HOPE BANCORP INC

Previous wording

Hope Bancorp, Inc. is the holding company of Bank of Hope, a multi-regional bank in the United States with $18.09 billion in total assets at March 31, 2024, and headquartered in Los Angeles, California. From its roots as the largest Korean American bank in the United States, Bank of Hope has grown to serve a multi-ethnic population of customers across the nation through its network of branches and loan production offices. The Bank also operates a representative office in Seoul, Korea to serve its growing base of multi-national commercial and consumer customers. The Bank provides a full suite of consumer and commercial loan, deposit and fee-based products and services, including CRE, C&I, SBA, residential mortgage and other consumer lending; treasury management services and trade finance; foreign currency exchange transactions; interest rate contracts and wealth management.

Current wording

Hope Bancorp, Inc. is the holding company of Bank of Hope, a multi-regional bank in the United States with $17.38 billion in total assets at June 30, 2024, and headquartered in Los Angeles, California. From its roots as the largest Korean American bank in the United States, Bank of Hope has grown to serve a multi-ethnic population of customers across the nation through its network of branches and loan production offices. The Bank also operates a representative office in Seoul, Korea to serve its growing base of multi-national commercial and consumer customers. The Bank provides a full suite of consumer and commercial loans, deposit accounts and fee-based products and services, including CRE, C&I, SBA, residential mortgage and other consumer lending; treasury management services and trade finance; foreign currency exchange transactions, and interest rate contracts.

Previous wording

Bank of Hope at March 31, 2024, operated 48 full-service branches and loan production offices in California, New York, Texas, Washington, Illinois, New Jersey, Virginia, Georgia, Florida, Alabama, Colorado, and Oregon, as well as a representative office in Seoul, South 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.

Current wording

At June 30, 2024, Bank of Hope operated 48 full-service branches and loan production offices in California, New York, Texas, Washington, Illinois, New Jersey, Virginia, Georgia, Florida, Alabama, Colorado, and Oregon, as well as a representative office in Seoul, South 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.

Previous wording

Our principal business involves earning interest on loans and investment securities, primarily funded by deposits and borrowings. Operating income and net income are derived primarily from the difference between interest income received from interest earning assets and interest expense paid on interest bearing liabilities and, to a lesser extent, from fees received in connection with servicing loan and deposit accounts, providing fee-based products and services, and income from the sale of loans. Major expenses are the interest paid on deposits and borrowings, provisions for credit losses and general operating expenses, which primarily consist of salaries and employee benefits, occupancy costs, and other operating expenses. Interest rates are highly sensitive to many factors that are beyond our control, such as changes in the national economy and in the related monetary policies of the FRB, inflation, unemployment, consumer spending, political changes, and other events. We cannot predict the impact that these factors and future changes in domestic and foreign economic and political conditions might have on our business, financial condition, and results of operations.

Current wording

The Bank’s principal business involves earning interest on loans and investment securities, primarily funded by deposits and borrowings. Operating income and net income are derived primarily from the difference between interest income received from interest earning assets and interest expense paid on interest bearing liabilities and, to a lesser extent, from fees received in connection with servicing loan and deposit accounts, providing fee-based products and services, and income from the sale of loans. Major expenses are the interest paid on deposits and borrowings, provisions for credit losses and general operating expenses, which primarily consist of salaries and employee benefits, occupancy costs, and other operating expenses. Interest rates are highly sensitive to many factors that are beyond our control, such as changes in the national economy and in the related monetary policies of the FRB, inflation, unemployment, consumer spending, political changes, and other events. We cannot predict the impact that these factors and future changes in domestic and foreign economic and political conditions might have on our business, financial condition, and results of operations.

Previous wording

Net income for the first quarter of 2024 was $25.9 million, or $0.21 per diluted common share, compared with $39.1 million, or $0.33 per diluted common share, for the same period of 2023, which was a decrease of $13.3 million, or 33.9%. The year-over-year decrease in net income was primarily due to decreases in net interest income and noninterest income, offset partially by a decrease in noninterest expense.

Current wording

Net income for the second quarter of 2024 was $25.3 million, or $0.21 per diluted common share, compared with $38.0 million, or $0.32 per diluted common share, for the same period of 2023, which was a decrease of $12.8 million, or 33.5%. The year-over-year decrease in net income was primarily due to decreases in net interest income and noninterest income, offset partially by decreases in the provision for credit losses and noninterest expense.

