Hope Bancorp, Inc. (the “Company”) (NASDAQ: HOPE), the holding company of Bank of Hope (the “Bank”), today reported unaudited financial results for its second quarter and six months ended June 30, 2023.

For the three months ended June 30, 2023, net income totaled $38.0 million, or $0.32 per diluted common share. This compares with net income of $39.1 million, or $0.33 per diluted common share, in the preceding first quarter. Pre-provision net revenue (“PPNR”) ⁽¹⁾ for the 2023 second quarter totaled $60.4 million, up 11% from $54.5 million in the preceding first quarter.

“Throughout the second quarter, we continued to maintain high levels of capital and liquidity to prudently navigate an operating environment that is challenging for regional banks,” said Kevin S. Kim, Chairman, President and Chief Executive Officer. “Year-over-year, our total capital ratio increased 51 basis points to 12.64% at June 30, 2023. At the end of the 2023 second quarter, our tangible common equity ratio ⁽¹⁾ was a robust 8.04%.

“Our asset quality remains healthy. We recorded net recoveries of $552 thousand for the 2023 second quarter, and nonperforming assets decreased 30% year-over-year. We have steadily built our allowance for credit losses, with coverage at 1.16% of loans receivable at June 30, 2023.

“Year-over-year, our loans receivable grew 2% to $14.9 billion, and our total deposits grew 4% to $15.6 billion at June 30, 2023. With Bank of Hope’s strong balance sheet and continued investment in enhancing our products and services, we are focused on expanding our relationships with our customers and strengthening our market leadership in the Korean American community and beyond,” said Kim.

Q2 2023 Highlights

• Capital growth. Total capital was $2.10 billion at June 30, 2023, growing 2% from March 31, 2023. The total capital ratio increased 39 basis points quarter-over-quarter to 12.64% at June 30, 2023. Book value per common share at June 30, 2023, was $17.23, and tangible common equity (“TCE”) per share ⁽¹⁾ was $13.32, up 0.3% and 0.5%, respectively, quarter-over-quarter. The TCE ratio of 8.04% as of June 30, 2023, expanded 13 basis points from March 31, 2023.
• Strong liquidity. Cash and cash equivalents increased to $2.30 billion at June 30, 2023, up from $2.21 billion at March 31, 2023. Available borrowing capacity, together with cash and cash equivalents and unpledged investment securities, totaled $7.75 billion, equivalent to 50% of total deposits at June 30, 2023.
• Healthy asset quality. Nonperforming assets declined 3% quarter-over-quarter. The nonperforming assets ratio improved to 0.38% of total assets at June 30, 2023, down from 0.39% at March 31, 2023. The Company recorded net recoveries of $552 thousand during the 2023 second quarter, equivalent to 0.01% annualized of average loans.
• Total deposits of $15.62 billion at June 30, 2023, decreased 1% quarter-over-quarter and grew 4% year-over-year. Uninsured deposits at June 30, 2023, represented 36% of the Bank’s deposits, compared with 38% at March 31, 2023.
• Loans receivable of $14.86 billion at June 30, 2023, decreased 1% quarter-over-quarter and grew 2% year-over-year.
• Efficiency improvement. The efficiency ratio for the 2023 second quarter improved 325 basis points to 59.1% from 62.4% for the preceding first quarter.
• PPNR increase. PPNR for the 2023 second quarter totaled $60.4 million, up 11% from $54.5 million in the preceding first quarter.

Financial Summary

__________________

Operating Results for the 2023 Second Quarter

Net interest income. Net interest income before provision for credit losses for the 2023 second quarter totaled $130.7 million, a decrease of 2% compared with $133.9 million in the preceding first quarter. 2023 second quarter interest income of $267.2 million increased $30.5 million quarter-over-quarter, driven by growth in average interest earning cash and deposits at other banks, as well as expanding loan yields. This was offset by higher interest expense, which increased $33.7 million quarter-over-quarter, reflecting a higher cost of interest bearing deposits and a higher volume of average borrowings.

