Hope Bancorp, Inc. (NASDAQ:HOPE) Q3 2021 Earnings Conference Call October 26, 2021 12:30 PM ET Company Participants Angie Yang – Director-Investor Relations Kevin Kim – Chairman, President and Chief Executive Officer Alex Ko – Senior Executive Vice President and Chief Financial Officer Peter Koh – Deputy Chief Operating Officer Conference Call Participants Chris McGratty – KBW Gary Tenner – D.A. Davidson Operator Good day, and welcome to the Hope Bancorp’s 2021 Third Quarter Earnings Conference Call. All p ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 000-50245 HOPE BANCORP INC (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification ...

Hope Bancorp, Inc (NASDAQ:HOPE) Q2 2021 Results Conference Call July 21, 2021 12:30 PM ET Company Participants Angie Yang - Director, IR Kevin Kim - Chairman, President and CEO Alex Ko - Senior Executive Vice President and CFO Peter Koh - Deputy Chief Operating Officer Richard Marshall - Chief Credit Officer Conference Call Participants Matthew Clark - Piper Jaffray Chris McGratty - KBW Gary Tenner - D.A. Davidson Steven Marascia - Capitol Securities Management Operator Good day, and welcome to the Hope Ban ...

Loan Modifications and Allowances - As of March 31, 2021, the balance of loans with modified terms due to COVID-19 totaled $949.1 million, with approximately 94% being real estate loans[86]. - The Company recorded an allowance for TDR loans of $18.9 million as of March 31, 2021, compared to $4.8 million as of December 31, 2020[88]. - TDR loans on accrual status included 34 commercial real estate loans totaling $33.1 million and 21 commercial business loans totaling $8.5 million as of March 31, 2021[88]. - During the three months ended March 31, 2021, the Company recorded $14.8 million in allowance for credit losses (ACL) for TDR loans modified[89]. - Total charge-offs of TDR loans modified during the three months ended March 31, 2021 amounted to $0[89]. - The Company expects TDR loans on accrual status to continue performing in accordance with their restructured terms due to reduced principal or interest payments[88]. Lease Obligations - The net lease cost for the three months ended March 31, 2021 was $4.43 million, slightly down from $4.5 million in the same period of 2020[97]. - As of March 31, 2021, the Company had right-of-use (ROU) assets of $44.2 million and related lease liabilities of $48.6 million[95]. - The total lease obligations as of March 31, 2021 were $48.575 million after deducting imputed interest of $4.107 million[99]. - The weighted-average remaining lease term for operating leases was 5.1 years as of March 31, 2021[98]. Deposits and Borrowing - As of March 31, 2021, total deposits amounted to $14.30 billion, a slight decrease from $14.33 billion on December 31, 2020[103]. - Noninterest bearing demand deposits increased to $5.43 billion (38%) from $4.81 billion (34%) year-over-year[103]. - Brokered deposits decreased to $720.6 million as of March 31, 2021, down from $1.14 billion at December 31, 2020[102]. - FHLB advances increased to $400.0 million at March 31, 2021, compared to $250.0 million at December 31, 2020, with a weighted average interest rate of 0.69%[106]. - The Company’s remaining borrowing capacity with the FHLB was $3.86 billion as of March 31, 2021[106]. - The Company had a total borrowing capacity from the FHLB of $4.28 billion, with $3.86 billion unused and available to borrow as of March 31, 2021[304]. Financial Instruments and Hedging - The Company maintains a loan hedging program that allows for variable rate loans to be converted into fixed interest rate contracts[117]. - As of March 31, 2021, the notional amount of interest rate swaps related to the Company's loan hedging program was $100.7 million with a weighted average remaining term of 9.1 years[118]. - The estimated fair value of interest rate swaps on loans with correspondent banks included in other liabilities was $(17,878) thousand as of March 31, 2021, compared to $(34,606) thousand at December 31, 2020[118]. - The Company had risk participation agreements with a notional amount of $111.8 million as of March 31, 2021, with a credit valuation adjustment of $95 thousand[119]. Commitments and Servicing Assets - Commitments to extend credit increased to $2,477,778 thousand as of March 31, 2021, from $2,137,178 thousand at December 31, 2020, representing a growth of approximately 16%[127]. - The balance of servicing assets at the end of the period was $12,084 thousand as of March 31, 2021, down from $14,847 thousand at the end of March 2020[135]. - The principal balances of loans serviced for other institutions were $1.21 billion as of March 31, 2021, compared to $1.23 billion at December 31, 2020[135]. Tax and Regulatory Matters - For the three months ended March 31, 2021, the company reported a pretax income of $57.7 million and an income tax provision of $14.0 million, resulting in an effective tax rate of 24.22%, up from 19.94% in the same period of 2020[139]. - The company had total unrecognized tax benefits of $2.8 million as of March 