Previous wording

Net interest income before provision for credit losses was $115.0 million for the first quarter of 2024, compared with $133.9 million for the same period of 2023, a decrease of $18.8 million, or 14.1%. The year-over-year decrease in net interest income was driven by a higher cost of funds, an increase in the average balance of interest bearing funding, and a decrease in average loans, partially offset by expanding yields on interest earning assets and a higher average balance of interest earning cash and deposits in other banks. The year-over-year increase in interest earning asset yields and deposit costs reflected the change in market interest rates during the period. The target Federal Funds rate increased to 5.50% at March 31, 2024, up from 5.00% at March 31, 2023. The increase in the average balance of interest earning cash and deposits in other banks reflected an overall conservative approach to liquidity risk management, largely funded through the FRB’s BTFP. The banking industry underwent a disruption in the first half of 2023 related to the failures of several regional banks.

Current wording

Net interest income before provision for credit losses was $105.9 million for the second quarter of 2024, compared with $130.7 million for the same period of 2023, a decrease of $24.8 million, or 19.0%. The year-over-year decrease in net interest income was driven by a decrease in the average balances of loans and interest earning cash and deposits at other banks, and an increased cost of deposits, partially offset by a decrease in the average balance of interest bearing liabilities and expanding yields on interest earning assets. The decrease in the average balance of loans reflected elevated payoffs in a high interest rate environment. The decrease in the average balance of interest earning cash and deposits in other banks was attributable to the payoff of FRB BTFP borrowings, which matured in the first half of 2024, with interest earning cash. The year-over-year increases in interest earning asset yields and deposit costs reflected continued increases in market interest rates during the period. The target Federal Funds rate increased to 5.50% at June 30, 2024, up from 5.25% at June 30, 2023, and 4.50% at December 31, 2022.

Previous wording

Net interest margin is impacted by the weighted average rates earned on interest earning assets and paid on interest bearing liabilities. The net interest margin for the first quarter of 2024 was 2.55%, a decrease of 47 basis points from 3.02% for the same period of 2023. The decrease in net interest margin was primarily due to a higher cost of funds, an increase in the average balance of interest bearing funding, and a decrease in average loans, partially offset by loan yield expansion and growth in average interest earning cash and deposits at other banks.

Current wording

Net interest margin is impacted by the weighted average rates earned on interest earning assets and paid on interest bearing liabilities. The net interest margin for the second quarter of 2024 was 2.62%, a decrease of 8 basis points from 2.70% for the same period of 2023. The net interest margin for the six months ended June 30, 2024, was 2.58%, a decrease of 27 basis points from 2.85% for the same period of 2023. The decrease in net interest margin was primarily due to a higher cost of funds, and a decrease in average loans, partially offset by loan yield expansion, the net impact of paying off FRB BTFP borrowings, which matured in the first half of 2024, and a decrease in average interest bearing deposits.

Previous wording

The weighted average yield on loans increased to 6.25% for the first quarter of 2024, up 50 basis points from 5.75% for the same period of 2023. The increase in average yields was driven by the upward repricing of variable rate loans in a rising interest rate environment, and higher average rates on new loans. At March 31, 2024, variable interest rate loans made up 45% of the loan portfolio. For the three months ended March 31, 2024 and 2023, the average weighted rate on new loan originations was 8.27% and 7.53%, respectively.

Current wording

The weighted average yield on loans increased to 6.20% for the second quarter of 2024, up 21 basis points from 5.99% for the same period of 2023. The weighted average yield on loans increased by 36 basis points to 6.23% for the six months ended June 30, 2024, up from 5.87% for the same period of 2023. The year-over-year increase in average yields was driven by the upward repricing of variable rate loans in a rising interest rate environment. At June 30, 2024, variable interest rate loans made up 44% of the loan portfolio. For the three and six months ended June 30, 2024, the average weighted rate on new loan originations was 7.71% and 7.97%, respectively, compared with 8.37% and 7.92% for the same periods of 2023, respectively.

Previous wording

The weighted average yield on investment securities for the three months ended March 31, 2024 and 2023, was 3.13% and 2.73%, respectively. The increase in average yields was primarily due to higher rates on new purchases of investment securities, and an upward repricing of variable rate investments. At March 31, 2024, 12% of the investment portfolio consisted of securities with variable coupon rates. The change in yields was also impacted by fluctuations in the overall investment portfolio yield due to the change in pay-down speeds of investment securities.

Current wording

The weighted average yield on investment securities for the three and six months ended June 30, 2024, was 3.11% and 3.12%, respectively, compared with 2.78% and 2.75% for the same periods of 2023, respectively. The increase in average yields was primarily due to higher rates on new purchases of investment securities, and an upward repricing of variable rate investments. At June 30, 2024, 13% of the investment portfolio consisted of securities with variable coupon rates. The change in yields was also impacted by fluctuations in the overall investment portfolio yield due to the change in pay-down speeds of investment securities.