The net interest margin for the 2023 second quarter decreased 32 basis points to 2.70%, from 3.02% in the preceding first quarter, primarily reflecting a higher cost of funds and an increase in average borrowings, partially offset by loan yield expansion and growth in average interest earning cash and deposits at other banks.

The weighted average yield on loans for the 2023 second quarter was 5.99%, up 24 basis points from 5.75% in the preceding first quarter. This reflected increases in market interest rates and a significant increase in the average rate on new loans. The average rate on new loans originated in the 2023 second quarter was 8.37%, up 84 basis points quarter-over-quarter.

The weighted average cost of total deposits for the 2023 second quarter was 2.79%, up 42 basis points from 2.37% in the preceding first quarter, reflecting higher rates paid on interest bearing deposit accounts.

Noninterest income. Noninterest income for the 2023 second quarter totaled $17.0 million, up 55% from $11.0 million in the preceding first quarter. Other income and fees for the 2023 second quarter included a $5.8 million cash distribution from a gain on an investment in an affordable housing partnership. During the 2023 second quarter, the Company sold $38.4 million of the guaranteed portion of SBA 7(a) loans and $6.6 million of residential mortgage loans, for a gain on loan sales of $2.0 million, compared with $40.7 million and $7.3 million, respectively, sold in the preceding first quarter for a gain on loan sales of $2.3 million.

Noninterest expense. Noninterest expense for the 2023 second quarter decreased 3% to $87.3 million, down from $90.4 million in the preceding first quarter. The quarter-over-quarter change was primarily driven by lower salaries and employee benefits expense, partially offset by the impact of an industry-wide increase in the FDIC assessment rate of two basis points.

The Company’s efficiency ratio for the 2023 second quarter improved to 59.1% from 62.4% in the preceding first quarter. Annualized noninterest expense as a percentage of average assets was 1.71% for the 2023 second quarter, down from 1.89% for the 2023 first quarter.

Tax rate. The effective tax rate for the 2023 second quarter was 26.1%, compared with 25.9% for the preceding first quarter. The year-to-date effective tax rate for the first six months of 2023 was 26.0%.

Balance Sheet Summary

Loans. New loan originations for the 2023 second quarter totaled $490.6 million, compared with $568.7 million for the preceding first quarter. The following table sets forth the components of new loan production for the quarters ended June 30, 2023, March 31, 2023, and June 30, 2022.

At June 30, 2023, loans receivable decreased 1% quarter-over-quarter to $14.86 billion from $15.06 billion at March 31, 2023. Year-over-year, loans receivable grew 2%, up from $14.55 billion at June 30, 2022. The following table sets forth the loan portfolio composition and percentage of total loans at June 30, 2023, March 31, 2023, and June 30, 2022:

Deposits. At June 30, 2023, total deposits decreased 1% to $15.62 billion from $15.83 billion at March 31, 2023. Year-over-year, total deposits grew 4%, up from $15.03 billion at June 30, 2022. The following table sets forth the deposit composition and percentage of total deposits at June 30, 2023, March 31, 2023, and June 30, 2022:

Liquidity. At June 30, 2023, cash and cash equivalents increased to $2.30 billion from $2.21 billion at March 31, 2023, and up from $0.20 billion at June 30, 2022. Available borrowing capacity, cash and cash equivalents, and unpledged investment securities totaled $7.75 billion, equivalent to 50% of total deposits at June 30, 2023, and well exceeding the Bank’s uninsured deposit balances.

Borrowings and Convertible Notes. Federal Home Loan Bank and Federal Reserve Bank borrowings were $2.26 billion at June 30, 2023, compared with $2.13 billion at March 31, 2023, and $0.57 billion at June 30, 2022. At the expiration of the Optional Put for the holders of the Company’s 2% Convertible Senior Notes due 2038, $197 million of the principal amount was paid off on May 15, 2023, with existing cash.