31, 2021, with a potential decrease of $902 thousand expected in the next twelve months due to a settlement with state tax authorities[140][141]. - The company expects no material adjustments from the ongoing examination by the New York City Department of Finance for tax years 2016, 2017, and 2018[142]. - The company determined that a valuation allowance for deferred tax assets was not required as of March 31, 2021, based on its analysis of future income forecasts and current economic conditions[144]. Stockholders' Equity and Compensation - Total stockholders' equity remained stable at $2.05 billion as of March 31, 2021, unchanged from December 31, 2020[166]. - The company repurchased a total of 12,661,581 shares of common stock for $200.0 million as part of previous repurchase programs, with no shares repurchased during the three months ended March 31, 2021[167]. - Dividends paid were $0.14 per common share for both the three months ended March 31, 2021 and 2020[168]. - The total fair value of restricted stock and performance units vested for the three months ended March 31, 2021 was $5.2 million, compared to $2.0 million for the same period in 2020[176]. - The compensation expense for the Employee Stock Purchase Plan (ESPP) during the three months ended March 31, 2021 was $221 thousand, up from $71 thousand in 2020[175]. Comprehensive Income and Fair Value - The unrealized loss on securities available for sale was $40.8 million for the three months ended March 31, 2021, compared to an unrealized gain of $38.9 million in 2020[168]. - The total other comprehensive loss for the three months ended March 31, 2021 was $27.5 million, compared to a total income of $27.3 million in 2020[168]. - The estimated fair value of loans receivable—net was $13.54 billion as of March 31, 2021, compared to $13.43 billion at December 31, 2020[163]. - The company recorded net losses on collateral dependent loans at fair value of $17.3 million for real estate loans and $2.6 million for commercial business loans for the three months ended March 31, 2021[162].

Financial Performance - Net income was $43.7 million[3], resulting in diluted earnings per share (EPS) of $0.35[3] - Net interest income before provision for credit losses increased by 2% to $122.6 million[3] - Noninterest expenses decreased, leading to an improved efficiency ratio by 16bps quarter-over-quarter to 53.61%[3] Loan Portfolio - Gross loans totaled $13.70 billion[3] - New loan originations funded were $847 million, including $304.7 million in second-round PPP fundings[3] - Loans receivable increased by 1%, or 4% annualized[3,6] Deposit Trends - Total deposits reached $14.30 billion[3] - Noninterest-bearing deposits increased by 13% quarter-over-quarter, reaching a record high of 38% of total deposits[3,18] - Time deposits decreased by 11% quarter-over-quarter, accounting for 25% of total deposits[3,18] - The cost of deposits decreased for the sixth consecutive quarter, down 12bps quarter-over-quarter[3,18] Asset Quality - Nonperforming loans increased by $29 million quarter-over-quarter due to one large loan[3,24] - Special Mention loans increased by $96 million quarter-over-quarter, largely reflecting modified hotel/motel loans[3,24] - Net charge-offs were $2.1 million, or 0.06% of average loans receivable on an annualized basis[3,24] COVID-19 Loan Modifications - Active COVID-19 modifications totaled $949 million, representing 6.9% of the total loan portfolio[8] - Hotel/Motel modifications represented 33% of that portfolio, or $535 million[8,10] - Retail CRE modifications represented 8% of that portfolio, or $189 million[8,10] - $381 million of hotel/motel COVID-19 modifications and $115 million of retail CRE COVID-19 modifications were scheduled to expire during 2Q21[10]

Financial Data and Key Metrics Changes - For Q1 2021, the company generated net income of $43.7 million or $0.35 per diluted share, a 54% increase compared to $28.3 million or $0.23 per diluted share in the previous quarter [9] - Net interest income totaled $122.6 million, a 2% increase from $120.8 million in the preceding quarter, marking the third consecutive quarter of growth [27] - The net interest margin increased by 4 basis points to 3.06%, also representing the third consecutive quarter of margin expansion [28] Business Line Data and Key Metrics Changes - Non-interest-bearing deposits increased by 13% quarter-over-quarter, reaching 38% of total deposits, up from 24% a year ago [10][11] - Mortgage originations increased by 12% over the preceding quarter and were up 87% compared to the same quarter last year, leading to a 30% increase in net gain on sale of loans [13] - Excluding PPP loans, the average rate on new loans increased by 17 basis points quarter-over-quarter [18] Market Data and Key Metrics Changes - The company funded $305 million in PPP loan originations during the quarter, with commercial real estate loans decreasing as a percentage of total loans from 69% to 64% year-over-year [14][16] - The hotel/motel sector represented 56% of all active modifications, while