levels and has included this ratio in response to market participant interest in tangible common equity as a measure of capital.

 
 
Reconciliation of GAAP financial measures to non-GAAP financial measures:
     
TANGIBLE COMMON EQUITY (“TCE”) 12/31/2018 9/30/2018 12/31/2017
Total stockholders’ equity $ 1,903,211 $ 1,904,580 $ 1,928,255
Less goodwill and core deposit intangible assets, net   (478,511 )   (479,127 )   (480,973 )
Tangible common equity $ 1,424,700   $ 1,425,453   $ 1,447,282  
 
Total assets $ 15,305,952 $ 15,229,495 $ 14,206,717
Less: Goodwill and core deposit intangible assets, net   (478,511 )   (479,127 )   (480,973 )
Tangible assets $ 14,827,441   $ 14,750,368   $ 13,725,744  
 
Common shares outstanding 126,639,912 130,074,103 135,511,891
 
Tangible common equity to tangible assets 9.61 % 9.66 % 10.54 %
Tangible common equity per share $ 11.25 $ 10.96 $ 10.68
 
   
Three Months Ended Twelve Months Ended
NET INCOME EXCLUDING TAX REFORM ADJUSTMENTS 12/31/2018   9/30/2018   12/31/2017 12/31/2018   12/31/2017
Income before income taxes $ 60,518 $ 61,839 $ 66,215 $ 255,481 $ 263,834
Income tax provision 16,069 15,461 48,231 65,892 124,389
Less tax reform adjustments:
Deferred tax asset 442 — 23,835 442 23,835
Investments in affordable housing partnerships   —   —   1,588   —   1,588
Income tax provision, excluding tax reform adjustments   15,627   15,461   22,808   65,450   98,966
Net income, excluding tax reform adjustments $ 44,891 $ 46,378 $ 43,407 $ 190,031 $ 164,868
 
 
Hope Bancorp, Inc.
Selected Financial Data

Unaudited (dollars in thousands, except per share data)

 
  Three Months Ended   Twelve Months Ended
ALLOWANCE FOR LOAN LOSSES: 12/31/2018   9/30/2018   6/30/2018   3/31/2018   12/31/2017 12/31/2018   12/31/2017
Balance at beginning of period $ 90,629 $ 89,881 $ 86,461 $ 84,541 $ 83,633 $ 84,541 $ 79,343
Provision for loan losses 2,800 7,300 2,300 2,500 3,600 14,900 17,360
Recoveries 805 315 2,383 488 1,078 3,991 5,248
Charge offs   (1,677 )   (6,867 )   (1,263 )   (1,068 )   (3,770 )   (10,875 )   (17,410 )
Balance at end of period $ 92,557   $ 90,629   $ 89,881   $ 86,461   $ 84,541   $ 92,557   $ 84,541  
Net charge offs/average loans receivable (annualized) 0.03 % 0.22 % (0.04 )% 0.02 % 0.10 % 0.06 % 0.11 %
 
Three Months Ended Twelve Months Ended
NET CHARGED OFF/(RECOVERED) LOANS BY TYPE 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017 12/31/2018 12/31/2017
Real estate loans $ 123 $ 6,004 $ (390 ) $ (37 ) $ 342 $ 5,700 $ 2,930
Commercial loans 436 230 (949 ) 291 2,170 8 8,303
Consumer loans   313     318     219     326     180     1,176     929  
Total net charge offs / (recoveries) $ 872   $ 6,552   $ (1,120 ) $ 580   $ 2,692   $ 6,884   $ 12,162  
 
 
Hope Bancorp, Inc.
Selected Financial Data

Unaudited (dollars in thousands)

 
NONPERFORMING ASSETS   12/31/2018   9/30/2018   6/30/2018   3/31/2018   12/31/2017
Delinquent loans on nonaccrual status 3 $ 53,286 $ 56,299 $ 68,226 $ 68,152 $ 46,775
Delinquent loans 90 days or more on accrual status 1,529 401 3,030 1,894 407
Accruing restructured loans 4   50,410     52,521     49,219     59,596     67,250  
Total nonperforming loans 105,225 109,221 120,475 129,642 114,432
Other real estate owned   7,754     8,981     8,656     8,261     10,787  
Total nonperforming assets $ 112,979   $ 118,202   $ 129,131   $ 137,903   $ 125,219  
Nonperforming assets/total assets 0.74 % 0.78 % 0.87 % 0.95 % 0.88 %
Nonperforming assets/loans receivable & OREO 0.93 % 0.99 % 1.11 % 1.22 % 1.13 %
Nonperforming assets/total capital 5.94 % 6.21 % 6.78 % 7.09 % 6.49 %
Nonperforming loans/loans receivable 0.87 % 0.92 % 1.03 % 1.15 % 1.03 %
Nonaccrual loans/loans receivable 0.44 % 0.47 % 0.58 % 0.60 % 0.42 %
Allowance for loan losses/loans receivable 0.77 % 0.76 % 0.77 % 0.77 % 0.76 %
Allowance for loan losses/nonaccrual loans 173.70 % 160.98 % 131.74 % 126.86 % 180.74 %
Allowance for loan losses/nonperforming loans 87.96 % 82.98 % 74.61 % 66.69 % 73.88 %
Allowance for loan losses/nonperforming assets 81.92 % 76.67 % 69.60 % 62.70 % 67.51 %
 

3

  

Excludes delinquent SBA loans that are guaranteed and currently in liquidation totaling $29.2 million, $23.1 million, $26.0 million, $21.9 million, and $22.1 million, at December 31, 2018, September 30, 2018, June 30, 2018, March 31, 2018, and December 31, 2017, respectively.

