News Details

Q3 2018 Highlights:

• New loan disbursements of $784.1 million
• Loans receivable of $11.93 billion reflects a 2% increase over Q2 2018; 7% year-to-date
• Total deposits of $12.05 billion reflects a 3% increase over Q2 2018; 11% year-to-date
• Q3 net income totals $46.4 million, or $0.36 per diluted common share
• Completed $100 million share buyback plan on July 26, 2018, with an aggregate 5,565,696 shares repurchased since Q2 2018
• Board authorization of new $50 million share repurchase program

LOS ANGELES--(BUSINESS WIRE)-- Hope Bancorp, Inc. (the “Company”) (NASDAQ: HOPE), the holding company of Bank of Hope (the “Bank”), today reported unaudited financial results for the three and nine months ended September 30, 2018. Net income for the 2018 third quarter totaled $46.4 million, or $0.36 per diluted common share. This compares with net income for the 2018 second quarter of $47.5 million, or $0.36 per diluted common share and $44.6 million, or $0.33 per diluted common share, for the 2017 third quarter.

“Bank of Hope delivered a successful quarter in terms of business development with loan originations of $784 million, resulting in a 7% increase in loans receivable year-to-date,” said Kevin S. Kim, President and Chief Executive Officer. “At the same time, the deposit environment has become increasingly more challenging, which impacted our bottom line results. We have implemented a number of initiatives to enhance our deposit mix and the value of our overall franchise. While we recognize that any deposit strategy will take time to deliver results, we believe our efforts will improve our sensitivity to market rates and lead to enhanced profitability longer term. The Board and management remain confident about the prospects of Bank of Hope and will continue to focus on driving value creation for all of our stakeholders,” said Kim.

Financial Highlights

Operating Results for the 2018 Third 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 September 30, 2018, June 30, 2018 and September 30, 2017 included the following pre-tax acquisition accounting adjustments and merger-related expenses associated with past acquisitions:

Net Interest Income. Net interest income before provision for loan losses for the 2018 third quarter totaled $123.1 million, compared with $122.8 million in the 2018 second quarter and $123.3 million in the year-ago third quarter.

The net interest margin (net interest income divided by average interest earning assets) for the 2018 third quarter declined 14 basis points to 3.47% from 3.61% in the preceding 2018 second quarter, reflecting the impact of higher deposit costs and a stable loan yield. In the year-ago third quarter, the net interest margin was 3.83%.

The weighted average yield on loans for the 2018 third quarter was flat with the preceding second quarter at 5.16% but increased 9 basis points from 5.07% in the year-ago third quarter. The year-over-year increase 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 December of 2017 and March, June and September 2018 of 25 basis points each.

The weighted average cost of deposits for the 2018 third quarter increased to 1.24%, up 18 basis points from 1.06% in the 2018 second quarter and up 49 basis points from 0.75% in the year-ago third quarter. The increase in the weighted average cost of deposits reflects the competitive deposit market, as well as an increase in the higher-rate time deposit balances in the rising interest rate environment.

Noninterest Income. Noninterest income for the 2018 third quarter decreased to $13.4 million from $15.3 million in the 2018 second quarter and $16.2 million in the year-ago third quarter, largely reflecting lower levels of net gains on sales of SBA loans and fluctuations in the gain on sale of residential mortgage loans. Net gains on sales of SBA loans for the 2018 third quarter decreased to $2.3 million from $3.5 million and $3.6 million for the 2018 second quarter and 2017 third quarter, respectively, reflecting a reduction in the premiums on SBA loans. Net gains on sales of residential mortgage loans amounted to $477,000 for the 2018 third quarter, compared with $431,000 and $847,000 for the 2018 second quarter and 2017 third quarter, respectively. In addition, the Company recorded a $1.6 million reduction to other noninterest income to record the fair value reduction on its equity investments for the 2018 third quarter compared with a $1 thousand fair value reduction on equity investments for the 2018 second quarter. There were no fair adjustments recorded on equity investment for the 2017 third quarter.

Noninterest Expense. Noninterest expense for the 2018 third quarter decreased to $67.5 million from $71.6 million in the preceding second quarter, largely reflecting lower levels of compensation expense. For the year-ago third quarter, the Company reported total noninterest expense of $61.8 million, which included the benefit of a $2.8 million reversal of an off-balance sheet provision for unfunded loan commitments.

Salaries and employee benefits expense decreased to $37.0 million for the 2018 third quarter, compared with $40.6 million for the 2018 second quarter and $36.0 million in the prior-year third quarter. The decrease in compensation expense from the 2018 second quarter to the third quarter reflects a proactive management of employee related costs.