retail properties accounted for 20% [20] Company Strategy and Development Direction - The company aims to enhance long-term value by improving loan and deposit mix while maintaining disciplined expense control [8] - A strategic priority for 2021 includes increasing residential mortgage originations and generating higher levels of fee income [12] - The company has expanded its corporate banking group to focus on the healthcare vertical, expecting meaningful contributions to loan production [48] Management Comments on Operating Environment and Future Outlook - Management expects to deliver strong performance driven by reduced cost of deposits, expanded net interest margin, and lower credit costs as economic conditions improve [45] - The loan pipeline is increasing, with expectations for higher loan production in the coming quarters as customer confidence grows [47] - The company anticipates a steady decrease in active loan modifications as the economy recovers [24] Other Important Information - The company maintained a robust capital position with total risk-based capital ratios increasing from the prior quarter [44] - The provision for credit losses was recorded at $3.3 million, maintaining the allowance for credit losses at 1.52% of total loans [40] Q&A Session Summary Question: Future potential for remixing deposits and impact on net interest income - Management indicated that non-interest-bearing demand deposits could continue to expand, positively impacting net interest income [54][55] Question: Service charge run rate and expense outlook - Management expects the expense run rate to remain similar to the first quarter, with no significant changes anticipated [57][58] Question: Remaining PPP fees and amortization schedule - Remaining PPP fees to be recognized amount to $18.3 million, with the majority coming from the second round of PPP, amortized over three years [62] Question: Health of the SBA portfolio - The company holds approximately $220 million in SBA loans and is considering selling some loans due to high market premiums [68] Question: Provision level guidance for the year - Management expects to see some level of reserve release in the second half of the year, contingent on the recovery of the hotel portfolio [72][76]

1 Piper Sandler 2021 Western Financial Services Conference Virtual Conference March 2, 2021 Forward Looking Statements & Additional Disclosures This presentation may contain statements regarding future events or the future financial performance of the Company that 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, ...

Part I [Business](index=4&type=section&id=Item%201.%20Business) Hope Bancorp, Inc. operates as a bank holding company through Bank of Hope, serving ethnic communities with commercial and retail banking services - Hope Bancorp, Inc. is a bank holding company with its main subsidiary, Bank of Hope, focusing on commercial and retail banking in ethnic communities across major US metropolitan areas[13](index=13&type=chunk) - Primary revenue is generated from the interest spread between loans/investments and deposits/borrowings[17](index=17&type=chunk) - Operations are conducted through **58 branches** and **11 loan production offices**, offering diverse products including commercial, real estate, and SBA loans, and wealth management services[18](index=18&type=chunk) - The company is subject to extensive regulation by the FRB, FDIC, and California's DFPI, covering capital adequacy, lending, and consumer protection[42](index=42&type=chunk)[44](index=44&type=chunk)[50](index=50&type=chunk) - As of December 31, 2020, the company had **1,408 full-time equivalent employees** and actively managed operations in response to the COVID-19 pandemic[82](index=82&type=chunk)[83](index=83&type=chunk) [Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors) Significant risks include credit concentration in real estate, interest rate fluctuations, and operational threats - The COVID-19 pandemic poses significant credit risk, potentially increasing nonperforming loans, charge-offs, and the allowance for credit losses[88](index=88&type=chunk)[89](index=89&type=chunk) - A high concentration of loans, **65% of the portfolio as of December 31, 2020**, are secured by real estate, with **12%** in the hospitality sector, increasing vulnerability to market downturns[92](index=92&type=chunk)[96](index=96&type=chunk) - The company faces risks from the scheduled phase-out of LIBOR at the end of 2021, potentially adversely affecting interest rates on assets and liabilities[103](index=103&type=chunk) - Operational risks include potential fraudulent activity and cybersecurity incidents, which are rising in the financial services industry[109](index=109&type=chunk)[111](index=111&type=chunk) - The SBA lending program, a key business area, is dependent on the federal government; loss of Preferred Lender status or program changes could materially harm financial results[122](index=122&type=chunk) [Unresolved Staff Comments](index=25&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None [Properties](index=25&type=section&id=Item%202.