News Details

Q4 2018 Highlights:

• Q4 net income totals $44.4 million, or $0.35 per diluted common share
• Record net income of $189.6 million for 2018
• New loan originations of $667.3 million in Q4, aggregating $3.01 billion for 2018
• Loans receivable of $12.10 billion reflects a 1% increase over Q3 2018; 9% for 2018
• Total assets increased to $15.31 billion, up 8% over 2017
• Completed $50 million share buyback, with the repurchase of an additional 3,436,757 shares during Q4

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 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.

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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:

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:

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 millionDecember 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:

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:

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, 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.