Hope Bancorp Reports 2017 First Quarter Financial

Q1 2017 Highlights:

• New loan originations total $587.4 million, up 26% over 4Q 2017
• Total deposits increase to $10.70 billion, notwithstanding the consolidation of 12 branches at year-end 2016
• Signed definitive agreement to acquire Seattle-based U & I Financial Corp.
• Net income totals $37.0 million, or $0.27 per diluted common share, including merger-related expenses of $947,000

LOS ANGELES, April 27, 2017 (GLOBE NEWSWIRE) -- Hope Bancorp, Inc. (the “Company”) (NASDAQ: HOPE ), the holding company of Bank of Hope (the “Bank”), today reported unaudited financial results for three months ended March 31, 2017.

The mergers of Wilshire Bancorp, Inc. (“Wilshire”) with and into BBCN Bancorp, Inc. (“BBCN”) and Wilshire Bank with and into BBCN Bank were completed on July 29, 2016, and the combined company began operations under the new banners of Hope Bancorp, Inc. and Bank of Hope effective July 30, 2016.  The 2017 first quarter and 2016 fourth quarter financial results reflect the full quarters of combined operations following the completion of the merger.  The 2016 first quarter reflects stand-alone operations of the former BBCN.  As a result, the Company’s 2017 first quarter may not be comparable to financial results for the year-ago first quarter.

For the three months ended March 31, 2017, net income totaled $37.0 million, or $0.27 per diluted common share, based on 135,689,816 weighted average diluted shares outstanding, and included pre-tax merger-related expenses of $947,000.  This compares with 2016 fourth quarter net income of $40.6 million, or $0.30 per diluted common share, based on 135,585,561 weighted average diluted shares outstanding, and included $3.0 million in merger-related expenses.  For the 2016 first quarter, net income totaled $23.6 million, or $0.30 per diluted common share, based on 79,613,245 weight average diluted shares outstanding, and included merger-related expenses of $1.2 million.  Excluding the merger-related expenses, core net income would have been $37.5 million, or $0.28 per diluted common share, for the 2017 first quarter, $42.4 million, or $0.31 per diluted common share, for the preceding 2016 fourth quarter, and $24.3 million, or $0.31 per diluted common share, for the 2016 first quarter.

Net income excluding pre-tax merger-related expenses is a non-GAAP financial measure.  Management reviews net income excluding merger-related expenses in evaluating the Company’s overall evaluation of its performance and has included this financial metric in response to market participant interest in the Company’s core earnings performance.  The accompanying financial information includes a reconciliation of core net income and earnings per share excluding merger-related expenses.

“Hope Bancorp’s 2017 first quarter results demonstrate the meaningful progress we have made on the integration of our merger of equals completed last year and capturing the synergies that we projected,” said Kevin S. Kim, President and Chief Executive Officer. “Despite the seasonally slow first quarter, we were able to significantly increase our loan production across all of our lending areas. We originated $587 million in new loans during the first quarter, which amounted to a 26% increase from the preceding quarter, and improved loan pricing contributed to a 2 basis point improvement in our net interest margin. The cost saves following the completion of the first phase of branch consolidations at the end of 2016 are evident in our lower levels of noninterest expenses associated with our branch operations. Notwithstanding those branch closures, we are pleased to report core deposits increased by $117 million, or 7% on an annualized basis.

“Our financial results, however, were adversely impacted by several unusual expense items and elevated credit costs associated with our OREO portfolio and nonperforming loans. While we are disappointed that our earnings came in lighter than expected this quarter, we are confident that the results are not indicative of the future performance of the Company and that the initiatives we are taking today further strengthen our Bank’s prospects for the long term. We look forward to keeping our shareholders, employees and customers apprised of our ongoing progress and achievements,” said Kim.