Previous wording

The weighted average yield on interest earning cash and deposits at other banks for the first quarter of 2024 was 5.41%, an increase of 119 basis points from 4.22% for the same period of 2023. The yield on interest earning cash and deposits at other banks is tied to the Federal Funds rate.

Current wording

The weighted average yield on interest earning cash and deposits at other banks for the second quarter of 2024 was 4.96%, a decrease of 12 basis points from 5.08% for the same period of 2023. The weighted average yield on interest earning cash and deposits at other banks for the six months ended June 30, 2024, was 5.33%, an increase of 41 basis points from 4.92% for the same period of 2023. The yield on interest earning cash and deposits at other banks is tied to the Federal Funds rate.

Previous wording

The weighted average cost of deposits for the first quarter of 2024 was 3.36%, an increase of 99 basis points from 2.37% for the same period of 2023. The year-over-year increase in the cost of deposits was driven by rising market interest rates, a remix of deposits into higher-cost categories, and increased competition for deposits.

Current wording

The weighted average cost of deposits for the second quarter of 2024 was 3.39%, an increase of 60 basis points from 2.79% for the same period of 2023. The weighted average cost of deposits for the six months ended June 30, 2024, was 3.37%, an increase of 79 basis points from 2.58% for the same period of 2023. The year-over-year increase in the cost of deposits was driven by rising market interest rates, a remix of deposits into higher-cost categories due to customer preferences for higher rates, and aggressive deposit pricing competition.

Previous wording

The weighted average cost of convertible notes for the first quarter of 2024 was 2.00%, a decrease of 44 basis points from 2.44% for the same period of 2023. The cost of convertible notes consisted of the 2.00% coupon rate and non-cash interest expense from the capitalization of issuance costs prior to June 30, 2023. The capitalized issuance costs were fully amortized at March 31, 2024, and the cost is expected to continue to consist solely of the coupon rate going forward.

Current wording

The weighted average cost of convertible notes for the second quarter of 2024 was 2.00%, a decrease of 48 basis points from 2.48% for the same period of 2023. The weighted average cost of convertible notes for the six months ended June 30, 2024 was 2.00%, a decrease of 45 basis points from 2.45% for the same period of 2023. The cost of convertible notes consisted of the 2.00% coupon rate and non-cash interest expense from the capitalization of issuance costs prior to June 30, 2023. The capitalized issuance costs have been fully amortized since June 30, 2023, and the cost is expected to continue to consist solely of the coupon rate going forward.

Previous wording

The weighted average cost of subordinated debentures for the first quarter of 2024 was 10.41%, an increase of 95 basis points from 9.46% for the same period of 2023. The subordinated debentures have variable interest rates that are tied to the three-month Chicago Mercantile Exchange term Secured Financing Overnight Rate (“SOFR”) rate, and the three-month LIBOR rate prior to LIBOR cessation at June 2023. The cost increased alongside the year-over-year increase in LIBOR and SOFR rates.

Current wording

The weighted average cost of subordinated debentures for the second quarter of 2024 was 10.35%, an increase of 56 basis points from 9.79% for the same period of 2023. The weighted average cost of subordinated debentures for the six months ended June 30, 2024, was 10.38%, an increase of 76 basis points from 9.62% for the same period of 2023. The subordinated debentures have variable interest rates that are tied to the three-month Chicago Mercantile Exchange term Secured Financing Overnight Rate (“SOFR”) rate, and the three-month LIBOR rate prior to LIBOR cessation at June 2023. The cost increased alongside the year-over-year increase in LIBOR and SOFR rates.

Previous wording

The provision for credit losses reflects management’s assessment of the current period cost associated with credit risk inherent in the loan portfolio. The provision for credit losses for each period includes provision for credit loss on loans and provision for unfunded loans commitments. Provision for credit loss on loans is dependent upon many factors, including loan growth, net charge offs, changes in the composition of the loan portfolio, delinquencies, assessments by management, examinations of the loan portfolio, the value of the underlying collateral on problem loans, the general economic conditions in our market areas, and future projections of the economy. Specifically, the provision for credit loss on loans represents the amount charged against current period earnings to achieve an allowance for credit losses that, in management’s judgment, is adequate to absorb probable lifetime losses inherent in the loan portfolio. Provision for unfunded loan commitments is based on the estimated future funding of loan commitments. Periodic fluctuations in the provision for credit losses result from management’s assessment of the adequacy of the allowance for credit losses and allowance for unfunded loan commitments, and actual credit losses may vary in material respects from current estimates. If the allowances are inadequate, we may be required to record additional provisions, which may have a material and adverse effect on business, financial condition, and results of operations.