%20Properties) As of December 31, 2020, the company operated **58 full-service branches** and **11 leased loan production offices** - As of December 31, 2020, the company operated **58 full-service branches** (**51 leased**, **7 owned**) and **11 leased loan production offices**[142](index=142&type=chunk) [Legal Proceedings](index=25&type=section&id=Item%203.%20Legal%20Proceedings) Loss contingencies for legal claims totaled approximately **$1.3 million** as of December 31, 2020 - Loss contingencies for legal claims totaled approximately **$1.3 million** at December 31, 2020[143](index=143&type=chunk) [Mine Safety Disclosures](index=25&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=26&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Hope Bancorp's common stock trades on NASDAQ under 'HOPE', underperforming key market indices from 2015-2020 - The company's common stock is traded on the NASDAQ Global Select Market under the symbol **"HOPE"**[147](index=147&type=chunk) Stock Performance Comparison (2015-2020) | Stock/Index | 12/31/2015 ($) | 12/31/2016 ($) | 12/31/2017 ($) | 12/31/2018 ($) | 12/31/2019 ($) | 12/31/2020 ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Hope Bancorp, Inc. | $100.00 | $130.87 | $112.02 | $75.22 | $98.05 | $76.36 | | NASDAQ Composite | $100.00 | $108.87 | $141.13 | $137.12 | $187.44 | $271.64 | | S&P 500 Index | $100.00 | $111.96 | $136.40 | $130.42 | $171.49 | $203.04 | [Selected Financial Data](index=27&type=section&id=Item%206.%20Selected%20Financial%20Data) 2020 net income declined due to increased credit loss provisions, with total assets growing to **$17.11 billion** Selected Financial Data (2018-2020) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Income (Millions) | $111.5 | $171.0 | $189.6 | | Diluted EPS ($) | $0.90 | $1.35 | $1.44 | | Total Assets (Billions) | $17.11 | $15.67 | $15.31 | | Total Loans (Billions) | $13.56 | $12.28 | $12.10 | | Total Deposits (Billions) | $14.33 | $12.53 | $12.16 | | Provision for Credit Losses (Millions) | $95.0 | $7.3 | $14.9 | | Return on Average Assets (%) | 0.68% | 1.12% | 1.29% | | Nonperforming Assets (Millions) | $143.3 | $122.1 | $113.0 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) 2020 net income declined due to increased credit loss provisions from COVID-19 and CECL adoption, despite asset growth 2020 vs 2019 Performance Summary | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net Income (Millions) | $111.5 | $171.0 | | Diluted EPS ($) | $0.90 | $1.35 | | Net Interest Income (Millions) | $467.5 | $466.6 | | Provision for Credit Losses (Millions) | $95.0 | $7.3 | | Total Assets (Billions) | $17.11 | $15.67 | - The significant decrease in 2020 net income was primarily caused by an **$87.7 million** year-over-year increase in the provision for credit losses, driven by CECL adoption and COVID-19 economic impact[192](index=192&type=chunk)[215](index=215&type=chunk) - The company provided substantial support to COVID-19 affected borrowers, with loan modifications totaling **$1.38 billion** (**10.2%** of the total loan portfolio) as of December 31, 2020[279](index=279&type=chunk)[283](index=283&type=chunk) - Total assets increased by **$1.44 billion** (**9.2%**) to **$17.11 billion**, mainly due to growth in loans receivable and securities available-for-sale[256](index=256&type=chunk) - The company adopted the CECL accounting standard on January 1, 2020, resulting in a day-one increase to the Allowance for Credit Losses (ACL) of **$26.2 million**[293](index=293&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=63&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Interest rate risk is the primary market risk, managed through sensitivity analysis and simulation, with LIBOR transition underway - The company's primary market risk is interest rate risk, arising from the mismatch in repricing of assets and liabilities[342](index=342&type=chunk) Interest Rate Sensitivity Analysis (as of Dec 31, 2020) | Simulated Rate Change | Estimated Net Interest Income Sensitivity (%) | Market Value of Equity Volatility (%) | | :--- | :--- | :--- | | +200 basis points | 4.81 | 5.11 | | +100 basis points | 2.35 | 3.29 | | -100 basis points | (1.31) | (7.63) | | -200 basis points | (1.41) | 10.80 | - The company is preparing for the discontinuation of LIBOR after 2021, which will affect financial instruments indexed to this rate, including loans, derivatives, and subordinated debentures[351](index=351&type=chunk) [Financial Statements and Supplementary Data](index=66&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Consolidated financial statements and independent auditor's report are incorporated, with supplementary quarterly data in Note 23 - This item references the main consolidated financial statements and the report from the independent auditor, Crowe LLP, beginning on page F-1[353](index=353&type=chunk) - Selected quarterly financial data is available in Note 23 of the Notes to the Consolidated Financial