PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Presents unaudited consolidated financial statements for Hope Bancorp, Inc., detailing financial condition, income, comprehensive income, equity changes, and cash flows with notes Consolidated Statements of Financial Condition (Unaudited) Details assets, liabilities, and equity, highlighting key changes from December 2022 to September 2023 Consolidated Statements of Financial Condition (Unaudited) - Key Changes (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Assets: | | | | | | Total cash and cash equivalents | $2,500,323 | $506,776 | $1,993,547 | 393.3% | | Loans receivable, net | $14,147,384 | $15,241,181 | $(1,093,797) | -7.2% | | Total assets | $20,076,364 | $19,164,491 | $911,873 | 4.8% | | Liabilities: | | | | | | Total deposits | $15,739,859 | $15,738,801 | $1,058 | 0.01% | | FHLB and FRB borrowings | $1,795,726 | $865,000 | $930,726 | 107.6% | | Convertible notes, net | $444 | $217,148 | $(216,704) | -99.8% | | Total liabilities | $18,045,940 | $17,145,163 | $900,777 | 5.3% | | Stockholders' Equity: | | | | | | Total stockholders' equity | $2,030,424 | $2,019,328 | $11,096 | 0.5% | - The significant increase in cash and cash equivalents was primarily due to bolstering on-balance sheet liquidity through drawdowns of available borrowing capacity, mainly via the FRB's Bank Term Funding Program (BTFP), in response to banking industry disruptions in March 2023237264 - Loans receivable, net, decreased by $1.09 billion, or 7.2%, reflecting a decline in C&I and CRE loans where paydowns and sales outpaced new originations, and an intentional decrease in mortgage warehouse lines of credit59245 Consolidated Statements of Income (Unaudited) Presents revenues, expenses, and net income for the three and nine months ended September 30, 2023 and 2022 Consolidated Statements of Income (Unaudited) - Key Performance (Three Months Ended September 30, 2023 vs. 2022): | Item | Q3 2023 (in thousands) | Q3 2022 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :--------------------- | :--------------------- | :-------------------- | :------- | | Total interest income | $275,793 | $189,182 | $86,611 | 45.8% | | Total interest expense | $140,415 | $35,996 | $104,419 | 290.1% | | Net interest income before provision | $135,378 | $153,186 | $(17,808) | -11.6% | | Provision for credit losses | $16,800 | $9,200 | $7,600 | 82.6% | | Total noninterest income | $8,305 | $13,355 | $(5,050) | -37.8% | | Total noninterest expense | $86,873 | $83,914 | $2,959 | 3.5% | | Net income | $30,049 | $53,748 | $(23,699) | -44.1% | | Basic EPS | $0.25 | $0.45 | $(0.20) | -44.4% | | Diluted EPS | $0.25 | $0.45 | $(0.20) | -44.4% | Consolidated Statements of Income (Unaudited) - Key Performance (Nine Months Ended September 30, 2023 vs. 2022): | Item | YTD Sep 30, 2023 (in thousands) | YTD Sep 30, 2022 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :------------------------------ | :------------------------------ | :-------------------- | :------- | | Total interest income | $779,654 | $491,878 | $287,776 | 58.5% | | Total interest expense | $379,709 | $63,978 | $315,731 | 493.5% | | Net interest income before provision | $399,945 | $427,900 | $(27,955) | -6.5% | | Provision for credit losses | $27,400 | $1,400 | $26,000 | 1857.1% | | Total noninterest income | $36,297 | $39,287 | $(2,990) | -7.6% | | Total noninterest expense | $264,560 | $239,652 | $24,908 | 10.4% | | Net income | $107,192 | $166,574 | $(59,382) | -35.6% | | Basic EPS | $0.89 | $1.39 | $(0.50) | -36.0% | | Diluted EPS | $0.89 | $1.38 | $(0.49) | -35.5% | Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Details net income and other comprehensive income (loss) components, reflecting market interest rate impacts Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - Key Changes (Three Months Ended September 30, 2023 vs. 2022): | Item | Q3 2023 (in thousands) | Q3 2022 (in thousands) | Change (in thousands) | | :------------------------------------------------ | :--------------------- | :--------------------- | :-------------------- | | Net income | $30,049 | $53,748 | $(23,699) | | Other comprehensive loss, net of tax | $(53,801) | $(64,828) | $11,027 | | Total comprehensive (loss) income | $(23,752) | $(11,080) | $(12,672) | Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - Key Changes (Nine Months Ended September 30, 2023 vs. 2022): | Item | YTD Sep 30, 2023 (in thousands) | YTD Sep 30, 2022 (in thousands) | Change (in thousands) | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :-------------------- | | Net income | $107,192 | $166,574 | $(59,382) | | Other comprehensive loss, net of tax | $(51,828) | $(225,123) | $173,295 | | Total comprehensive (loss) income | $55,364 | $(58,549) | $113,913 | - The change in unrealized net holding losses on securities AFS significantly impacted other comprehensive loss, with a decrease of $68.1 million for the nine months ended September 30, 2023, compared to a decrease of $309.0 million in the prior year, reflecting market interest rate movements18274 Consolidated Statements of Changes in Stockholders' Equity (Unaudited) Outlines changes in stockholders' equity, including net income, dividends, and other comprehensive income impacts Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - Key Changes (Nine Months Ended September 30, 2023): | Item | Amount (in thousands) | | :------------------------------------ | :-------------------- | | Balance, December 31, 2022 | $2,019,328 | | Adoption of ASU 2022-02 (net of tax) | $287 | | Stock-based compensation | $5,766 | | Cash dividends declared | $(50,321) | | Net income | $107,192 | | Other comprehensive loss | $(51,828) | | Balance, September 30, 2023 | $2,030,424 | - Total stockholders' equity increased by $11.1 million during the nine months ended September 30, 2023, primarily driven by net income and stock-based compensation, partially