Current wording

The provision for credit losses reflects management’s assessment of the current period cost associated with credit risk inherent in the loan portfolio. The provision for credit losses for each period includes provision for credit loss on loans and provision for unfunded loan commitments. Provision for credit loss on loans is dependent upon many factors, including loan growth, net charge offs, changes in the composition of the loan portfolio, delinquencies, assessments by management, examinations of the loan portfolio, the value of the underlying collateral on problem loans, the general economic conditions in our market areas, and future projections of the economy. Specifically, the provision for credit loss on loans represents the amount charged against current period earnings to achieve an allowance for credit losses that, in management’s judgment, is adequate to absorb probable lifetime losses inherent in the loan portfolio. Provision for unfunded loan commitments is based on the estimated future funding of loan commitments. Periodic fluctuations in the provision for credit losses result from management’s assessment of the adequacy of the allowance for credit losses and allowance for unfunded loan commitments, and actual credit losses may vary in material respects from current estimates. If the allowances are inadequate, we may be required to record additional provisions, which may have a material and adverse effect on business, financial condition, and results of operations.

Previous wording

The provision for credit losses for the first quarter of 2024 was $2.6 million, a decrease of $720 thousand from $3.3 million for the same period of the prior year. The provision for credit losses includes both provision for credit loss on loans and provision for unfunded loan commitments. The year-over-year decrease in provision for credit losses was largely due to the recapture of provision for unfunded loan commitments of $1.0 million for the first quarter of 2024, due to a decline in the estimated future funding of loan commitments. This compares to a provision for unfunded loan commitments of $1.6 million for the first quarter of 2023. The provision for credit loss on loans totaled $3.6 million for the three months ended March 31, 2024, compared with $1.7 million for the three months ended March 31, 2023. The year-over-year increase to the provision for credit loss on loans was due to charge offs, partially offset by the lower balance of loans receivable.

Current wording

The provision for credit losses for the second quarter of 2024 was $1.4 million, a decrease of $7.6 million from $9.0 million for the same period of the prior year. Provision for credit losses for the six months ended June 30, 2024, was $4.0 million, a decrease of $8.3 million from $12.3 million in provision for credit losses for the same period of the prior year. The provision for credit losses includes both provision for credit loss on loans and provision for unfunded loan commitments. The year-over-year decreases in provision for credit losses was largely due to the lower provision for credit loss on loans of $1.7 million and $5.3 million for the three and six months ended June 30, 2024, respectively, compared with $8.9 million and $10.6 million for the same periods in 2023, respectively. The provision for credit loss on loans decreased year over year because of a lower provision on individually evaluated loans and lower balances of loans receivable. The recapture of provision for unfunded loan commitments was $300 thousand and $1.3 million for the three and six months ended June 30, 2024, respectively, compared with a provision for unfunded loan commitments of $110 thousand and $1.7 million for the same periods of 2023, respectively. The year-over-year decreases to the provision for unfunded loan commitments was due to lower balances of unfunded loan and trade finance commitments.

Previous wording

The allowance for credit losses coverage ratio was 1.16% of loans receivable at March 31, 2024, compared with 1.09% at March 31, 2023.

Current wording

The allowance for credit losses coverage ratio was 1.15% of loans receivable at June 30, 2024, compared with 1.16% at June 30, 2023.

Previous wording

Noninterest income is primarily comprised of service fees on deposit accounts, international service fees (fees received on trade finance letters of credit), wire transfer fees, swap fee income, net gains on sales of loans, and other income and fees. Noninterest income for the first quarter of 2024 was $8.3 million, compared with $11.0 million for the same period of 2023, a decrease of $2.7 million, or 24.5%.

Current wording

Noninterest income is primarily comprised of service fees on deposit accounts, international service fees (fees received on trade finance letters of credit), wire transfer and foreign currency fees, swap fee income, net gains on sales of loans, and other income and fees. Noninterest income for the second quarter of 2024 was $11.1 million, compared with $17.0 million for the same period of 2023, a decrease of $5.9 million, or 34.9%. Noninterest income for the six months ended June 30, 2024, was $19.4 million, compared with $28.0 million for the same period of the prior year, a decrease of $8.6 million, or 30.8%.

Previous wording

Noninterest income by category is summarized in the table below:

Current wording

Noninterest income by category is summarized in the tables below:

Previous wording

The year-over-year decrease in noninterest income was primarily attributable to lower net gains on sales of SBA loans and other income and fees.