Statements[354](index=354&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=66&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) No changes or disagreements with accountants on accounting principles, practices, or financial disclosure are reported - None [Controls and Procedures](index=67&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[358](index=358&type=chunk) - Management assessed the company's internal control over financial reporting as effective as of December 31, 2020, based on the COSO framework[362](index=362&type=chunk) - No material changes in internal control over financial reporting occurred during the fourth quarter of 2020[364](index=364&type=chunk) [Other Information](index=69&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None Part III [Directors, Executive Officers and Corporate Governance](index=70&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Director, executive officer, and corporate governance information will be provided in the 2021 Proxy Statement - Required information is incorporated by reference from the company's 2021 Proxy Statement[368](index=368&type=chunk) [Executive Compensation](index=70&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding director and executive compensation will be provided in the 2021 Proxy Statement - Required information is incorporated by reference from the company's 2021 Proxy Statement[369](index=369&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=70&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated from the 2021 Proxy Statement, including equity compensation plan details - Security ownership information is incorporated by reference from the 2021 Proxy Statement[370](index=370&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2020) | Plan Category | Securities to be issued upon exercise (Shares) | Weighted avg. exercise price ($) | Securities available for future issuance (Shares) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 851,580 | $15.25 | 921,709 | [Certain Relationships and Related Transactions, and Director Independence](index=70&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Related-party transactions and director independence information will be provided in the 2021 Proxy Statement - Required information is incorporated by reference from the company's 2021 Proxy Statement[372](index=372&type=chunk) [Principal Accountant Fees and Services](index=70&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services will be provided in the 2021 Proxy Statement - Required information is incorporated by reference from the company's 2021 Proxy Statement[373](index=373&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=71&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and exhibits filed as part of the Form 10-K - The financial statements listed under Item 8 are filed with this report[376](index=376&type=chunk) - A comprehensive list of exhibits is provided, including the Certificate of Incorporation, bylaws, debt indentures, and executive employment agreements[378](index=378&type=chunk)[380](index=380&type=chunk) [Form 10-K Summary](index=73&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company provides no summary for this item - None [Report of Independent Registered Public Accounting Firm](index=76&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Crowe LLP issued an unqualified opinion on financial statements and internal controls, noting CECL adoption and two critical audit matters [Opinions on the Financial Statements and Internal Control over Financial Reporting](index=76&type=section&id=Opinions%20on%20the%20Financial%20Statements%20and%20Internal%20Control%20over%20Financial%20Reporting) Crowe LLP issued an unqualified opinion on financial statements and internal controls, noting CECL standard adoption - The auditor, Crowe LLP, provided an unqualified (clean) opinion on both the financial statements and the internal control over financial reporting[391](index=391&type=chunk) - The report notes a significant change in accounting principle effective January 1, 2020, due to the adoption of the Current Expected Credit Loss (CECL) standard (ASC 326)[392](index=392&type=chunk) [Critical Audit Matters](index=77&type=section&id=Critical%20Audit%20Matters) Two critical audit matters identified: Allowance for Credit Losses under CECL and Goodwill Impairment Evaluation - Critical Audit Matter 1: Allowance and Provision for Credit Losses – Loans, due to complexity and significant management judgment in CECL modeling for CRE and CB loans[400](index=400&type=chunk)[402](index=402&type=chunk) - Critical Audit Matter 2: Goodwill Impairment Evaluation, due to high auditor judgment required for significant management assumptions in discounted cash flow analysis[407](index=407&type=chunk)[408](index=408&type=chunk)

1 2020 Fourth Quarter Earnings Conference Call Wednesday, January 27, 2021 Forward Looking Statements & Additional Disclosures 2 uncertainties include, but are not limited to: possible 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 This presentation may contain statements regarding ...

