Hope Bancorp Reports 2024 Fourth Quarter and Full-Year Financial Results

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 twelve months ended December 31, 2024. For the three months ended December 31, 2024, net income totaled $24.3 million, or $0.20 per diluted common share. This compares with net income of $24.2 million, or $0.20 per diluted common share, in the third quarter of 2024. For the full year ended December 31, 2024, net income totaled $99.6 million, or $0.82 per diluted common share. Excluding notable items⁽¹⁾, net income for the 2024 full year was $103.4 million, or $0.85 per diluted common share.

"For the 2024 fourth quarter, our pre-provision net revenue⁽²⁾ increased 14% to $40.4 million, up from $35.4 million in the preceding third quarter. Quarter-over-quarter, our total revenue grew, led by strong growth in noninterest income, and our noninterest expense decreased, enhancing our efficiency," said Kevin S. Kim, Chairman, President and Chief Executive Officer. "Our asset quality improved with an 11% decrease in criticized loans and nonperforming assets down 13% since September 30, 2024.

"In 2024, we focused on strengthening our deposit base, reducing brokered deposits to 7% of total deposits as of December 31, 2024, down from 10% as of December 31, 2023. In the second half of 2024, loan growth inflected and loans receivable grew 1% on an annualized basis since June 30, 2024. With ample liquidity and a tangible common equity ratio⁽³⁾ over 10% as of December 31, 2024, we are well positioned to support growth in the new year.

"We are in the final stages of preparing for the integration of Territorial Savings Bank as a division of Bank of Hope, and are looking forward to building upon Territorial's legacy. The addition of Territorial's low-cost core deposits and residential mortgage loans with pristine asset quality will be meaningful contributors to the combined company in 2025. We anticipate the pending merger with Territorial Bancorp Inc. (NASDAQ:TBNK), the stock holding company of Territorial Savings Bank, will be completed during the first quarter of 2025, subject to regulatory approvals.

"We are heartbroken to see the unprecedented destruction that the wildfires have caused in the Greater Los Angeles area. As one of the largest independent banks headquartered in this great city, we are committed to taking a leadership role in addressing the immediate and rebuilding needs of those impacted by the fires. Our recent cash donation to the United Way of Greater Los Angeles Wildfire Response Fund underscores our unwavering commitment to the community. I am confident that the impacted areas will be rebuilt stronger and better," concluded Kim.

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Operating Results for the 2024 Fourth Quarter

Revenue. 2024 fourth quarter revenue of $118.0 million grew $1.4 million, or 1%, from $116.6 million for the immediately preceding third quarter. Quarter-over-quarter growth in noninterest income more than offset the decrease in net interest income before provision for credit losses. Pre-provision net revenue ("PPNR"), which is revenue less noninterest expense, was $40.4 million in the 2024 fourth quarter, up $5.0 million, or 14%, from $35.4 million for the third quarter of 2024. Excluding notable items⁽⁴⁾, fourth quarter 2024 PPNR of $40.0 million grew 9% quarter-over-quarter.

Net interest income and net interest margin. Net interest income before provision for credit losses for the 2024 fourth quarter totaled $102.1 million, a decrease of $2.7 million, or 3%, from $104.8 million in the immediately preceding third quarter. 2024 fourth quarter interest income of $226.6 million decreased 4% from $235.1 million in the immediately preceding third quarter. The quarter-over-quarter decrease in interest income reflected lower loan yields because of Federal Funds target rate cuts, $1.7 million of reversed interest income due to loans moving to nonaccrual status, as well as lower yields on and a lower volume of average interest earning cash and deposits at other banks. As of December 31, 2024, the upper Federal Funds target rate was 4.50%, down from a peak of 5.50% as of September 17, 2024.

The decrease in interest income was partially offset by lower interest expense, which totaled $124.5 million in the 2024 fourth quarter, a decrease of 4% from $130.3 million in the immediately preceding third quarter. The decrease in interest expense was primarily driven by a 21 basis point quarter-over-quarter reduction in the average cost of interest bearing deposits to 4.38%, down from 4.59% in the third quarter of 2024, reflecting the impact of the Federal Funds rate cuts. The average cost of total deposits for the 2024 fourth quarter decreased 12 basis points to 3.32%, down from 3.44% for the third quarter of 2024.