Current wording

The year-over-year decrease in second quarter noninterest income was primarily driven by lower other income and fees, due to a $5.8 million cash distribution gain from investment in an affordable housing partnerships in the year-ago quarter that did not recur in the current year. For the six months ended June 30, 2024, the decrease was additionally attributable to lower gains on sales of SBA loans, compared with the same period of 2023.

Previous wording

During the three months ended March 31, 2024, we did not sell SBA guaranteed loans and, consequently, recorded no in net gains on sale of SBA loans. During the three months ended March 31, 2023, we sold $40.7 million in SBA guaranteed loans and recorded $2.2 million in net gains on sale of SBA loans. We elected not to sell any SBA 7(a) loans starting in the second half of 2023, retaining loan production on our balance sheet instead.

Current wording

The Bank resumed the sales of SBA guaranteed loans in the second quarter of 2024 due to improved conditions in the secondary markets, after retaining loan production on balance sheet starting in the second half of 2023. During the three and six months ended June 30, 2024, we sold $29.8 million in SBA guaranteed loans and recorded $2.0 million in net gains on sale of SBA loans. This compares with net gains of $1.9 million and $4.1 million, respectively, on SBA guaranteed loans sold of $38.4 million and $79.1 million, respectively, for the three and six months ended June 30, 2023.

Previous wording

During the three months ended March 31, 2023, other income and fees included $500 thousand in fee income from our investment services line that was eliminated after 2023 due to restructuring, and a $236 thousand gain on debt extinguishment from our repurchase of convertible notes, which did not recur in the same period of 2024.

Current wording

During the three and six months ended June 30, 2023, other income and fees included a $5.8 million gain from a cash distribution from an investment in an affordable housing partnership, which did not recur in the same periods of 2024. During the three and six months ended June 30, 2023, other income and fees also included $315 thousand and $815 thousand, respectively, in fee income from our investment services line that was eliminated after 2023 due to the restructuring, and a gain of $169 thousand and $405 thousand, respectively, on debt extinguishment from our repurchase of convertible notes, neither of which recurred in the same periods of 2024.

Previous wording

The breakdown of changes in noninterest expense by category is shown in the following table:

Current wording

The breakdown of changes in noninterest expense by category is shown in the following tables:

Previous wording

The year-over-year decrease in noninterest expense was primarily driven by lower salaries and employee benefits expense.

Current wording

The year-over-year decrease in noninterest expense for the three and six months ended June 30, 2024 compared with the same periods in 2023, was primarily driven by lower salaries and employee benefits expense and FDIC assessment expense, excluding FDIC special assessment expense, partially offset by merger-related costs, restructuring-related costs and higher earned interest credits expense.

Previous wording

Salaries and employee benefits expense decreased $9.3 million, or 16.3%, for the first quarter of 2024, compared with the same period of 2023, reflecting the realized cost savings from a reduced total headcount related to the restructuring in 2023. The number of full-time equivalent employees decreased to 1,227 at March 31, 2024, down from 1,467 at March 31, 2023.

Current wording

Salaries and employee benefits expense decreased $8.2 million, or 15.7%, for the second quarter of 2024, compared with the same period of 2023, and decreased $17.8 million, or 16.3%, for the six months ended June 30, 2024, compared with the same period in 2023. The year-over-year decrease in salaries and employee benefits reflected headcount reductions related to the Company’s restructuring in late 2023. The number of full-time equivalent employees decreased to 1,238 at June 30, 2024, down from 1,469 at June 30, 2023.

Previous wording

FDIC assessments expense increased by $1.1 million, or 64.3%, for the three months ended March 31, 2024, compared with the same period of 2023. The FDIC assessment expense utilizes an initial base assessment rate, which is calculated as a percentage of the Bank’s average consolidated total assets less average tangible equity. In addition to the initial assessment base, adjustments are added based upon the Bank’s regulatory rating and on other financial measures. In 2023, the FDIC annual base assessment rate increased by two basis points industry-wide. In addition, in November 2023, the FDIC approved a special assessment at the rate of approximately 13.4 basis points per year, paid in eight quarterly installments beginning in the first quarter of 2024. This rate will be applied to an assessment base of the insured depository institution’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits. In February 2024, the FDIC informed banks of an increase from the original estimate related to this special assessment. The increase in FDIC assessment fees for the three months ended March 31, 2024, compared with 2023 was due primarily to the aforementioned increased annual base assessment rate and an additional $1.0 million accrued for the special assessment.