offset by other comprehensive loss and cash dividends160274 - Cash dividends declared on common stock remained consistent at $0.14 per share for both the three and nine months ended September 30, 2023 and 2022162 Consolidated Statements of Cash Flows (Unaudited) Summarizes cash flows from operating, investing, and financing activities, detailing changes in cash equivalents Consolidated Statements of Cash Flows (Unaudited) - Key Activities (Nine Months Ended September 30, 2023 vs. 2022): | Cash Flow Activity | YTD Sep 30, 2023 (in thousands) | YTD Sep 30, 2022 (in thousands) | Change (in thousands) | | :----------------------------------- | :------------------------------ | :------------------------------ | :-------------------- | | Net cash provided by operating activities | $395,218 | $367,247 | $27,971 | | Net cash provided by (used in) investing activities | $936,508 | $(1,517,942) | $2,454,450 | | Net cash provided by financing activities | $661,821 | $1,165,765 | $(503,944) | | Net change in cash and cash equivalents | $1,993,547 | $15,070 | $1,978,477 | | Cash and cash equivalents, end of period | $2,500,323 | $331,336 | $2,168,987 | - Net cash provided by investing activities significantly increased, primarily driven by a net change in loans receivable from a net outflow of $1.68 billion in 2022 to a net inflow of $710.3 million in 2023, and proceeds from sales of other loans held for sale23 - Net cash provided by financing activities decreased due to higher repayments of FHLB and FRB borrowings and the repayment of convertible notes, despite an increase in proceeds from FRB borrowings23 1. Hope Bancorp, Inc. Overview of Hope Bancorp, Inc. as Bank of Hope's holding company, detailing operations and geographic presence - Hope Bancorp, Inc. is the holding company for Bank of Hope, headquartered in Los Angeles, California, operating 53 full-service branches across nine states and various loan production offices, including a representative office in Seoul, Korea26 2. Basis of Presentation Explains the basis for unaudited consolidated financial statements and new accounting standard adoption - The consolidated financial statements are unaudited, prepared in accordance with SEC rules, and include Hope Bancorp and its wholly-owned subsidiaries, with all intercompany transactions eliminated2728 - Effective January 1, 2023, the Company adopted ASU 2022-02, eliminating troubled debt restructuring (TDR) accounting prospectively and requiring evaluation of loan modifications under ASC 310-2032 3. Earnings Per Share ("EPS") Presents basic and diluted earnings per share for common stock, including factors affecting calculation Basic and Diluted EPS (Three Months Ended September 30): | Item | 2023 | 2022 | | :------------------------------------ | :--- | :--- | | Basic EPS - common stock | $0.25 | $0.45 | | Diluted EPS - common stock | $0.25 | $0.45 | Basic and Diluted EPS (Nine Months Ended September 30): | Item | 2023 | 2022 | | :------------------------------------ | :--- | :--- | | Basic EPS - common stock | $0.89 | $1.39 | | Diluted EPS - common stock | $0.89 | $1.38 | - Stock options and restricted share awards were excluded from diluted EPS calculations for both periods as they were anti-dilutive. Shares related to convertible notes were also excluded as the conversion price exceeded the market price of the Company's stock3435 4. Equity Investments Details equity investment composition and fair value, categorized by determinable fair values Equity Investments (September 30, 2023 vs. December 31, 2022): | Type of Investment | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Equity investments with readily determinable fair values (mutual funds) | $4,200 | $4,300 | | Equity investments without readily determinable fair values (cost less impairment) | $39,000 | $38,100 | | - CRA investments | $37,600 | $36,700 | | - CDFI investments | $1,000 | $1,000 | | - Correspondent bank stock | $370 | $370 | | Total Equity Investments | $43,183 | $42,396 | - The Company had no impairments or subsequent observable price changes for equity investments without readily determinable fair values for the three and nine months ended September 30, 2023 and 202240 5. Investment Securities Breaks down investment securities (AFS and HTM portfolios) and associated unrealized losses Investment Securities Available for Sale (AFS) - Fair Value (September 30, 2023 vs. December 31, 2022): | Security Type | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------- | :-------------------------- | | U.S. Treasury securities | $102,287 | $3,886 | | Agency securities | $3,812 | $3,867 | | Collateralized mortgage obligations | $711,324 | $793,699 | | Residential mortgage-backed securities | $401,779 | $453,177 | | Commercial mortgage-backed securities | $355,993 | $368,287 | | Asset-backed securities | $150,580 | $147,604 | | Corporate securities | $18,297 | $18,857 | | Municipal securities | $250,156 | $182,752 | | Total AFS | $1,994,228 | $1,972,129 | | Total HTM | $239,773 | $258,407 | | Total Investment Securities | $2,234,001 | $2,230,536 | Gross Unrealized Losses on AFS Securities (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------- | :-------------------------- | | Total gross unrealized losses (AFS) | $(385,423) | $(318,082) | | Unrealized losses on AFS, net of taxes (included in AOCI) | $(271,200) | $(223,100) | - The Company did not have an allowance for credit losses on investment securities AFS or HTM at September 30, 2023, or December 31, 2022, as the majority of the portfolio consists of U.S. Government agency securities with a zero loss expectation, and other securities were assessed as not credit-impaired535455 6. Loans Receivable and Allowance for Credit Losses Analyzes loan receivable composition, ACL changes, and trends in nonaccrual and past due loans Loans Receivable Composition (September 30, 2023 vs. December 31, 2022): | Loan