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20FINANCIAL%20STATEMENTS) Unaudited consolidated financial statements as of September 30, 2020, reflect COVID-19 and CECL impacts, showing asset growth and decreased net income due to higher credit loss provisions [Consolidated Statements of Financial Condition (Unaudited)](index=5&type=section&id=Consolidated%20Statements%20of%20Financial%20Condition%20(Unaudited)) Total assets grew to $16.73 billion by September 30, 2020, driven by increased net loans and deposits, while stockholders' equity remained stable Consolidated Balance Sheet Highlights (in millions) | Account | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$16,733.8** | **$15,667.4** | | Cash and cash equivalents | $629.1 | $698.6 | | Loans receivable, net | $12,940.4 | $12,181.9 | | **Total Liabilities** | **$14,693.2** | **$13,631.4** | | Total deposits | $14,008.4 | $12,527.4 | | FHLB advances | $200.0 | $625.0 | | **Total Stockholders' Equity** | **$2,040.6** | **$2,036.0** | [Consolidated Statements of Income (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Income%20(Unaudited)) Net income significantly decreased in Q3 and the first nine months of 2020, primarily due to a substantial increase in the provision for credit losses Income Statement Summary (in millions, except per share data) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $117.6 | $116.3 | $346.7 | $353.1 | | Provision for Credit Losses | $22.0 | $2.1 | $67.5 | $6.3 | | Noninterest Income | $17.5 | $13.0 | $42.0 | $36.7 | | Noninterest Expense | $73.4 | $70.0 | $212.6 | $212.2 | | **Net Income** | **$30.5** | **$42.6** | **$83.2** | **$128.0** | | Diluted EPS | $0.25 | $0.34 | $0.67 | $1.01 | [Consolidated Statements of Cash Flows (Unaudited)](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Net cash used in investing activities significantly impacted overall cash flow, offset by strong financing activities driven by deposit growth Cash Flow Summary for Nine Months Ended Sep 30 (in millions) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $122.3 | $148.9 | | Net Cash (used in) from Investing Activities | ($1,154.1) | $110.6 | | Net Cash from (used in) Financing Activities | $962.4 | ($169.7) | | **Net Change in Cash and Cash Equivalents** | **($69.4)** | **$89.8** | [Notes to Consolidated Financial Statements (Unaudited)](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) Notes detail CECL adoption, significant loan modifications due to COVID-19, and the company's well-capitalized regulatory status - The company adopted the CECL accounting standard (ASU 2016-13) on January 1, 2020, resulting in a day-one increase to the allowance for credit losses of **$26.2 million**[57](index=57&type=chunk)[60](index=60&type=chunk)[75](index=75&type=chunk) - As of September 30, 2020, the company had provided loan modifications totaling **$1.15 billion** due to hardships from the COVID-19 pandemic. These modifications, made under the CARES Act, were not classified as Troubled Debt Restructurings (TDRs)[86](index=86&type=chunk) - The company and its subsidiary, Bank of Hope, were categorized as "well-capitalized" under the regulatory framework for prompt corrective action as of September 30, 2020, with all capital ratios exceeding the required minimums[174](index=174&type=chunk)[176](index=176&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=56&type=section&id=Item%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) MD&A discusses the adverse impact of COVID-19, including decreased net income due to higher credit loss provisions, asset growth, and balance sheet management [Results of Operations](index=61&type=section&id=Results%20of%20Operations) Net income declined in Q3 2020 due to increased provision for credit losses, despite stable net interest income and higher noninterest income from securities sales Q3 2020 vs Q3 2019 Performance (in millions) | Metric | Q3 2020 | Q3 2019 | Change | | :--- | :--- | :--- | :--- | | Net Income | $30.5 | $42.6 | ($12.1) | | Provision for Credit Losses | $22.0 | $2.1 | +$19.9 | | Net