Financial Highlights

⁽¹⁾ Excludes delinquent SBA loans that are guaranteed and currently in liquidation totaling $15.2 million, $15.9 million, and $15.4 million at March 31, 2017, December 31, 2016 and March 31, 2016, respectively. ⁽²⁾ Nonperforming assets exclude purchased credit-impaired loans totaling $17.3 million, $19.6 million and $13.1 million at March 31, 2017, December 31, 2016 and March 31, 2016, respectively.

Operating Results for the 2017 First Quarter

The comparability of Hope Bancorp’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 March 31, 2017, December 31, 2016 and March 31, 2016 include the following pre-tax acquisition accounting adjustments and merger-related expenses associated with past and current acquisitions:

Net Interest Income and Net Interest Margin.   Net interest income before provision for loan losses for the 2017 first quarter totaled $114.9 million, compared with $117.2 million in the preceding 2016 fourth quarter. In the year-ago first quarter, net interest income before provision for loan losses amounted to $71.6 million for BBCN on a stand-alone basis.

The net interest margin (net interest income divided by average interest earning assets) and the impact of acquisition accounting adjustments are summarized in the following table:

The net interest margin for the 2017 first quarter increased 2 basis points from the preceding fourth quarter, or 4 basis points on a core basis, excluding the effect of acquisition accounting adjustments. Compared with the year-ago first quarter, net interest margin decreased 7 basis points, or 9 basis points on a core basis.

The weighted average yield on loans and the impact of acquisition accounting adjustments are summarized in the following table:

The weighted average yield on loans for the first quarter increased by 2 basis points when compared with the preceding 2016 fourth quarter, or 4 basis points on a core basis, excluding the effect of acquisition accounting adjustments. Compared with the 2016 first quarter, the weighted average yield on loans declined 13 basis points, or 1 basis point on a core basis.

The weighted average yield on new loans originated during the 2017 first quarter improved 11 basis points to 4.26% from 4.15% in the preceding 2016 fourth quarter. The weighted average yield on new loans in the year-ago first quarter was 4.29%.

The weighted average cost of deposits and the impact of acquisition accounting adjustments are summarized in the following table:

The weighted average cost of deposits for the 2017 first quarter was stable with preceding fourth quarter at 55 basis points, and increased 1 basis point on a core basis, excluding the effect of premium amortization on time and savings deposits assumed in acquisitions. Compared with the year-ago first quarter, the weighted average cost of deposits declined 8 basis points, but increased 6 basis points on a core basis.

Noninterest Income .  Noninterest income for the 2017 first quarter totaled $17.6 million, compared with $18.2 million in the preceding 2016 fourth quarter and $8.8 million in the year-ago first quarter for BBCN on a stand-alone basis.  Variations in noninterest income for comparable periods largely reflect variations in gain on sale of Small Business Administration (“SBA”) and gain on sale of other loans. Noninterest income for the 2017 first quarter included a $3.3 million gain on sale of SBA loans versus $3.7 million in the preceding fourth quarter. The Company posted a gain on sale of other loans in the 2017 first quarter of just $420,000, compared with $1.4 million in the 2016 fourth quarter.  The Company noted that the lower level of gain on sale of other loans, which represents gains from the sale of mortgage loans, reflects the seasonality in the mortgage industry and the initial impact of the rising interest rate environment. Noninterest income for the 2016 first quarter for BBCN on a standalone basis included $1.8 million gain on sale of SBA loans.

Noninterest Expense .  Total noninterest expense amounted to $66.3 million in the 2017 first quarter, $66.7 million in the preceding 2016 fourth quarter and $40.0 million in the year-ago first quarter for BBCN on a stand-alone basis. Excluding merger-related expenses of $947,000, $3.0 million and $1.2 million in the 2017 first quarter, 2016 fourth quarter and 2016 first quarter, respectively, total noninterest expense would have been $65.3 million, $63.8 million and $38.8 million.

