Hope Bancorp(US:HOPE)2019-08-06 18:24PART I - FINANCIAL INFORMATION Financial Statements Hope Bancorp reported net income of $85.4 million for the six months ended June 30, 2019, a decrease from $98.8 million in the prior year, driven by lower net interest and noninterest income, while total assets slightly increased to $15.34 billion and stockholders' equity grew to $2.00 billion Consolidated Statements of Financial Condition Total assets slightly increased to $15.34 billion as of June 30, 2019, driven by higher cash and cash equivalents, while total liabilities decreased and stockholders' equity rose to $1.995 billion Consolidated Balance Sheet Highlights (Unaudited) | Account | June 30, 2019 ($ in thousands) | December 31, 2018 ($ in thousands) | | :--- | :--- | :--- | | Total Assets | $15,338,827 | $15,305,952 | | Cash and cash equivalents | $609,795 | $459,606 | | Securities available for sale | $1,826,903 | $1,846,265 | | Loans receivable, net | $11,883,068 | $12,005,558 | | Goodwill | $464,450 | $464,450 | | Total Liabilities | $13,343,655 | $13,402,741 | | Total deposits | $12,172,384 | $12,155,656 | | FHLB advances | $695,000 | $821,280 | | Total Stockholders' Equity | $1,995,172 | $1,903,211 | Consolidated Statements of Income Net income for the six months ended June 30, 2019, decreased to $85.4 million from $98.8 million in the prior year, primarily due to lower net interest and noninterest income, resulting in diluted EPS of $0.67 Key Income Statement Data (Unaudited) | Metric ($ in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $117,221 | $122,819 | $236,829 | $242,887 | | Provision for Loan Losses | $1,200 | $2,300 | $4,200 | $4,800 | | Noninterest Income | $12,287 | $15,269 | $23,709 | $35,119 | | Noninterest Expense | $71,371 | $71,629 | $142,204 | $140,082 | | Net Income | $42,681 | $47,530 | $85,439 | $98,762 | | Diluted EPS | $0.34 | $0.36 | $0.67 | $0.73 | Consolidated Statements of Comprehensive Income Total comprehensive income significantly increased to $125.6 million for the six months ended June 30, 2019, driven by $85.4 million in net income and a $40.1 million positive swing in other comprehensive income Comprehensive Income Summary (Unaudited) | Metric ($ in thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net Income | $85,439 | $98,762 | | Other comprehensive income (loss), net of tax | $40,128 | $(23,622) | | Total Comprehensive Income | $125,567 | $75,140 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $1.995 billion by June 30, 2019, primarily due to $85.4 million in net income and $40.1 million in other comprehensive income, partially offset by $35.5 million in cash dividends - Key drivers for the increase in stockholders' equity in the first half of 2019 were net income of $85.4 million and other comprehensive income of $40.1 million, partially offset by cash dividends of $35.5 million19 Consolidated Statements of Cash Flows Cash and cash equivalents increased by $150.2 million for the six months ended June 30, 2019, with $89.4 million from operating activities and $205.0 million from investing activities, partially offset by $144.2 million used in financing activities Cash Flow Summary (Unaudited) | Activity ($ in thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $89,420 | $105,549 | | Net cash provided by (used in) investing activities | $204,973 | $(727,748) | | Net cash (used in) provided by financing activities | $(144,204) | $596,563 | | Net Change in Cash and Cash Equivalents | $150,189 | $(25,636) | Notes to Consolidated Financial Statements The notes detail accounting policies, including the expected material increase in allowance for loan losses due to CECL adoption, the impact of new lease accounting standards, and the company's continued well-capitalized regulatory ratios Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Net income decreased for Q2 and H1 2019 due to a compressed net interest margin of 3.31% and cessation of SBA loan sales, while total assets remained stable at $15.34 billion and asset quality remained strong with nonperforming assets at 0.73% of total assets - Net income for Q2 2019 was $42.7 million, a 10.2% decrease from Q2 2018, primarily due to a $5.6 million reduction in net interest income and a $3.5 million decline in gains from SBA loan sales211 - The net interest margin for Q2 2019 decreased by 30 basis points to 3.31% compared to the same period in 2018, driven by a 56 basis point increase in the weighted average cost of deposits222226 - Total assets remained stable at $15.34 billion as of June 30, 2019, with loans receivable decreasing by $121.0 million from year-end 2018 to $11.98 billion210271 - Nonperforming assets were $111.7 million, or 0.73% of total assets, at June 30, 2019, remaining stable compared to year-end 2018275277 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with a 100 basis point upward shift projected to increase net interest income by 2.37% and a downward shift projected to decrease it by 2.77% over 12 months Interest Rate Sensitivity Analysis (as of June 30, 2019) | Simulated Rate Change | Estimated Net Interest Income Sensitivity | Market Value of Equity Volatility | | :--- | :--- | :--- | | +200 basis points | 4.45% | (2.78)% | | +100 basis points | 2.37% | (1.04)% | | -100 basis points | (2.77)% | 0.08% | | -200 basis points | (7.00)% | 0.76% | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting during the quarter - The Chairman, President, and CEO, along with the CFO, determined that the company's disclosure controls and procedures were effective as of June 30, 2019318 - No material changes to the internal control over financial reporting were identified during the quarter ended June 30, 2019319 PART II - OTHER INFORMATION Legal Proceedings Accrued loss contingencies for legal claims totaled approximately $170 thousand as of June 30, 2019, with management not expecting a material impact on financial statements - Accrued loss contingencies for legal claims were approximately $170 thousand at June 30, 2019322 Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018 - There are no material changes to the risk factors discussed in the Annual Report on Form 10-K for the year ended December 31, 2018323 Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the reporting period - None324 Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - None325 Mine Safety Disclosures This item is not applicable to the company's operations - Not Applicable326 Other Information No other information is required to be reported under this item - None327 Exhibits This section lists the exhibits filed with the report, including the 2019 Incentive Compensation Plan and certifications by the CEO and CFO