Hope Bancorp, Inc. (the “Company”) (NASDAQ: HOPE), the holding company of Bank of Hope (the “Bank”), today reported unaudited financial results for its third quarter and nine months ended September 30, 2024. For the three months ended September 30, 2024, net income totaled $24.2 million, or $0.20 per diluted common share. This compares with net income of $25.3 million, or $0.21 per diluted common share, in the second quarter of 2024. Excluding notable items⁽¹⁾, net income for the 2024 third quarter was $25.2 million, or $0.21 per diluted common share.

“We are pleased to see a higher level of productivity from our banking teams, along with the continued success of our core deposit gathering initiatives. Quarter-over-quarter, customer deposit growth was a robust 11% annualized, supporting loan growth and offsetting a planned reduction in brokered deposits,” said Kevin S. Kim, Chairman, President and Chief Executive Officer. “In the 2024 third quarter, loans receivable grew 2% on an annualized basis, marking a turn-around in our loan growth trend. Additionally, more than two-thirds of the net growth in noninterest bearing demand deposits this quarter came from small business accounts.

“Regulatory risk-based capital ratios for Hope Bancorp are the highest since our merger with Wilshire Bancorp in 2016. As of September 30, 2024, our total capital ratio was a strong 14.8%, and our tangible equity ratio was a robust 10.1%,” continued Kim.

“The success of our balance sheet management has resulted in high levels of capital, ample liquidity, and a lower loan-to-deposit ratio, positioning us well to increase our market share, add new client relationships, and generate profitable growth as economic conditions and loan demand improve in the coming year,” said Kim.

“We are excited about our pending merger with Territorial Bancorp Inc. (NASDAQ: TBNK), the stock holding company of Territorial Savings Bank. We believe this compelling combination will strengthen the Territorial franchise for the long term, providing many advantages for customers and employees as part of a larger organization with greater resources, enhanced technology platforms, and an expanded array of banking products and services.”

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Operating Results for the 2024 Third Quarter

Net interest income and net interest margin. Net interest income before provision for credit losses for the 2024 third quarter totaled $104.8 million. This compares with net interest income before provision for credit losses of $105.9 million in the immediately preceding second quarter. Interest income was $235.1 million in the third quarter of 2024, up from $232.6 million in the second quarter of 2024. Growth in interest income was offset by increased interest expense, which was $130.3 million in the third quarter, compared with $126.7 million in the second quarter. The quarter-over-quarter increase in interest expense reflects the change in average total deposit costs, which increased five basis points to 3.44% for the 2024 third quarter, up from 3.39% in the immediately preceding second quarter. End-of-period total deposit costs decreased nine basis points to 3.34% as of September 30, 2024, from 3.43% as of June 30, 2024, indicating an inflection point in deposit costs by deposit type.

Net interest margin for the 2024 third quarter was 2.55%, down seven basis points from 2.62% in the 2024 second quarter. The quarter-over-quarter change in net interest margin reflects a higher balance and cost of average interest bearing deposits, as well as the change in average loan yields, partially offset by a higher balance and yield earned on average interest earning cash and deposits at other banks, and a lower balance and lower rate paid on average borrowings.

Noninterest income. Noninterest income for the 2024 third quarter increased to $11.8 million, up 7% from $11.1 million in the immediately preceding second quarter. The Company recorded net gains on the sale of SBA loans of $2.7 million in the 2024 third quarter, compared with $2.0 million in the immediately preceding second quarter. In the third quarter of 2024, the Company sold $41.4 million of SBA loans, compared with $29.8 million in the second quarter of 2024. Other noninterest income in the 2024 third quarter included a $403,000 gain from bank owned life insurance, as well as a $326,000 net loss on sales of securities available for sale, as the Company repositioned a portion of its lower-yielding investment securities.

Noninterest expense. Noninterest expense for the 2024 third quarter was $81.3 million, compared with $81.0 million in the immediately preceding second quarter, and down 6% year-over-year from $86.8 million in the 2023 third quarter. Excluding notable items⁽²⁾, which were primarily merger-related costs, noninterest expense for the 2024 third quarter was $79.8 million, compared with $79.1 million for the 2024 second quarter, and down 8% year-over-year from $86.3 million for the 2023 third quarter. Salaries and employee benefits expense for the 2024 third quarter was $44.2 million, up by $53,000 and essentially stable compared with $44.1 million in the 2024 second quarter. Year-over-year, salaries and employee benefits expense decreased 13% from $51.0 million in the 2023 third quarter, reflecting the benefits of a restructuring executed in the fourth quarter of 2023.

Tax rate. The year-to-date effective tax rate for the nine months ended September 30, 2024, was 26.6%, compared with the year-to-date effective tax rate of 25.7% for the same period of 2023. For the full year 2024, the Company expects the effective tax rate to be approximately 26%.