Noninterest expense excluding merger-related expenses is a non-GAAP financial measure.  Management believes total noninterest expense excluding merger-related expenses more accurately reflects the Company’s results of operations in the overall evaluation of its performance.  A reconciliation of the noninterest expense excluding merger-related expenses is included in the accompanying financial tables.

Linked-quarter reductions in expenses related to occupancy, furniture and equipment and data processing and communications reflect the closure of 12 branches at the end of 2016. The benefit of these cost saves were offset in the first quarter of 2017 by higher-than-usual advertising and marketing fees associated with a major sponsorship event and elevated credit-related expenses.

The Company said it is on track to complete the second and final phase of its branch consolidation plan by the end of the second quarter, with the closure of six branches at the end of the 2017 first quarter, along with two additional branches scheduled to close at the end of April 2017 and one branch closure planned for late May 2017.

Salaries and employee benefits expense for the 2017 first quarter was flat with the preceding fourth quarter at $34.2 million.  This compares with salaries and employee benefits expense of $21.6 million for BBCN on a stand-alone basis in the 2016 first quarter. The total number of FTEs, excluding employees on leave, as of March 31, 2017 was 1,352, down modestly from 1,372 as of December 31, 2016. At March 31, 2016, the total number of FTEs for the former BBCN was 941.

Income Tax Provision .  The effective tax rate for the 2017 first quarter was 39.0%, compared with 40.1% for the preceding 2016 fourth quarter and 40.7% for the first quarter a year ago.

Balance Sheet Summary

Loans receivable totaled $10.55 billion at March 31, 2017, compared with $10.54 billion at December 31, 2016, and $6.37 billion at March 31, 2016.

Total new loan originations during the 2017 first quarter increased 26% over the seasonally higher preceding fourth quarter and amounted to $587.4 million, including residential mortgage loan originations of $58.0 million and SBA loan originations of $75.3 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.  Production of SBA 7(a) loans totaled $51.9 million for the first quarter of 2017, compared with $42.2 million for the preceding 2016 fourth quarter and $37.6 million for the year-ago first quarter.  During the 2017 first quarter, the Company sold $44.9 million of its SBA loans held for sale, compared with $50.3 million in the preceding fourth quarter and $23.8 million in the first quarter a year ago.

Aggregate pay offs and pay downs in the 2017 first quarter amounted to $414.6 million, compared with $417.3 million for the preceding 2016 fourth quarter.  In the year-ago first quarter, aggregate pay offs and paydowns for BBCN on a stand-alone basis totaled $201.9 million.

Total deposits at March 31, 2017 increased to $10.70 billion from $10.64 billion at December 31, 2016, notwithstanding the closure of 12 branches at year-end 2016 under the first phase of the Company’s branch consolidation plan.  The increase in deposits reflects higher balances in noninterest bearing deposits and money market accounts, partially offset by reductions in time deposits under $100,000.  Total deposits at March 31, 2016 for the stand-alone BBCN amounted to $6.47 billion.

Credit Quality

The provision for loan losses for the 2017 first quarter was $5.6 million, compared with $800,000 for the preceding 2016 fourth quarter and $500,000 for the year-ago first 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 March 31, 2017, December 31, 2016 and March 31, 2016 is as follows:

⁽¹⁾  Legacy loans include loans originated by the Bank’s predecessor bank, loans originated by Bank of Hope and loans that were acquired and that have been refinanced as new loans. ⁽²⁾   Purchased loans were marked to fair value at acquisition date, and the allowance for loan losses reflect provisions for credit deterioration since the acquisition date.

Following are the components of criticized loan balances as of March 31, 2017, December 31, 2016 and March 31, 2016:

⁽¹⁾   Balances include purchased loans which were marked to fair value on the date of acquisition.