4

Excludes Acquired Credit Impaired Loans totaling $14.1 million, $16.6 million, $17.8 million, $17.0 million, and $18.1 million at December 31, 2018, September 30, 2018, June 30, 2018, March 31, 2018, and December 31, 2017, respectively.

 
         
BREAKDOWN OF ACCRUING TROUBLED DEBT RESTRUCTURED LOANS: 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017
Retail buildings $ 3,085 $ 3,112 $ 3,138 $ 8,034 $ 8,183
Hotels/motels — — — 1,265 1,273
Gas stations/car washes 267 — — — —
Mixed-use facilities 5,956 5,994 6,026 2,852 129
Warehouses 7,188 7,219 7,462 7,615 5,577
Other 5   33,914   36,196   32,593   39,830   52,088
Total $ 50,410 $ 52,521 $ 49,219 $ 59,596 $ 67,250
 
5   Includes commercial business and other loans
 
         
ACCRUING DELINQUENT LOANS 30-89 DAYS PAST DUE 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017
Legacy
30 - 59 days $ 23,846 $ 26,872 $ 11,872 $ 22,126 $ 16,092
60 - 89 days   218   2,773   8,542   2,102   1,724
Total delinquent loans less than 90 days past due - legacy $ 24,064 $ 29,645 $ 20,414 $ 24,228 $ 17,816
 
Acquired
30 - 59 days $ 1,094 $ 5,240 $ 5,911 $ 9,158 $ 4,242
60 - 89 days   406   18   124   1,011   1,895
Total delinquent loans less than 90 days past due - acquired $ 1,500 $ 5,258 $ 6,035 $ 10,169 $ 6,137
 
Total delinquent loans less than 90 days past due $ 25,564 $ 34,903 $ 26,449 $ 34,397 $ 23,953
 
 
Hope Bancorp, Inc.
Selected Financial Data

Unaudited (dollars in thousands)

 
ACCRUING DELINQUENT LOANS 30-89 DAYS PAST DUE BY TYPE   12/31/2018   9/30/2018   6/30/2018   3/31/2018   12/31/2017
Legacy
Real estate loans $ 2,352 $ 13,275 $ 10,153 $ 12,272 $ 9,008
Commercial loans 5,159 986 7,380 1,994 1,302
Consumer loans   16,553   15,384   2,881   9,962   7,506
Total delinquent loans less than 90 days past due - legacy $ 24,064 $ 29,645 $ 20,414 $ 24,228 $ 17,816
 
Acquired
Real estate loans $ 905 $ 4,703 $ 4,849 $ 7,537 $ 3,937
Commercial loans 595 555 338 2,280 1,244
Consumer loans   —   —   848   352   956
Total delinquent loans less than 90 days past due - acquired $ 1,500 $ 5,258 $ 6,035 $ 10,169 $ 6,137
 
Total delinquent loans less than 90 days past due $ 25,564 $ 34,903 $ 26,449 $ 34,397 $ 23,953
 
 
NONACCRUAL LOANS BY TYPE 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017
Real estate loans $ 33,719 $ 35,614 $ 34,537 $ 37,093 $ 22,194
Commercial loans 18,128 19,119 31,250 29,446 23,099
Consumer loans   1,439   1,566   2,439   1,613   1,482
Total nonaccrual loans $ 53,286 $ 56,299 $ 68,226 $ 68,152 $ 46,775
 
 
CRITICIZED LOANS 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017
Legacy
Special mention $ 121,622 $ 179,723 $ 101,435 $ 140,588 $ 151,413
Substandard 193,494 171,767 191,787 180,631 179,795
Doubtful — 429 5,852 108 —
Loss   —   1   —   —   —
Total criticized loans - legacy $ 315,116 $ 351,920 $ 299,074 $ 321,327 $ 331,208
 
Acquired
Special mention $ 41,467 $ 38,023 $ 38,059 $ 55,494 $ 63,478
Substandard 124,421 130,078 159,613 163,429 173,427
Doubtful 377 444 419 477 362
Loss   35   —   —   3   —
Total criticized loans - acquired $ 166,300 $ 168,545 $ 198,091 $ 219,403 $ 237,267
 
Total criticized loans $ 481,416 $ 520,465 $ 497,165 $ 540,730 $ 568,475