Net interest margin for the 2024 fourth quarter was 2.50%, down five basis points from 2.55% in the 2024 third quarter. Excluding the impact of the aforementioned reversed interest income, the net interest margin for the 2024 fourth quarter would have been 2.54%.

Noninterest income. Noninterest income for the 2024 fourth quarter increased to $15.9 million, up $4.0 million, or 34%, from $11.8 million in the immediately preceding third quarter. The Company recorded net gains on the sale of SBA loans of $3.1 million in the 2024 fourth quarter, compared with $2.7 million in the immediately preceding third quarter. In the fourth quarter of 2024, the Company sold $48.4 million of SBA loans, compared with $41.4 million in the third quarter of 2024. Other noninterest income in the 2024 fourth quarter included swap fee income of $1.4 million, up from only $21,000 in the 2024 third quarter, reflecting a higher level of customer activity. During the 2024 fourth quarter, the Company recognized a net gain of $1.0 million related to the sale of its two branches in Virginia, which closed on October 1, 2024.

Noninterest expense. The Company continues to closely manage expenses. Noninterest expense for the 2024 fourth quarter was $77.6 million, down $3.7 million, or 5%, from $81.3 million in the immediately preceding third quarter. Excluding notable items⁽⁵⁾, noninterest expense for the 2024 fourth quarter was $77.0 million, down 4% from $79.8 million for the 2024 third quarter. The quarter-over-quarter decrease in noninterest expense was primarily driven by lower earned interest credit expense, which decreased $2.3 million, or 33%, from the immediately preceding third quarter due to the Federal Funds target rate cuts and a lower average balance of related deposits, as well as lower salaries and employee benefits expense, which decreased $2.1 million, or 5%, quarter-over-quarter to $42.0 million.

Tax rate. The effective tax rate for the 2024 fourth quarter was 20.0%, compared with 24.7% in the immediately preceding third quarter. The quarter-over-quarter change in the effective tax rate reflected the impact of a solar tax credit investment that the Company made during the fourth quarter of 2024. For the twelve months ended December 31, 2024, the effective tax rate was 25.1%, compared with 24.9% for the 2023 full year.

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Balance Sheet Summary

Cash and investment securities. At December 31, 2024, cash and due from banks totaled $458.2 million, compared with $680.9 million at September 30, 2024, and $1.93 billion at December 31, 2023. The year-over-year change primarily reflected the payoff of the Company's Bank Term Funding Program ("BTFP") borrowings in March and April of 2024. Investment securities totaled $2.08 billion at December 31, 2024, $2.18 billion at September 30, 2024, and $2.41 billion at December 31, 2023.

Loans. At December 31, 2024, loans receivable, which excludes loans held for sale, were stable quarter-over-quarter at $13.62 billion. Compared with September 30, 2024, commercial and industrial loans increased 2% quarter-over-quarter and residential mortgage loans increased 3%, partially offset by a 1% decrease in commercial real estate loans. 2024 fourth quarter average gross loans increased 0.4% quarter-over-quarter, or 2% on an annualized basis, from the 2024 third quarter.

The following table sets forth the loan portfolio composition at December 31, 2024, September 30, 2024, and December 31, 2023:

Deposits. Total deposits of $14.33 billion at December 31, 2024, decreased $402.0 million, or 3%, from $14.73 billion at September 30, 2024. This decrease included $128.1 million of deposits sold in connection with the Company's sale of its Virginia branches. In addition, the quarter-over-quarter decrease in deposits reflected typical fourth quarter outflows of noninterest bearing commercial deposits in the residential mortgage industry, and intentional run-off of higher-cost deposits.

The following table sets forth the deposit composition at December 31, 2024, September 30, 2024, and December 31, 2023:

Borrowings. Federal Home Loan Bank and Federal Reserve Bank borrowings totaled $239.0 million at December 31, 2024, compared with $100.0 million at September 30, 2024, and $1.80 billion at December 31, 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 $90.8 million, or 0.53% of total assets, at December 31, 2024, down 13% from $103.8 million, or 0.60% of total assets, at September 30, 2024.