Current wording

FDIC assessments expense decreased by $1.7 million, or 36.0%, for the second quarter of 2024, compared with the same period of 2023, and decreased $543 thousand or 8.4% for the six months ended June 30, 2024, compared with the same period in 2023. The FDIC assessment expense utilizes an initial base assessment rate, which is calculated as a percentage of the Bank’s average consolidated total assets less average tangible equity. In addition to the initial assessment base, adjustments are added based upon the Bank’s regulatory rating and on other financial measures. In 2023, the FDIC annual base assessment rate increased by two basis points industry-wide. In addition, in November 2023, the FDIC approved a special assessment at the rate of approximately 13.4 basis points per year, paid in eight quarterly installments beginning in the first quarter of 2024. This rate was applied to an assessment base of the insured depository institution’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits. In February 2024, the FDIC informed banks of an increase from the original estimate related to this special assessment. This additional amount is expected to be paid in two additional quarterly installments, at a rate of approximately 9.4 basis points per year on the same adjusted assessment base. The decrease in FDIC assessments expense for the three and six months ended June 30, 2024, compared with the same periods in 2023, was due primarily to lower average consolidated total assets and a lower assessment base.

Previous wording

Earned interest credits are provided to certain commercial depositors to help offset deposit service charges incurred. The earned interest credits are tied to short-term interest rates and have increased with the increases in the Federal Funds rate since mid-2022. Earned interest credits increased to $5.8 million for the first quarter of 2024, compared with $4.4 million for the same period in 2023.

Current wording

Earned interest credits are provided to certain commercial depositors to help offset deposit service charges incurred. The earned interest credits are tied to short-term interest rates and have increased with the increases in the Federal Funds rate since mid-2022. Earned interest credit expense increased to $6.1 million for the second quarter of 2024, compared with $5.1 million for the same period in 2023, and increased to $12.0 million for the six months ended June 30, 2024, compared with $9.5 million in the year-ago period.

Previous wording

Merger related costs of $1.0 million for the three months ended March 31, 2024, mostly relate to professional fees for the definitive merger agreement with Territorial Bancorp, Inc. announced in April 2024. See Note 20 - “Subsequent Events” for additional information regarding the merger.

Current wording

Merger-related costs of $1.6 million and $2.6 million for the three and six months ended June 30, 2024, respectively, primarily relate to professional fees for the definitive merger agreement with Territorial Bancorp, Inc. announced in April 2024. See Note 1—“Hope Bancorp, Inc.” for additional information regarding the merger.

Previous wording

Income tax provision expense was $10.0 million for the three months ended March 31, 2024, compared with $13.7 million for the same period of 2023. The effective income tax rate for the three months ended March 31, 2024, was 27.94%, compared with 25.91% for the same period of 2023.

Current wording

Income tax provision expense was $9.3 million and $19.3 million for the three and six months ended June 30, 2024, respectively, compared with $13.4 million and $27.1 million for the same periods of 2023, respectively. The effective income tax rate for the three and six months ended June 30, 2024, was 26.85% and 27.41%, respectively, compared with 26.13% and 26.02% for the same periods of 2023, respectively.

Previous wording

We invest in affordable housing partnerships and receive CRA credits and tax credits that reduce the overall effective tax rate. Amortization of investments in affordable housing partnerships is recorded in noninterest expense based on benefit schedules of individual investment projects under the equity method of accounting. The benefit schedules show tax deductions investors can take each year. We amortize the initial cost of the investments in affordable housing partnerships. This amortization expense is more than offset by both tax credits received, which reduce our tax provision expense dollar for dollar, and the tax benefits related to any tax losses generated through the affordable housing project’s expenditures. For the three months ended March 31, 2024, total tax credits related to our investment in affordable housing partnerships were approximately $2.1 million. This compares with approximately $2.0 million in tax credits related to our investment in affordable housing partnerships for the same period in 2023. The balance of investments in affordable housing partnerships increased to $52.3 million at March 31, 2024, from $46.0 million at March 31, 2023.

Current wording

We invest in affordable housing partnerships and receive CRA credits and tax credits that reduce our overall effective tax rate. Amortization of investments in affordable housing partnerships is recorded in noninterest expense based on benefit schedules of individual investment projects under the equity method of accounting. The benefit schedules show tax deductions investors can take each year. We amortize the initial cost of the investments in affordable housing partnerships. This amortization expense is more than offset by both tax credits received, which reduce our tax provision expense dollar for dollar, and the tax benefits related to any tax losses generated through the affordable housing project’s expenditures. For the three and six months ended June 30, 2024, total tax credits related to our investment in affordable housing partnerships were approximately $2.1 million and $4.3 million, respectively. This compares with approximately $2.0 million and $4.0 million in tax credits related to our investment in affordable housing partnerships for the same periods in 2023, respectively. The balance of investments in affordable housing partnerships increased to $50.1 million at June 30, 2024, from $44.0 million at June 30, 2023.