Income Tax Provision. The effective tax rate for the 2018 third quarter was 25.0%, compared with 25.9% in the preceding 2018 second quarter and 38.3% in the 2017 third quarter. The 2018 effective tax rates reflect the enactment of the Tax Cuts and Jobs Act on December 22, 2017, which lowered the corporate federal tax rate from 35% to 21% effective January 1, 2018.

Balance Sheet Summary

Loans receivable increased 2% to $11.9 billion at September 30, 2018 from $11.67 billion at June 30, 2018, reflecting a 9% annualized growth rate. Year-over-year, loans receivable increased 9% from $10.96 billion at September 30, 2017.

New loan originations funded during the 2018 third quarter totaled $784.1 million and included SBA loan production of $71.4 million and residential mortgage loan originations of $165.6 million. This compares with 2018 second quarter originations of $792.3 million, including SBA loan production of $87.0 million and residential mortgage loan originations of $182.1 million. In the year-ago third quarter, new loan originations funded totaled $610.9 million, including SBA loan production of $67.9 million and residential mortgage loan originations of $119.9 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 $52.5 million for the 2018 third quarter, compared with $65.8 million for the second quarter of 2018 and $49.7 million for the year-ago third quarter. During the 2018 third quarter, the Company sold $48.5 million of its SBA loans held for sale, compared with $52.5 million in the immediately preceding second quarter and $49.9 million in the third quarter a year ago.

Aggregate loan pay offs and pay downs in the 2018 third quarter totaled $495.3 million, compared with $435.1 million for the immediately preceding second quarter and $447.6 million in the year-ago third quarter.

Total deposits at September 30, 2018 amounted to $12.05 billion, up 3% from $11.73 billion at June 30, 2018 and up 11% from $10.99 billion at September 30, 2017.

Credit Quality

The provision for loan and lease losses for the 2018 third quarter was $7.3 million, compared with $2.3 million for the immediately preceding 2018 second quarter and $5.4 million for the year-ago third 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 September 30, 2018, June 30, 2018 and September 30, 2017 is as follows:

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 17% to $56.3 million at September 30, 2018 from $68.2 million at June 30, 2018 and decreased as a percentage of loans receivable to 0.47% from 0.58%, respectively. At September 30, 2017, nonaccrual loans amounted to $43.3 million, or 0.40% of loans receivable. Accruing restructured loans at September 30, 2018 totaled $52.5 million, compared with $49.2 million at June 30, 2018 and $64.8 million at September 30, 2017. Total nonperforming loans amounted to $109.2 million, or 0.92% of loans receivable, at September 30, 2018, compared with $120.5 million, or 1.03% of loans receivable, at June 30, 2018 and $108.5 million, or 0.99% of loans receivable, at September 30, 2017.

Nonperforming assets, including nonperforming loans and OREO, decreased to $118.2 million at September 30, 2018, from $129.1 million at June 30, 2018 and $125.7 millionSeptember 30, 2017. As a percentage of total assets, nonperforming assets declined to 0.78% at September 30, 2018, from 0.87% at June 30, 2018 and 0.89% at September 30, 2017.

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

For the 2018 third quarter, the Company recorded net charge offs of $6.6 million, or 0.22% of average loans receivable on an annualized basis, primarily attributed to the charge off of one large relationship that was fully reserved for in a prior quarter. This compares with net recoveries of $1.1 million, or 0.04% of average loans receivable on an annualized basis, for the 2018 second quarter. In the 2017 third quarter, the Company recorded net charge offs of $1.8 million, or 0.07% of average loans receivable on an annualized basis.

The ALLL at September 30, 2018 was $90.6 million, or 0.76% of loans receivable (excluding loans held for sale), compared with $89.9 million, or 0.77% of loans receivable (excluding loans held for sale), at June 30, 2018 and $83.6 million, or 0.76% of loans receivable (excluding loans held for sale), at September 30, 2017. The coverage ratio of the ALLL to nonperforming loans (excluding purchased credit-impaired loans) was 82.98% at September 30, 2018, 74.61% at June 30, 2018 and 77.05% at September 30, 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 $109.2 million at September 30, 2018, compared with $117.8 million at June 30, 2018 and $108.5 million at September 30, 2017.

Capital

At September 30, 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:

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

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, October 17, 2018 at 9:30 a.m. Pacific Time / 12:30 p.m. Eastern Time to review financial results for its third quarter ended September 30, 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 October 24, 2018, replay access code 10124319.

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 $15.2 billion in total assets as of September 30, 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. By including the foregoing website address link, the Company does not intend to and shall not be deemed to incorporate by reference any material contained or accessible therein.

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.