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Balance Sheet Summary

Cash and investment securities. At September 30, 2024, cash and cash equivalents totaled $680.9 million, compared with $654.0 million at June 30, 2024, and $2.50 billion at September 30, 2023. The year-over-year change in cash and cash equivalents primarily reflected the payoff of the Company’s Bank Term Funding Program (“BTFP”) borrowings in March and April of 2024. Investment securities totaled $2.18 billion at September 30, 2024, $2.17 billion at June 30, 2024, and $2.26 billion at September 30, 2023.

Loans. Gross loans of $13.64 billion at September 30, 2024, were up $8.4 million from $13.64 billion at June 30, 2024. Loans receivable, which excludes loans held for sale, grew $51.0 million quarter-over-quarter, or up 2% annualized. Quarter-over-quarter, commercial and industrial loans and residential mortgage loans increased, partially offset by a decrease in commercial real estate loans. The Company sold $41.4 million of SBA loans in the third quarter of 2024.

The following table sets forth the loan portfolio composition at September 30, 2024, June 30, 2024, and September 30, 2023:

Deposits. Total deposits amounted to $14.73 billion at September 30, 2024, up $18.0 million from $14.71 billion at June 30, 2024. During the 2024 third quarter, robust growth in customer deposits of 11% annualized more than offset a planned reduction of brokered deposits. Noninterest bearing demand deposits grew $51.8 million quarter-over-quarter to $3.72 billion at September 30, 2024, and money market and interest bearing demand deposits increased $105.4 million quarter-over-quarter to $5.01 billion. During the third quarter of 2024, the Company reduced brokered deposits by $351.5 million from June 30, 2024.

The following table sets forth the deposit composition at September 30, 2024, June 30, 2024, and September 30, 2023:

On October 1, 2024, the Bank completed a branch purchase and assumption agreement whereby PromiseOne Bank acquired the deposits and other assets associated with Bank of Hope’s Annandale and Centreville branches in Virginia. As of transaction close, deposits at these two branches totaled approximately $129.4 million.

Borrowings. Federal Home Loan Bank and Federal Reserve Bank borrowings decreased to $100.0 million at September 30, 2024, down from $170.0 million at June 30, 2024, and $1.80 billion at September 30, 2023. The year-over-year change primarily reflected the payoff of the Company’s BTFP borrowings in March and April 2024.

Credit Quality and Allowance for Credit Losses

Nonperforming assets. Nonperforming assets were $103.8 million, or 0.60% of total assets, at September 30, 2024, compared with $67.3 million, or 0.39% of total assets, at June 30, 2024, and $61.7 million, or 0.31% of total assets, at September 30, 2023. The increase was due to the migration of one relationship that was placed on nonaccrual status as of September 30, 2024, following loan maturities. This relationship consists of three commercial real estate loans that are well-secured by properties in primary locations with minimal to no loss expected.

The following table sets forth the components of nonperforming assets at September 30, 2024, June 30, 2024, and September 30, 2023:

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Net charge offs and provision for credit losses. The Company recorded net charge offs of $5.7 million in the 2024 third quarter, equivalent to 0.17%, annualized, of average loans. This compares with net charge offs of $4.4 million, or 0.13%, annualized, of average loans in the immediately preceding second quarter. Net charge off levels continue to be moderate.

The following table sets forth net charge offs and annualized net charge off ratios for the three months ended September 30, 2024, June 30, 2024, and September 30, 2023:

For the 2024 third quarter, the Company recorded a provision for credit losses of $3.3 million. This compares with a provision for credit losses of $1.4 million in the immediately preceding second quarter.

Allowance for credit losses. The allowance for credit losses totaled $153.3 million at September 30, 2024, compared with $156.0 million at June 30, 2024. The allowance coverage ratio was 1.13% of loans receivable at September 30, 2024, compared with 1.15% at June 30, 2024. The change in allowance coverage reflects the positive impact from improved macroeconomic variables, notably the CRE price index, in the Current Expected Credit Loss (“CECL”) model, partially offset by increased qualitative and individually evaluated loan reserves.

The following table sets forth the allowance for credit losses and the coverage ratios at September 30, 2024, June 30, 2024, and September 30, 2023:

Capital

The Company’s capital ratios are strong and all regulatory risk-based capital ratios expanded quarter-over-quarter and year-over-year. At September 30, 2024, 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 September 30, 2024, June 30, 2024, and September 30, 2023:

At September 30, 2024, total stockholders’ equity was $2.17 billion, or $17.97 per common share, compared with $2.11 billion, or $17.49 per common share, at June 30, 2024. Tangible common equity (“TCE”) per share⁽⁴⁾ was $14.10 at September 30, 2024, compared with $13.61 at June 30, 2024, and the TCE ratio⁽³⁾ was 10.08% at September 30, 2024, up 36 basis points from 9.72% at June 30, 2024.