Segment | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Commercial real estate ("CRE") loans | $8,972,886 | $9,414,580 | $(441,694) | -4.7% | | Commercial and industrial ("C&I") loans | $4,450,341 | $5,109,532 | $(659,191) | -12.9% | | Residential mortgage loans | $843,410 | $846,080 | $(2,670) | -0.3% | | Consumer and other loans | $39,556 | $33,348 | $6,208 | 18.6% | | Total loans receivable, net of deferred costs and fees | $14,306,193 | $15,403,540 | $(1,097,347) | -7.1% | | Allowance for credit losses | $(158,809) | $(162,359) | $3,550 | -2.2% | | Loans receivable, net of allowance for credit losses | $14,147,384 | $15,241,181 | $(1,093,797) | -7.2% | Allowance for Credit Losses (ACL) Activity (Nine Months Ended September 30, 2023 vs. 2022): | Item | YTD Sep 30, 2023 (in thousands) | YTD Sep 30, 2022 (in thousands) | | :------------------------------------ | :------------------------------ | :------------------------------ | | Balance, beginning of period | $162,359 | $140,550 | | ASU 2022-02 day 1 adoption adjustment | $(407) | — | | Provision for credit losses | $27,400 | $1,400 | | Total loan charge offs | $(35,399) | $(2,765) | | Total loan recoveries | $4,856 | $21,376 | | Balance, end of period | $158,809 | $160,561 | | ACL to loans receivable | 1.11% | 1.04% | - The provision for credit losses significantly increased to $27.4 million for the nine months ended September 30, 2023, from $1.4 million in the prior year, primarily due to increased net charge-offs, including an idiosyncratic $23.4 million charge-off related to a borrower in Chapter 7 liquidation219254 Nonaccrual Loans and Past Due Loans (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Total nonaccrual loans | $39,081 | $49,687 | | Accruing loans past due 90 days or more | $21,579 | $401 | | Total nonperforming loans | $60,660 | $67,019 | | Nonperforming assets to total assets | 0.31% | 0.36% | | ACL to nonaccrual loans | 406.36% | 326.76% | - The Company adopted ASU 2022-02, eliminating the concept of Troubled Debt Restructurings (TDRs) from GAAP, resulting in a positive cumulative effect adjustment to retained earnings of $287 thousand, net of tax84 7. Leases Presents operating lease balances, net costs, and key terms including weighted-average lease term and discount rate Operating Lease Balances (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Right-of-use (ROU) assets, net | $51,769 | $55,034 | | Operating lease liabilities | $55,873 | $59,088 | | - Short-term operating lease liability | $14,400 | $13,800 | | - Long-term operating lease liability | $41,500 | $45,300 | Net Operating Lease Cost (Nine Months Ended September 30): | Item | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Operating lease cost | $11,518 | $11,623 | | Variable lease cost | $2,549 | $2,434 | | Sublease income | $(121) | $(312) | | Net lease cost | $13,946 | $13,745 | - The weighted-average remaining lease term for operating leases was 4.2 years at September 30, 2023, with a weighted-average discount rate of 2.75%92 8. Deposits Examines deposit composition, shifts to higher-cost time deposits, and uninsured/uncollateralized deposit levels Deposit Composition (September 30, 2023 vs. December 31, 2022): | Deposit Type | Sep 30, 2023 (in thousands) | % of Total | Dec 31, 2022 (in thousands) | % of Total | | :----------------------------------- | :-------------------------- | :--------- | :-------------------------- | :--------- | | Noninterest bearing | $4,249,788 | 27% | $4,849,493 | 31% | | Money market and NOW accounts | $4,424,918 | 28% | $5,615,784 | 36% | | Savings deposits | $430,765 | 3% | $283,464 | 2% | | Time deposits | $6,634,388 | 42% | $4,990,060 | 31% | | Total deposits | $15,739,859 | 100% | $15,738,801 | 100% | - Total deposits remained largely unchanged at $15.74 billion. However, there was a significant shift in deposit mix towards higher-cost time deposits (up $1.64 billion) and savings deposits (up $147.3 million), while noninterest-bearing demand deposits (down $599.7 million) and money market/NOW accounts (down $1.19 billion) decreased, reflecting customer preferences in a high interest rate environment95259 Brokered and Large Time Deposits (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------- | :-------------------------- | | Brokered deposits | $1,960,000 | $1,180,000 | | Time deposits > $250k | $2,390,000 | $2,390,000 | | California State Treasurer's deposits | $300,000 | $300,000 | - The Bank's estimated uninsured and uncollateralized deposits decreased to $5.85 billion (37% of total deposits) at September 30, 2023, from $6.48 billion (41% of total deposits) at December 31, 2022262 9. Borrowings Details outstanding borrowings (FHLB, FRB facilities), weighted average rates, and available capacity Borrowings Outstanding (September 30, 2023 vs. December 31, 2022): | Borrowing Source | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------- | :-------------------------- | | FHLB borrowings | $100,000 | $600,000 | | FRB Discount Window | — | $265,000 | | FRB Bank Term Funding Program (BTFP) | $1,695,726 | — | | Total Borrowings Outstanding | $1,795,726 | $865,000 | | Weighted Average Rate (Total) | 4.53% | 3.74% | | Available Borrowing Capacity (Total) | $5,487,967 | $4,839,515 | - Total borrowings increased significantly to $1.80 billion at September 30, 2023, from $865.0 million at December 31, 2022, primarily driven by the utilization of the FRB's Bank Term Funding Program (BTFP) for $1.70 billion to bolster liquidity in response to banking industry disruptions99101264 - All borrowings at September 30, 2023, had maturities of less than 12 months, with the BTFP borrowings maturing in the first half of 2024 at an average weighted rate of 4.47%99264 10. Convertible Notes and Subordinated Debentures Reports on convertible notes (repayments, extinguishment gains) and the cost of subordinated debentures Convertible Notes (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Convertible notes principal balance | $444 | $217,500 | | Carrying balance of convertible notes | $444 | $217,148 | | Interest expense (Q3) | $2 | $1,300 | | Interest expense (YTD) | $1,900 | $4,000 | - On May 15, 2023, most holders of the convertible notes exercised their optional put right, leading the Company to pay off $197.1 million principal amount in cash. Additionally, the Company repurchased $19.9 million in notes during the nine months ended September 30, 2023, resulting in a $405 thousand gain on debt extinguishment104267 Subordinated Debentures (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Carrying value of subordinated debentures | $107,505 | $106,565 | | Remaining discounts | $22,400 | $23,300 | | Total trust preferred securities | $126,000 | $126,000 | | Weighted average cost (Q3) | 10.36% | 6.18% | | Weighted average cost (YTD) | 9.87% | 5.06% | - The weighted average cost of subordinated debentures increased significantly due to their variable interest rates being tied to the rising three-month SOFR rate (and LIBOR prior to cessation)209 11. Derivative Financial Instruments Details fair value and notional amounts of derivative instruments, categorized by hedge designation Fair Value of Derivative Financial Instruments (September 30, 2023): | Derivative Type | Notional Amount (in thousands) | Fair Value (Other Assets) (in thousands) | Fair Value (Other Liabilities) (in thousands) | | :------------------------------------ | :----------------------------- | :--------------------------------------- | :---------------------------------------- | | Designated as cash flow hedges: | | | | | Interest rate swaps | $725,000 | — | — | | Forward interest rate contracts | $1,000,000 | — | $11,319 | | Forward interest rate collars | $500,000 | — | $7,496 | | Total cash flow hedges | $2,225,000 | — | $18,815 | | Not designated as hedges: | | | | | Interest rate contracts with correspondent banks | $1,104,518 | $82,604 | — | | Interest rate contracts with customers | $1,104,518 | — | $84,586 | | Foreign exchange contracts (total) | $8,821 | $139 | $28 | | Risk participation agreement | $131,296 | — | $11 | | Mortgage banking derivatives | $500 | $7 | $8 | | Total non-hedges | $2,349,653 | $82,750 | $84,633 | - The Company reclassified gains of $11.6 million from accumulated other comprehensive income to interest expense for the nine months ended September 30, 2023, related to interest rate contracts designated as cash flow hedges116163 - Derivatives not designated as hedges, such as back-to-back interest rate swaps and foreign exchange contracts, are used to provide services to customers and manage the Company's own foreign exchange risk, with changes in fair value recognized in other income and fees117118119 12. Commitments and Contingencies Outlines off-balance-sheet commitments (loan commitments, letters of credit) and accrued legal loss contingencies Commitments and Contingencies (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Commitments to extend credit | $2,719,613 | $2,856,263 | | Standby letters of credit | $130,742 | $132,538 | | Other letters of credit | $28,487 | $22,376 | | Commitments to fund investments in affordable housing partnerships | $8,940 | $11,792 | | Reserve for unfunded loan commitments | $3,100 | $1,400 | | Accrued loss contingencies for legal claims | $325 | $229 | - The Company's exposure to credit loss from off-balance-sheet commitments is represented by their notional amount, with an estimated exposure included in the reserve for unfunded loan commitments124 - Management believes that none of the legal claims, individually or in the aggregate, will have a material adverse effect on the Company's results of operations or financial condition, though additional losses are reasonably possible125300 13. Goodwill, Intangible Assets, and Servicing Assets Reports on goodwill, core deposit intangibles, and servicing assets, including amortization and impairment assessments Goodwill and Intangible Assets (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Goodwill | $464,450 | $464,450 | | Core deposit intangible assets, net | $4,382 | $5,726 | | Servicing assets, net | $10,457 | $11,628 | - An interim goodwill assessment as of September 30, 2023, triggered by a significant decline in bank stock prices in March 2023, concluded that goodwill was not impaired128 Amortization Expense (Nine Months Ended September 30): | Item | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Core deposit intangible assets | $1,300 | $1,500 | | Servicing assets | $3,056 | $3,045 | 14. Income Taxes Presents income tax provision, effective tax rates, and unrecognized tax benefits Income Tax Provision and Effective Tax Rate (Three Months Ended September 30): | Item | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Income tax provision | $10,000 | $19,700 | | Pretax income | $40,000 | $73,400 | | Effective tax rate | 24.90% | 26.80% | Income Tax Provision and Effective Tax Rate (Nine Months Ended September 30): | Item | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Income tax provision | $37,100 | $59,600 | | Pretax income | $144,300 | $226,100 | | Effective tax rate | 25.71% | 26.34% | - The Company had total unrecognized tax benefits of $1.7 million at September 30, 2023, and expects a possible decrease of $1.2 million in the next twelve months due to the expiration of the statute of limitations137 15. Fair Value Measurements Categorizes fair value measurements for assets and liabilities into Level 1, 2, and 3 inputs - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs requiring significant management judgment)141146 Assets Measured at Fair Value on a Recurring Basis (September 30, 2023, in thousands): | Asset Type | Total Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------------------ | :--------------- | :------ | :------ | :------ | | Investment securities available for sale | $1,994,228 | $102,287 | $1,891,088 | $853 | | Equity investments with readily determinable fair value | $4,169 | $4,169 | — | — | | Interest rate contracts | $82,604 | — | $82,604 | — | | Mortgage banking derivatives | $7 | — | $7 | — | | Other derivatives | $139 | — | $139 | — | Liabilities Measured at Fair Value on a Recurring Basis (September 30, 2023, in thousands): | Liability Type | Total Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------------------ | :--------------- | :------ | :------ | :------ | | Interest rate contracts | $84,586 | — | $84,586 | — | | Mortgage banking derivatives | $8 | — | $8 | — | | Other derivatives | $18,854 | — | $18,843 | $11 | - Collateral-dependent loans, loans held for sale, and OREO are measured at fair value on a non-recurring basis, primarily using Level 3 inputs such as appraisals and independent valuations less costs to sell149150151156 16. Stockholders' Equity Summarizes changes in stockholders' equity, including net income, dividends, and accumulated other comprehensive loss Stockholders' Equity (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Total stockholders' equity | $2,030,424 | $2,019,328 | | Accumulated other comprehensive loss, net | $(282,685) | $(230,857) | - The Company paid cash dividends of $0.14 per common share for the three months ended September 30, 2023 and 2022, and $0.42 per common share for the nine months ended September 30, 2023 and 2022162 - The accumulated other comprehensive loss, net, increased by $51.8 million during the nine months ended September 30, 2023, primarily due to unrealized net losses on securities available for sale, partially offset by reclassification adjustments for net gains on interest rate contracts162163 - The Company had $35.3 million remaining under its $50.0 million share repurchase program as of September 30, 2023, with no shares repurchased during the nine months ended September 30, 2023161275303304 17. Stock-Based Compensation Reports on stock-based compensation expense, unrecognized compensation, and shares available for future grants Stock-Based Compensation Expense (Three and Nine Months Ended September 30): | Item | Q3 2023 (in thousands) | Q3 2022 (in thousands) | YTD Sep 30, 2023 (in thousands) | YTD Sep 30, 2022 (in thousands) | | :------------------------------------ | :--------------------- | :--------------------- | :------------------------------ | :------------------------------ | | Total amounts charged against income | $3,000 | $3,200 | $8,800 | $9,300 | | Income tax benefit recognized | $755 | $865 | $2,300 | $2,400 | - Unrecognized compensation expense related to non-vested restricted stock and performance units was $16.4 million at September 30, 2023, expected to be recognized over a weighted average vesting period of 1.69 years172 - The 2019 stock-based incentive plan had 156,212 shares available for future grants at September 30, 2023, including an additional 150,000 shares made available in September 2023 for inducement awards166 18. Regulatory Matters Presents regulatory capital ratios, confirming the Bank's 'well-capitalized' status and CECL transition election Consolidated Regulatory Capital Ratios (September 30, 2023): | Capital Ratio | Company Actual | Bank Actual | Required for Well-Capitalized | Excess Over Well-Capitalized | | :------------------------------------ | :------------- | :---------- | :---------------------------- | :--------------------------- | | Common equity Tier 1 capital ratio | 11.67% | 12.08% | 6.50% | 5.58% | | Total capital ratio | 13.23% | 13.00% | 10.00% | 3.00% | | Tier 1 capital ratio | 12.32% | 12.08% | 8.00% | 4.08% | | Leverage capital ratio | 9.83% | 9.65% | 5.00% | 4.65% | - At September 30, 2023, both the Company and the Bank exceeded all regulatory minimum capital ratios, including the conservation buffer, and the Bank was categorized as 'well-capitalized' under regulatory frameworks175177277 - The Company elected the five-year transition period for the cumulative effect of CECL adoption on regulatory capital, consistent with federal regulatory agencies' final rule176 19. Revenue Recognition Explains revenue recognition policies, primarily for noninterest revenue streams not covered by Topic 606 - The Company recognizes revenue when obligations under customer contracts are satisfied, primarily for noninterest revenue streams like deposit-related fees and wire transfer fees, as Topic 606 does not apply to financial instruments180 Service Fees on Deposit Accounts (Three and Nine Months Ended September 30): | Item | Q3 2023 (in thousands) | Q3 2022 (in thousands) | YTD Sep 30, 2023 (in thousands) | YTD Sep 30, 2022 (in thousands) | | :------------------------------------ | :--------------------- | :--------------------- | :------------------------------ | :------------------------------ | | Total service fees on deposit accounts | $2,415 | $2,535 | $6,961 | $6,779 | | Total wire transfer fees | $806 | $856 | $2,429 | $2,614 | 20. Subsequent Events Reports on significant post-period events, including a strategic reorganization and headcount reduction - On October 20, 2023, the Company announced a strategic reorganization, including a 13% reduction in total headcount, with associated one-time costs expected in Q4 2023184 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Analyzes Hope Bancorp's financial condition and operating results, covering performance drivers, asset/liability, credit, and capital GENERAL Provides a general overview of Hope Bancorp, Inc., its business model, and primary income and funding sources - Hope Bancorp, Inc. is the holding company for Bank of Hope, a multi-regional bank with $20.08 billion in total assets at September 30, 2023, serving a multi-ethnic customer base across nine states and operating a representative office in Seoul, Korea187188 - The principal business involves earning