The following table sets forth the components of nonperforming assets at December 31, 2024, September 30, 2024, and December 31, 2023:

Criticized loans. Criticized loans decreased $55.8 million, or 11%, to $450.0 million at December 31, 2024, down from $505.7 million at September 30, 2024. The criticized loans to total loans ratio improved to 3.30% at December 31, 2024, down from 3.71% at September 30, 2024. The decrease reflected payoffs, workouts and note sales of problem loans during the quarter.

Net charge offs and provision for credit losses. The Company recorded net charge offs of $12.8 million in the 2024 fourth quarter, equivalent to 0.38%, annualized, of average loans. This compares with net charge offs of $5.7 million, or 0.17%, annualized, of average loans in the immediately preceding third quarter. The quarter-over-quarter change in net charge offs reflected the problem loan resolution activity in the fourth quarter. The full-year 2024 net charge off ratio was 0.19%, compared with 0.22% for the 2023 full year.

The following table sets forth net charge offs and annualized net charge off ratios for the three months ended December 31, 2024, September 30, 2024, and December 31, 2023, and the full years ended December 31, 2024, and December 31, 2023:

For the 2024 fourth quarter, the Company recorded a provision for credit losses of $10.0 million. This compares with a provision for credit losses of $3.3 million in the immediately preceding third quarter. The quarter-over-quarter change in the provision for credit losses primarily reflected net charge offs in the fourth quarter of 2024. For the full year 2024, the Company recorded a provision for credit losses of $17.3 million, compared with a provision for credit losses of $31.6 million for the full year 2023.

Allowance for credit losses. The allowance for credit losses totaled $150.5 million at December 31, 2024, compared with $153.3 million at September 30, 2024. The allowance coverage ratio was 1.11% of loans receivable at December 31, 2024, compared with 1.13% at September 30, 2024. The change in the allowance coverage ratio was due to a decrease in quantitative and individually evaluated loan reserves, which reflected, in part, the quarter-over-quarter reduction in criticized loans, partially offset by an increase in qualitative reserves.

The following table sets forth the allowance for credit losses and the coverage ratios at December 31, 2024, September 30, 2024, and December 31, 2023:

Capital

At December 31, 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 December 31, 2024, September 30, 2024, and December 31, 2023:

At December 31, 2024, total stockholders' equity was $2.13 billion, or $17.68 per common share, compared with $2.17 billion, or $17.97 per common share, at September 30, 2024. Tangible common equity ("TCE") per share⁽⁶⁾ was $13.81 at December 31, 2024, compared with $14.10 at September 30, 2024. The quarter-over-quarter change in stockholders' equity included a $45.1 million increase in accumulated other comprehensive losses, which was impacted by market interest rates. The change in accumulated other comprehensive losses impacted book value and tangible book value by $(0.37) per share during the fourth quarter of 2024. The TCE ratio⁽⁶⁾ was 10.05% at December 31, 2024, down 3 basis points from 10.08% at September 30, 2024, and up 119 basis points from December 31, 2023.

The following table sets forth the TCE per share and the TCE ratio at December 31, 2024, September 30, 2024, and December 31, 2023:

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Investor Conference Call

The Company previously announced that it will host an investor conference call on Monday, January 27, 2025, at 9:30 a.m. Pacific Time / 12:30 p.m. Eastern Time to review unaudited financial results for its fourth quarter ended December 31, 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 February 3, 2025, replay access code 6066063.

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, PPNR, PPNR 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 through 12.

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 $17.05 billion in total assets as of December 31, 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 U.S. 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, as 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 contain important information about the pending merger. Territorial Bancorp shareholders are 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 are also able to obtain these documents, free of charge, from Territorial Bancorp at https://www.tsbhawaii.bank/tsb/investor-relations/.

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. 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 with Territorial Bancorp is subject to regulatory approvals 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 renewed 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; diversion of management's attention from ongoing business operations and opportunities; and risks from natural disasters. 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.