The Company defines nonperforming loans to include delinquent loans past due 90 days or more 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 at March 31, 2017 declined to $37.0 million, or 0.35% of loans receivable, from $40.1 million, or 0.38% of loans receivable, at December 31, 2016 and $43.5 million, or 0.68% of loans receivable, at March 31, 2016. Accruing restructured loans totaled $49.0 million at March 31, 2017, compared with $48.9 million at December 31, 2016 and $52.8 million at March 31, 2016.  Total nonperforming loans at March 31, 2017 declined to $86.3 million, or 0.82% of loans receivable, from $89.3 million, or 0.85% of loans receivable, at December 31, 2016 and $96.4 million, or 1.51% of loans receivable, at March 31, 2016.

Nonperforming assets, including nonperforming loans and OREO, declined to $105.4 million at March 31, 2017, from $111.2 million at December 31, 2016 and $116.1 million at March 31, 2016.  As a percentage of total assets, nonperforming assets improved to 0.78% at March 31, 2017 from 0.83% at December 31, 2016 and 1.44% at March 31, 2016.

For the 2017 first quarter, net charge offs totaled $6.3 million, or 0.24% of average loans receivable on an annualized basis, and included the charge off of a $3.0 million commercial credit relationship. In addition, charge offs aggregating approximately $3.6 million included smaller impairment charge offs caused by various circumstances like business closures or property vacancies leading to their nonperformance in the first quarter. In comparison, net charge offs for the preceding 2016 fourth quarter totaled $1.4 million, or 0.05% of average loans receivable on an annualized basis and $52,000, or 0.00% of average loans receivable on an annualized basis, for the year-ago first quarter.

The allowance for loan losses at March 31, 2017 was $78.7 million, or 0.75% of loans receivable (excluding loans held for sale), compared with $79.3 million, or 0.75%, at December 31, 2016 and $76.9 million, or 1.21%, at March 31, 2016.   The coverage ratio of the allowance for loan losses to nonperforming loans (excluding purchased credit-impaired loans) was 91.18% at March 31, 2017, versus 88.90% at December 31, 2016 and 79.77% at March 31, 2016.

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 $129.6 million at March 31, 2017, compared with $140.4 million at December 31, 2016 and $140.4 million at March 31, 2016.

Capital

At March 31, 2017, the Company continued to exceed all regulatory capital requirements to be classified as a “well-capitalized” 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:

⁽¹⁾   Tangible common equity to tangible assets is a non-GAAP financial measure that represents common equity less goodwill and net other intangible assets divided by total assets less goodwill and net other intangible assets.  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.  The accompanying financial information includes a reconciliation of the ratio of tangible common equity to tangible assets with stockholders’ equity and total assets.

Form 10-K Filing

The Company has not yet filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2016 with the Securities and Exchange Commission.  While the Company currently does not expect to report in its Annual Report on Form 10-K any material changes to its financial results from those previously reported in the January 24, 2017 press release for the Company’s financial results for the three and twelve months ended December 31, 2016, there can be no assurances that changes will not be made as the audit process is completed.  The Company presently expects to file its Annual Report on Form 10-K for the fiscal year ended December 31, 2016 with the Securities and Exchange Commission on or before May 12, 2017.

Internal Controls Over Financial Reporting

During the course of the audit of our financial statements for the fiscal year ended December 31, 2016, which audit is ongoing as of the date hereof, management identified certain material weaknesses in the system of internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The following deficiencies relate to internal controls specific to the accounting for the merger with Wilshire Bancorp, Inc. (“Wilshire”):

• deficiencies in internal controls, specifically related to the existence of loans, and monitoring of credit risk ratings of loans acquired as of the July 29, 2016 closing of the merger with Wilshire;
• deficiencies in the documentation of information technology general controls related to the systems conversion process following the merger with Wilshire; and
• deficiencies related to staffing within the Company to handle the increase in required documentation of the combined system of internal controls over financial reporting resulting from the merger with Wilshire.

The following deficiency relates to internal controls over financial reporting as of December 31, 2016:

• deficiencies in internal controls over financial reporting due to the reclassifications made to the consolidated statement of cashflows in the Company’s Form 10-K for the year ended December 31, 2016.