interest on loans and investment securities, primarily funded by deposits and borrowings, with operating income also derived from fee-based products and services and loan sales189 Selected Financial Data Presents key income statement and balance sheet data for current and prior periods, highlighting core financial metrics Selected Financial Data - Income Statement (Three Months Ended September 30): | Item | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Net interest income | $135,378 | $153,186 | | Provision for credit losses | $16,800 | $9,200 | | Net income | $30,049 | $53,748 | | Diluted EPS | $0.25 | $0.45 | | Net interest margin | 2.83% | 3.49% | | Efficiency ratio | 60.46% | 50.39% | Selected Financial Data - Income Statement (Nine Months Ended September 30): | Item | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Net interest income | $399,945 | $427,900 | | Provision for credit losses | $27,400 | $1,400 | | Net income | $107,192 | $166,574 | | Diluted EPS | $0.89 | $1.38 | | Net interest margin | 2.84% | 3.36% | | Efficiency ratio | 60.65% | 51.30% | Selected Financial Data - Balance Sheet (September 30): | Item | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Total Assets | $20,076,364 | $19,083,388 | | Loans receivable | $14,306,193 | $15,491,187 | | Deposits | $15,739,859 | $15,502,209 | | Stockholders' equity | $2,030,424 | $1,975,725 | | Nonperforming assets to total assets | 0.31% | 0.51% | | Allowance for credit losses to loans receivable | 1.11% | 1.04% | Results of Operations Analyzes the company's financial performance, including net income, net interest income, provision for credit losses, and noninterest income/expense Overview Summarizes overall financial performance, highlighting changes in net income and diluted EPS - Net income for Q3 2023 decreased by 44.1% year-over-year to $30.0 million, or $0.25 diluted EPS, primarily due to lower net interest income and noninterest income, and an increased provision for credit losses197 - For the nine months ended September 30, 2023, net income decreased by 35.6% to $107.2 million, or $0.89 diluted EPS, driven by higher provision for credit losses and noninterest expense, and lower net interest income198 Net Interest Income and Net Interest Margin Examines trends in net interest income and net interest margin, driven by asset yields and funding costs Net Interest Income (NII) and Net Interest Margin (NIM) (Three Months Ended September 30): | Item | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :------------------------------------ | :------------------ | :------------------ | :-------------------- | :------- | | Net interest income before provision | $135,378 | $153,186 | $(17,808) | -11.6% | | Net interest margin | 2.83% | 3.49% | -66 bps | | | Weighted average yield on loans | 6.27% | 4.65% | +162 bps | | | Weighted average cost of deposits | 2.98% | 0.79% | +219 bps | | Net Interest Income (NII) and Net Interest Margin (NIM) (Nine Months Ended September 30): | Item | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :------------------------------------ | :------------------ | :------------------ | :-------------------- | :------- | | Net interest income before provision | $399,945 | $427,900 | $(27,955) | -6.5% | | Net interest margin | 2.84% | 3.36% | -52 bps | | | Weighted average yield on loans | 6.00% | 4.21% | +179 bps | | | Weighted average cost of deposits | 2.72% | 0.46% | +226 bps | | - The decrease in net interest income and net interest margin was primarily driven by a significantly higher cost of funds and increased average interest-bearing deposits and short-term borrowings, partially offset by expanding yields on interest-earning assets200202 - The weighted average cost of FHLB and FRB borrowings increased by 223 basis points (QoQ) and 287 basis points (YoY) due to rising market interest rates, while the cost of subordinated debentures also rose significantly due to variable rates tied to SOFR207209 Provision for Credit Losses Analyzes the provision for credit losses, highlighting net charge-offs and specific loan events Provision for Credit Losses (Three and Nine Months Ended September 30): | Item | Q3 2023 (in thousands) | Q3 2022 (in thousands) | YTD Sep 30, 2023 (in thousands) | YTD Sep 30, 2022 (in thousands) | | :------------------------------------ | :--------------------- | :--------------------- | :------------------------------ | :------------------------------ | | Provision for credit losses | $16,800 | $9,200 | $27,400 | $1,400 | | Net loan charge-offs to average loans (annualized) | 0.85% | 0.01% | 0.27% | (0.17)% | - The substantial increase in provision for credit losses in 2023 was largely due to increased net charge-offs, including an idiosyncratic $23.4 million full charge-off related to a borrower entering Chapter 7 liquidation in Q3 2023219254 - In the prior year (YTD Sep 30, 2022), a large recovery of $17.3 million on a previously charged-off loan significantly reduced the required provision for credit losses219254 Noninterest Income Reviews noninterest income components, including service fees, swap fees, and loan sale gains, and their changes Noninterest Income (Three Months Ended September 30): | Item | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :------------------------------------ | :------------------ | :------------------ | :-------------------- | :------- | | Service fees on deposit accounts | $2,415 | $2,535 | $(120) | -4.7% | | Swap fees | $(61) | $1,193 | $(1,254) | N/A | | Net gains on sales of SBA loans | — | $2,782 | $(2,782) | -100.0% | | Other income and fees | $4,287 | $5,126 | $(839) | -16.4% | | Total noninterest income | $8,305 | $13,355 | $(5,050) | -37.8% | Noninterest Income (Nine Months Ended September 30): | Item | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :------------------------------------ | :------------------ | :------------------ | :-------------------- | :------- | | Service fees on deposit accounts | $6,961 | $6,779 | $182 | 2.7% | | Swap fees | $655 | $2,153 | $(1,498) | -69.6% | | Net gains on sales of SBA loans | $4,097 | $14,189 | $(10,092) | -71.1% | | Other income and fees | $19,209 | $10,318 | $8,891 | 86.2% | | Total noninterest income | $36,297 | $39,287 | $(2,990) | -7.6% | - The year-over-year decrease in noninterest income was primarily due to lower net gains on sales of SBA loans (Company elected not to sell SBA 7(a) loans in Q3 2023) and a decline in swap fee income224225 - Other income and fees for the nine months ended September 30, 2023, included a $5.8 million gain from a cash distribution from an affordable housing partnership, which was not present in the prior year227 Noninterest Expense Analyzes noninterest expense, focusing on salaries, FDIC assessments, earned interest credits, and their drivers Noninterest Expense (Three Months Ended September 30): | Item | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :------------------------------------ | :------------------ | :------------------ | :-------------------- | :------- | | Salaries and employee benefits | $51,033 | $53,222 | $(2,189) | -4.1% | | FDIC assessments | $3,683 | $1,633 | $2,050 | 125.5% | | Earned interest credit | $6,377 | $4,685 | $1,692 | 36.1% | | Total noninterest expense | $86,873 | $83,914 | $2,959 | 3.5% | Noninterest Expense (Nine Months Ended September 30): | Item | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :------------------------------------ | :------------------ | :------------------ | :-------------------- | :------- | | Salaries and employee benefits | $160,507 | $152,025 | $8,482 | 5.6% | | FDIC assessments | $10,155 | $4,652 | $5,503 | 118.3% | | Earned interest credit | $15,894 | $5,996 | $9,898 | 165.1% | | Total noninterest expense | $264,560 | $239,652 | $24,908 | 10.4% | - The increase in noninterest expense was primarily driven by higher earned interest credits (due to rising short-term interest rates) and increased FDIC assessment expense (due to an industry-wide rate increase and a proposed special assessment)228230231 - Salaries and employee benefits increased year-to-date due to inflation and higher compensation rates, including $1.7 million in severance costs, despite a decrease in full-time equivalent employees to 1,446229 Provision for Income Taxes Reports on the income tax provision and effective tax rate, noting the impact of tax credits Income Tax Provision and Effective Tax Rate (Three and Nine Months Ended September 30): | Item | Q3 2023 (in thousands) | Q3 2022 (in thousands) | YTD Sep 30, 2023 (in thousands) | YTD Sep 30, 2022 (in thousands) | | :------------------------------------ | :--------------------- | :--------------------- | :------------------------------ | :------------------------------ | | Income tax provision | $10,000 | $19,700 | $37,100 | $59,600 | | Effective income tax rate | 24.90% | 26.80% | 25.71% | 26.34% | - The effective tax rate is reduced by CRA credits and tax credits from investments in affordable housing partnerships, which totaled approximately $6.0 million for the nine months ended September 30, 2023233 Financial Condition Analyzes the balance sheet, including cash, investment securities, loans, nonperforming assets, and funding sources Cash and Cash Equivalents Details the significant increase in cash and cash equivalents, primarily driven by strategic liquidity bolstering Cash and Cash Equivalents (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Cash and cash equivalents | $2,500,323 | $506,776 | $1,993,547 | 393.3% | - The significant increase in cash and cash equivalents was a strategic response to banking industry disruptions in March 2023, bolstering on-balance sheet liquidity primarily through the FRB's BTFP237 Investment Securities Portfolio Reviews the investment securities portfolio (AFS and HTM) and associated unrealized losses Investment Securities (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Investment securities AFS | $1,994,228 | $1,972,129 | | Investment securities HTM | $266,609 | $271,066 | | Net unrealized loss on AFS | $(385,400) | $(317,300) | - The net unrealized loss on AFS securities increased to $385.4 million at September 30, 2023, from $317.3 million at December 31, 2022, reflecting movements in market interest rates238 - No allowance for credit losses was required for investment securities AFS or HTM, as the majority are U.S. Government agency securities with zero loss expectation, and other securities were assessed as not credit-impaired240 Equity Investments Summarizes total equity investments, categorized by determinable and non-determinable fair values Equity Investments (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Total equity investments | $43,200 | $42,400 | | - With readily determinable fair values | $4,200 | $4,300 | | - Without readily determinable fair values | $39,000 | $38,100 | Loans Held For Sale Reports on the balance of loans held for sale and the volume of loan sales during the period Loans Held For Sale (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Loans held for sale | $19,502 | $49,245 | | - C&I loans | $19,500 | N/A | | - CRE loans | N/A | $48,800 | | - Residential mortgage loans | N/A | $450 | - During the nine months ended September 30, 2023, the Company sold $399.0 million in loans, including $295.7 million in CRE and C&I loans, $79.1 million in SBA loans, and $24.2 million in residential mortgage loans244 Loans Receivable Analyzes loan receivable composition and changes, including commitments and letters of credit Loans Receivable Composition (September 30, 2023 vs. December 31, 2022): | Loan Segment | Sep 30, 2023 (in thousands) | % of Total | Dec 31, 2022 (in thousands) | % of Total | | :----------------------------------- | :-------------------------- | :--------- | :-------------------------- | :--------- | | CRE