The following table sets forth the TCE per share and the TCE ratio at September 30, 2024, June 30, 2024, and September 30, 2023:

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Investor Conference Call

The Company previously announced that it will host an investor conference call on Monday, October 28, 2024, at 9:30 a.m. Pacific Time / 12:30 p.m. Eastern Time to review unaudited financial results for its third quarter ended September 30, 2024. 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 at least 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 November 4, 2024, replay access code 10193704.

Non-GAAP Financial Metrics

This news release and accompanying financial tables contain certain non-GAAP financial measure disclosures, including net income excluding notable items, earnings per share excluding notable items, noninterest expense excluding notable items, TCE per share, TCE ratio, ROA excluding notable items, ROE excluding notable items, ROTCE, ROTCE excluding notable items, and efficiency ratio excluding notable items. 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 Pages 10 and 11.

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 $17.35 billion in total assets as of September 30, 2024. Headquartered in Los Angeles and serving a multi-ethnic population of customers across the nation, the Bank provides a full suite of commercial, corporate and consumer loans, including commercial and commercial real estate lending, SBA lending, residential mortgage and other consumer lending; deposit and fee-based products and services; international trade financing; and cash management services, foreign currency exchange solutions, and interest rate derivative products, among others. Bank of Hope operates 46 full-service branches in California, Washington, Texas, Illinois, New York, New Jersey, Alabama, and Georgia. The Bank also operates SBA loan production offices, commercial loan production offices, and residential mortgage loan production offices in the United States; and a representative office in Seoul, Korea. 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 www.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.

Additional Information About the Merger and Where to Find It

In connection with the pending merger with Territorial Bancorp Inc., Hope Bancorp, Inc. filed with the Securities and Exchange Commission (the “SEC”) a Registration Statement on Form S-4, which included a Proxy Statement/Prospectus and which was declared effective by the SEC on August 20, 2024, and further supplemented by Hope Bancorp on September 12, 2024. This earnings release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. Territorial Bancorp shareholders are encouraged to read the Registration Statement and the Proxy Statement/Prospectus regarding the merger and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information about the pending merger. Territorial Bancorp shareholders will be able to obtain a free copy of the Proxy Statement/Prospectus, as well as other filings containing information about Hope Bancorp and Territorial Bancorp at the SEC’s Internet site (www.sec.gov). Territorial Bancorp shareholders will also be able to obtain these documents, free of charge, from Territorial Bancorp at https://www.tsbhawaii.bank/tsb/investor-relations/.

Participants in Solicitation

Hope Bancorp, Inc., Territorial Bancorp and certain of their directors, executive officers, management and employees may be deemed to be participants in the solicitation of proxies in respect of the merger. Information concerning Hope Bancorp’s directors and executive officers is set forth in the Proxy Statement, dated April 12, 2024 (as amended and supplemented), for its 2024 annual meeting of stockholders as filed with the SEC on Schedule 14A. Information concerning Territorial Bancorp’s participants is set forth in the Proxy Statement, dated April 16, 2024, for Territorial Bancorp’s 2024 annual meeting of stockholders as filed with the SEC on Schedule 14A. Additional information regarding the interests of those participants in the solicitation of proxies in respect of the merger may be obtained by reading the Registration Statement and Proxy Statement/Prospectus filed with the SEC.

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, ease of integration and diversification of franchise in connection with the pending merger with Territorial Bancorp. 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, Hope Bancorp claims the protection provided for in the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties. Hope Bancorp’s actual results, performance or achievements may differ significantly from the results, performance or achievements expressed or implied in any forward-looking statements. The closing of the pending transaction is subject to regulatory approvals, the approval of Territorial Bancorp shareholders, and other customary closing conditions. There is no assurance that such conditions will be met or that the pending merger will be consummated within the expected time frame, or at all. If the transaction is consummated, factors that may cause actual outcomes to differ from what is expressed or forecasted in these forward-looking statements include, among things: difficulties and delays in integrating Hope Bancorp and Territorial Bancorp and achieving anticipated synergies, cost savings and other benefits from the transaction; higher than anticipated transaction costs; deposit attrition, operating costs, customer loss and business disruption following the merger, including difficulties in maintaining relationships with employees and customers, may be greater than expected; and required governmental approvals of the merger may not be obtained on its proposed terms and schedule, or without regulatory constraints that may limit growth. Other risks and uncertainties include, but are not limited to: possible further deterioration in economic conditions in Hope Bancorp’s areas of operation or elsewhere; 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 Hope Bancorp’s allowances for credit losses; potential increases in deposit insurance assessments and regulatory risks associated with current and future regulations; the outcome of any legal proceedings that may be instituted against Hope Bancorp; the risk that any announcements relating to the pending transaction could have adverse effects on the market price of the common stock of Hope Bancorp; and diversion of management’s attention from ongoing business operations and opportunities. For additional information concerning these and other risk factors, see Hope Bancorp’s most recent Annual Report on Form 10-K. Hope Bancorp 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.