Management determined that these significant control deficiencies constituted material weaknesses in the Company’s internal control over financial reporting. Management also acknowledges that additional control deficiencies may be identified, and that such control deficiencies could constitute additional material weaknesses.

Management, with the oversight of the audit committee, has taken, and continues to take steps that management and the audit committee believe will remediate the identified material weaknesses. As part of these steps:

• management reviewed the material weaknesses with our audit committee and senior management;
• management engaged an independent third party loan review firm subsequent to the closing of the merger with Wilshire to evaluate the existence of loans and adequacy of loan grades for the Wilshire loan portfolio as of June 30, 2016 and September 30, 2016. Therefore, management is comfortable with the existence of loans and adequacy of loan grades for the Wilshire loan portfolio as of December 31, 2016;
• management intends for future mergers and acquisitions, to perform, or have a third party perform, testing for the existence of loans and the adequacy of loan grades as of the exact transaction date in addition to due diligence and loans reviews that we normally perform;
• management intends for future mergers and acquisitions, to enhance the documentation of IT general controls in place for the process of conversion;
• management engaged an outside third party to assist with matters related to internal controls and recently hired a SOX compliance officer who will oversee issues related to the Company’s internal controls and other SOX related matters with the continued assistance of the third party; and
• management will enhance its controls over financial reporting to seek to prevent any future reclassifications of the consolidated statement of cashflows.

Management believes that these changes will contribute significantly to the remediation of the material weaknesses in internal control over financial reporting. Additional changes may be implemented if determined necessary to remediate the identified material weaknesses and/or if additional material weaknesses are discovered. Although the Company’s remediation efforts are well underway and are expected to be completed in the near future, the Company’s material weaknesses will not be considered remediated until new internal controls are operational for a period of time and are tested, and management concludes that these controls are operating effectively.

Investor Conference Call

The Company will host an investor conference call on Friday, April 28, 2017 at 9:30 a.m. Pacific Time / 12:30 p.m. Eastern Time to review financial results for the first quarter ended March 31, 2017.  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.”  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 at www.ir-hopebancorp.com .   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 May 5, 2017, replay access code 10104107.

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 $13.5 billion in total assets as of March 31, 2017. Formed through the merger of BBCN Bank and Wilshire Bank, the top two commercial lenders in the market, Bank of Hope is headquartered in Los Angeles and serves a multi-ethnic population of customers across the nation. Bank of Hope operates 67 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, and Portland, Oregon; a commercial loan production office in Fremont, California; residential mortgage loan production offices in 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

This press release may contain forward-looking statements, which are the statements contained herein that are not historical facts. These statements are based on current expectations, estimates, forecasts and projections and management assumptions about the future performance of the Company, the businesses and markets in which the Company operates and is expected to operate, as well as the timing and substance of certain public disclosures regarding the Company’s financial condition, results of operations and internal controls over financial reporting. These statements constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, involve certain risks, uncertainties and assumptions that are difficult to assess, and  are not guarantees of future performance.  Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements as a result of such risks, uncertainties and assumptions, including, but not limited to the following: the Company’s inability to remediate its presently identified material weaknesses or to do so in a timely manner, the possibility that additional material weaknesses may arise in the future, and that a material weakness may have an impact on our reported financial results; the effect of acquisitions that the Company may make, if any, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from its acquisitions; inability to consummate the Company’s proposed merger with U & I Financial Corp. on the terms it has proposed; and failure to realize the benefits from the merger with U & I Financial Corp. that the Company currently expects if the merger is consummated. Readers should carefully review the risk factors and other information that could affect the Company’s financial results and business, described in documents the Company files from time to time with the Securities and Exchange Commission, including its quarterly reports on Form 10-Q and Annual Reports on Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements.

(tables follow)

Contact: Angie Yang SVP, Director of Investor Relations & Corporate Communications 213-251-2219 angie.yang@bankofhope.com