Previous wording

At March 31, 2024, total assets were $18.09 billion, a decrease of $1.04 billion, or 5.5%, from $19.13 billion at December 31, 2023. The decrease in total assets was primarily due to decreases in cash and cash equivalents, loans receivable, and investment securities during the three months ended March 31, 2024.

Current wording

At June 30, 2024, total assets were $17.38 billion, a decrease of $1.76 billion, or 9.2%, from $19.13 billion at December 31, 2023. The decrease in total assets was primarily due to decreases in cash and cash equivalents, which were used to pay off $1.70 billion of FRB BTFP borrowings, followed by smaller decreases in loans receivable and investment securities during the six months ended June 30, 2024.

Previous wording

Cash and cash equivalentsof $1.19 billion at March 31, 2024, was down from$1.93 billion at December 31, 2023, primarily reflecting the payoff of$1.00 billion of our BTFP borrowings with existing cash in the three months ended March 31, 2024.

Current wording

Cash and cash equivalentsof $654.0 million at June 30, 2024, was down from$1.93 billion at December 31, 2023, primarily reflecting the full payoff of $1.70 billion of FRB BTFP borrowings with interest earning cash in the six months ended June 30, 2024.

Previous wording

At March 31, 2024, we had $2.02 billion in investment securities AFS, compared with $2.15 billion at December 31, 2023. The net unrealized loss on the investment securities AFS at March 31, 2024, was $298.5 million, compared with a net unrealized loss on securities AFS of $284.7 million at December 31, 2023. The year-to-date increase in net unrealized loss position reflected movements in market interest rates. At March 31, 2024, we had $261.6 million in investment securities HTM, compared with $263.9 million at December 31, 2023. We have the ability and intent to hold securities classified as HTM to maturity.

Current wording

At June 30, 2024, we had $1.91 billion in investment securities AFS, compared with $2.15 billion at December 31, 2023. The net unrealized loss on the investment securities AFS at June 30, 2024, was $308.3 million, compared with a net unrealized loss on securities AFS of $284.7 million at December 31, 2023. The year-to-date increase in net unrealized loss position reflected movements in market interest rates. At June 30, 2024, we had $258.1 million in investment securities HTM, compared with $263.9 million at December 31, 2023. We have the ability and intent to hold securities classified as HTM to maturity.

Previous wording

During the three months ended March 31, 2024, $37.2 million in investment securities were purchased, $37.0 million in investment securities were paid down, and $117.7 million in investment securities matured or were called.

Current wording

During the six months ended June 30, 2024, $80.3 million in investment securities were purchased, $79.6 million in investment securities were paid down, $121.7 million in investment securities matured and were called, and $92.6 million in investment securities AFS were sold.

Previous wording

We performed an analysis on our investment securities in unrealized loss positions at March 31, 2024 and December 31, 2023, and determined that an allowance for credit losses was not required for investment securities AFS or HTM. The majority of our investment portfolio consists of securities issued by U.S. Government agencies or U.S. Government sponsored enterprises, which were determined to have a zero loss expectation. At March 31, 2024, we also had five asset-backed securities, six corporate securities, and 58 municipal bonds not issued by U.S. Government agencies or U.S. Government sponsored enterprises that were in unrealized loss positions. Based on our analysis of these investment securities, we concluded a credit loss did not exist due to the strength of the issuers, high bond ratings, and because full payment of principal and interest is expected.

Current wording

We performed an analysis on our investment securities in unrealized loss positions at June 30, 2024 and December 31, 2023, and determined that an allowance for credit losses was not required for investment securities AFS or HTM. The majority of our investment portfolio consists of securities issued by U.S. Government agencies or U.S. Government sponsored enterprises, which were determined to have a zero loss expectation. At June 30, 2024, we also had one asset-backed security, six corporate securities, and 73 municipal bonds not issued by U.S. Government agencies or U.S. Government sponsored enterprises that were in unrealized loss positions. Based on our analysis of these investment securities, we concluded a credit loss did not exist due to the strength of the issuers, high bond ratings, and because full payment of principal and interest is expected.

Previous wording

Total equity investments include equity investments with readily determinable fair values and equity investments without readily determinable fair values. Equity investments at March 31, 2024, totaled $43.9 million, an increase of $175 thousand, or 0.4%, from $43.8 million at December 31, 2023.

Current wording

Total equity investments include equity investments with readily determinable fair values and equity investments without readily determinable fair values. Equity investments at June 30, 2024, totaled $44.3 million, an increase of $528 thousand, or 1.2%, from $43.8 million at December 31, 2023.