Interest Income | $117.6 | $116.3 | +$1.3 | | Noninterest Income | $17.5 | $13.0 | +$4.5 | | Noninterest Expense | $73.4 | $70.0 | +$3.4 | - The net interest margin decreased to **2.91%** in Q3 2020 from **3.25%** in Q3 2019, primarily due to the decline in loan yields resulting from lower market interest rates[209](index=209&type=chunk) - Noninterest income was boosted by a **$7.5 million** net gain on the sale of securities available for sale, which was executed to offset a **$3.6 million** prepayment penalty on FHLB advances[228](index=228&type=chunk)[235](index=235&type=chunk)[215](index=215&type=chunk) [Financial Condition](index=73&type=section&id=Financial%20Condition) Total assets and loans grew significantly, driven by PPP loans, while the allowance for credit losses increased due to CECL and pandemic impacts Loan Portfolio Composition (in billions) | Loan Category | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Commercial Real Estate | $8.35 | $8.32 | | Commercial Business | $3.70 | $2.72 | | Residential Mortgage | $0.66 | $0.84 | | **Total Loans Receivable** | **$13.12** | **$12.28** | - The increase in commercial business loans was significantly impacted by the origination of **$480.1 million** in SBA PPP loans during Q2 2020, with a remaining balance of **$464.6 million** at September 30, 2020[262](index=262&type=chunk) Allowance for Credit Losses (ACL) | Metric | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | ACL Balance | **$179.8 million** | **$94.1 million** | | ACL to Loans Receivable | **1.37%** | **0.77%** | - As of September 30, 2020, COVID-19 related loan modifications decreased significantly to **$1.15 billion** (**8.8%** of total loans) from **$3.12 billion** at June 30, 2020[273](index=273&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=84&type=section&id=Item%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company manages interest rate risk as its primary market risk, with simulations indicating asset sensitivity to rate changes and ongoing LIBOR transition efforts Interest Rate Sensitivity Analysis (as of Sep 30, 2020) | Simulated Rate Change | Estimated Net Interest Income Sensitivity | Market Value of Equity Volatility | | :--- | :--- | :--- | | +200 bps | +8.31% | +7.26% | | +100 bps | +4.19% | +4.45% | | -100 bps | -0.79% | -7.63% | - The company is actively managing the transition from LIBOR, which is set to be discontinued after 2021. A committee has been formed to oversee the process and assess the impact on its various financial instruments indexed to LIBOR[311](index=311&type=chunk) [Controls and Procedures](index=86&type=section&id=Item%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal controls during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period, September 30, 2020[316](index=316&type=chunk) - No material changes to the company's internal control over financial reporting occurred during the third quarter of 2020[317](index=317&type=chunk) [PART II - OTHER INFORMATION](index=87&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Legal Proceedings](index=87&type=section&id=Item%201.%20LEGAL%20PROCEEDINGS) The company is involved in various legal claims with accrued loss contingencies of approximately $1.4 million, not expected to be material to financial statements - Accrued loss contingencies for legal claims were approximately **$1.4 million** at September 30, 2020[320](index=320&type=chunk) [Risk Factors](index=87&type=section&id=Item%201A.%20RISK%20FACTORS) A new risk factor addresses increased credit risk from the COVID-19 pandemic, potentially impacting profitability through higher loan losses and delinquencies - A new risk factor was added to address the increased credit risk from the COVID-19 pandemic, which could adversely impact profitability through higher loan losses and delinquencies[322](index=322&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=88&type=section&id=Item%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) There were no unregistered sales of equity securities or use of proceeds to report for the period - None