Allowance for Credit Losses

For the 2023 second quarter, the Company recorded a provision for credit losses of $8.9 million, compared with $1.7 million in the preceding first quarter, building its allowance for credit losses. The allowance for credit losses increased to $173.0 million at June 30, 2023, up from $163.5 million at March 31, 2023. The allowance coverage ratio increased to 1.16% of loans receivable at June 30, 2023, up from 1.09% a quarter ago.

The following table sets forth the allowance for credit losses and allowance coverage ratios at June 30, 2023, March 31, 2023, and June 30, 2022:

Credit Quality

Asset quality continued to be healthy. The Company recorded net recoveries of $552 thousand in the 2023 second quarter, representing an annualized net recovery ratio of 0.01% of average loans. The following table sets forth net recoveries (charge offs) and net recoveries to average loans receivable, annualized, for the three months ended June 30, 2023, March 31, 2023, and June 30, 2022:

Nonperforming assets. Nonperforming assets totaled $77.4 million at June 30, 2023, a decrease of 3% quarter-over-quarter, and a decrease of 30% year-over-year. The nonperforming assets ratio improved to 0.38% of total assets at June 30, 2023, down from 0.39% at March 31, 2023, and down from 0.61% at June 30, 2022. Nonperforming loans decreased 4% quarter-over-quarter to $76.4 million at June 30, 2023, down from $79.2 million at March 31, 2023, and decreased 30% year-over-year from $108.6 million at June 30, 2022.

The following table sets forth the components of nonperforming assets at June 30, 2023, March 31, 2023, and June 30, 2022:

__________________

Criticized loans. Total criticized loans were $345.0 million at June 30, 2023, compared with $304.7 million at March 31, 2023, and $340.5 million at June 30, 2022.

Capital

The Company’s capital ratios remained strong. At June 30, 2023, the Company and the Bank continued to exceed all regulatory capital requirements generally required to meet the definition of a “well-capitalized” financial institution. The following table sets forth the capital ratios for the Company at June 30, 2023, March 31, 2023, and June 30, 2022:

The following table sets forth the TCE per share and the TCE ratio at June 30, 2023, March 31, 2023, and June 30, 2022:

__________________

Investor Conference Call

The Company previously announced that it will host an investor conference call on Monday, July 24, 2023 at 9:30 a.m. Pacific Time / 12:30 p.m. Eastern Time to review unaudited financial results for its second quarter ended June 30, 2023. 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 at 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 July 31, 2023, replay access code 8610354.

Non-GAAP Financial Metrics

This news release contains certain non-GAAP financial measure disclosures, including PPNR, TCE per share, TCE ratio, ROTCE, ROA (PPNR), and ROE (PPNR). Management believes these non-GAAP financial measures provide meaningful supplemental information regarding the Company’s operational performance and the Company’s capital levels and has included these figures in response to market participant interest in these financial metrics. Quantitative reconciliations of the most directly comparable GAAP to non-GAAP financial measures are provided in the accompanying financial information on Table Page 10.

About Hope Bancorp, Inc.

Hope Bancorp, Inc. (NASDAQ: HOPE) is the holding company of Bank of Hope, the first and only super regional Korean American bank in the United States with $20.37 billion in total assets as of June 30, 2023. Headquartered in Los Angeles and serving a multi-ethnic population of customers across the nation, Bank of Hope operates 53 full-service branches in California, Washington, Texas, Illinois, New York, New Jersey, Virginia, Alabama, and Georgia. The Bank also operates SBA loan production offices in Seattle, Denver, Dallas, Atlanta, Portland, New York City, Northern California and Houston; commercial loan production offices in Northern California, Seattle and Tampa, Fla.; 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 lending, commercial and industrial 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 news 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 further 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; the failure of or changes to assumptions and estimates underlying the Company’s allowances for credit losses; regulatory risks associated with current and future regulations; and the COVID-19 pandemic and its impact on our financial position, results of operations, liquidity, and capitalization. For additional information concerning these and other risk factors, see the Company’s most recent Annual Report on Form 10-K. 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.