Previous wording

We also had $39.6 million and $39.4 million in equity investments without readily determinable fair values at March 31, 2024 and December 31, 2023, respectively. At March 31, 2024, equity investments without readily determinable fair values included $38.2 million in CRA investments, $1.0 million in CDFI investments, and $370 thousand in correspondent bank stock. Equity investments without readily determinable fair values are carried at cost, less impairment, and adjustments are made to the carrying balance based on observable price changes. There were no impairments or observable price changes for equity investments without readily determinable fair values during the three months ended March 31, 2024 and 2023.

Current wording

We also had $40.0 million and $39.4 million in equity investments without readily determinable fair values at June 30, 2024 and December 31, 2023, respectively. At June 30, 2024, equity investments without readily determinable fair values included $38.6 million in CRA investments, $1.0 million in CDFI investments, and $370 thousand in correspondent bank stock. Equity investments without readily determinable fair values are carried at cost, less impairment, and adjustments are made to the carrying balance based on observable price changes. There were no impairments or observable price changes for equity investments without readily determinable fair values during the six months ended June 30, 2024 and 2023.

Previous wording

Loans held for sale at March 31, 2024, totaled $2.8 million, compared with $3.4 million at December 31, 2023. Loans held for sale at March 31, 2024, comprised $2.3 million in CRE loans and $476 thousand in residential mortgage loans. At December 31, 2023, loans held for sale consisted of $2.3 million in CRE loans and $1.1 million in residential mortgage loans. During the three months ended March 31, 2024, we sold $6.2 million in loans, all of which were residential mortgage loans.

Current wording

Loans held for sale at June 30, 2024, totaled $68.3 million, compared with $3.4 million at December 31, 2023. Loans held for sale at June 30, 2024, comprised $40.2 million in SBA loans, $2.0 million in residential mortgage loans, and $26.2 million in other C&I loans. At December 31, 2023, loans held for sale consisted of $1.1 million in residential mortgage loans and $2.3 million in other loans. During the six months ended June 30, 2024, we sold $65.6 million in loans, consisting of $29.8 million in SBA loans, $12.1 million in residential mortgage loans, and $23.7 million in other loans.

Previous wording

At March 31, 2024, loans receivable totaled $13.72 billion, a decrease of $134.4 million, or 1.0%, from $13.85 billion at December 31, 2023. The following table summarizes our loan portfolio by amount and percentage of total loans outstanding in each loan segment as of the dates indicated:

Current wording

At June 30, 2024, loans receivable totaled $13.57 billion, a decrease of $286.6 million, or 2.1%, from $13.85 billion at December 31, 2023. The following table summarizes our loan portfolio by amount and percentage of total loans outstanding in each loan segment as of the dates indicated:

Previous wording

The year-to-date decrease in our total loans receivable was primarily due to declines in CRE and C&I loans as loan payoffs and paydowns exceeded new origination volume, reflecting, in part, our prudent approach to loan growth and lower customer demand in a high interest rate environment. The decreases were partially offset by an increase in residential mortgage loans over the same period.

Current wording

The year-to-date decrease in our total loans receivable was primarily due to declines in C&I and CRE loans as loan payoffs, paydowns and sales exceeded new origination volume, reflecting, in part, elevated payoffs of commercial loans in a high interest rate environment. These decreases were partially offset by growth in residential mortgage loans over the same period.

Previous wording

Nonperforming assets, which consist of nonaccrual loans, accruing delinquent loans past due 90 days or more, and OREO, totaled $106.8 million at March 31, 2024, compared with $45.5 million at December 31, 2023. The increase in nonperforming assets was largely driven by one relationship consisting of three commercial real estate loans. These loans are fully secured and sales agreements are in place for the collateral properties. The ratio of nonperforming assets to total assets increased to 0.59% at March 31, 2024, from 0.24% at December 31, 2023. Nonaccrual loans to loans receivable increased to 0.43% at March 31, 2024, from 0.33% at December 31, 2023.

Current wording

Nonperforming assets, which consist of nonaccrual loans, accruing delinquent loans past due 90 days or more, and OREO, totaled $67.3 million at June 30, 2024, compared with $45.5 million at December 31, 2023. The increase in nonperforming loans was largely driven by an increase in C&I nonaccrual loans. The ratio of nonperforming assets to total assets increased to 0.39% at June 30, 2024, compared with 0.24% at December 31, 2023. Nonaccrual loans to loans receivable was 0.49% at June 30, 2024, compared with 0.33% at December 31, 2023.

Previous wording

(1) Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation totaling $10.9 million at March 31, 2024, and $11.4 million at December 31, 2023.

Current wording

(1) Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation totaling $11.2 million at June 30, 2024, and $11.4 million at December 31, 2023.