loans | $8,972,886 | 63% | $9,414,580 | 61% | | C&I loans | $4,450,341 | 31% | $5,109,532 | 33% | | Residential mortgage loans | $843,410 | 6% | $846,080 | 6% | | Consumer and other loans | $39,556 | 0% | $33,348 | 0% | | Total loans receivable | $14,306,193 | 100% | $15,403,540 | 100% | - Total loans receivable decreased by $1.10 billion, or 7.1%, primarily due to decreases of $659.2 million in C&I loans and $441.7 million in CRE loans, as principal paydowns and loan sales exceeded new production59245 Loan Commitments and Letters of Credit (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Commitments to extend credit | $2,719,613 | $2,856,263 | | Standby letters of credit | $130,742 | $132,538 | | Other commercial letters of credit | $28,487 | $22,376 | | Total loan commitments and letters of credit | $2,878,842 | $3,011,177 | Nonperforming Assets Details nonperforming asset trends (nonaccrual loans, OREO) and the impact of accounting standard changes Nonperforming Assets (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Nonaccrual loans | $39,081 | $49,687 | | Accruing delinquent loans past due 90 days or more | $21,579 | $401 | | Accruing troubled debt restructured loans | — | $16,931 | | Total nonperforming loans | $60,660 | $67,019 | | OREO | $1,043 | $2,418 | | Total nonperforming assets | $61,703 | $69,437 | | Nonperforming assets to total assets | 0.31% | 0.36% | | Nonaccrual loans to loans receivable | 0.27% | 0.32% | - Total nonperforming assets decreased to $61.7 million at September 30, 2023, from $69.4 million at December 31, 2022, partly due to the elimination of TDR loans from GAAP following the adoption of ASU 2022-02247249 Allowance for Credit Losses Examines ACL by loan segment and factors influencing changes, including economic forecasts Allowance for Credit Losses (ACL) (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | CRE loans ACL | $96,736 | $95,884 | | C&I loans ACL | $49,422 | $56,872 | | Residential mortgage loans ACL | $11,996 | $8,920 | | Consumer and other loans ACL | $655 | $683 | | Total ACL | $158,809 | $162,359 | | ACL to loans receivable | 1.11% | 1.05% | - The ACL decreased slightly to $158.8 million, but the ACL coverage ratio increased to 1.11% due to a decline in total loans receivable and a worsened economic forecast (lower GDP growth, lower CRE price index, higher unemployment) used in the calculation251252253 - The decline in C&I ACL was primarily due to a decrease in C&I loan balances, while ACL for CRE and residential mortgage loans increased due to the decline in projected macroeconomic variables253 Investments in Affordable Housing Partnerships Reports on the Company's investments and commitments in affordable housing partnerships Investments in Affordable Housing Partnerships (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Investments in affordable housing partnerships | $42,094 | $47,711 | | Commitments to fund investments | $8,940 | $11,792 | - The decrease in investments was a result of amortization during the nine months ended September 30, 2023257 OREO Details the net balance of Other Real Estate Owned (OREO) and the impact of property sales Other Real Estate Owned (OREO) (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | OREO, net | $1,043 | $2,418 | | OREO valuation allowance | $0 | $1,400 | - The decrease in OREO, net, was due to the sale of one OREO property with a carrying balance of $1.5 million during the nine months ended September 30, 2023258 Deposits, Borrowings, and Convertible Notes Analyzes changes in deposit mix, borrowings, and convertible notes, reflecting funding strategies Deposit Mix (September 30, 2023 vs. December 31, 2022): | Deposit Type | Sep 30, 2023 % | Dec 31, 2022 % | | :------------------------------------ | :------------- | :------------- | | Noninterest bearing demand deposits | 27.0% | 30.8% | | Time deposits | 42.1% | 31.7% | | Interest bearing money market, NOW, and savings | 30.9% | 37.5% | - Total deposits remained stable, but a significant shift occurred from noninterest-bearing and money market/NOW accounts to higher-yielding time and savings deposits, reflecting customer preferences in a high interest rate environment259 Borrowings (September 30, 2023 vs. December 31, 2022): | Borrowing Source | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | FHLB borrowings | $100,000 | $600,000 | | FRB borrowings (including BTFP) | $1,700,000 | $265,000 | | Convertible notes, net | $444 | $217,148 | | Subordinated debentures | $107,505 | $106,565 | - The Company significantly increased FRB borrowings, primarily through the BTFP ($1.70 billion), to enhance liquidity in response to banking industry disruptions, while convertible notes outstanding dramatically decreased due to put options exercised by holders264267 Off-Balance-Sheet Activities and Contractual Obligations Describes off-balance-sheet financial instruments and their potential impact on financial condition - The Company engages in traditional off-balance-sheet credit-related financial instruments (commitments to extend credit, standby letters of credit), interest rate swap contracts, foreign exchange contracts, and risk participation agreements268269270271 - These activities involve credit and interest rate risk but are not anticipated to have a material impact on future results of operations or financial condition124273 Stockholders' Equity and Regulatory Capital Reviews changes in stockholders' equity and confirms regulatory capital compliance for Company and Bank Stockholders' Equity (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Total stockholders' equity | $2,030,424 | $2,019,328 | | Accumulated other comprehensive income (loss), net | $(282,685) | $(230,857) | - Stockholders' equity increased by $11.1 million, driven by net income and stock-based compensation, partially offset by an increase in accumulated other comprehensive loss due to unrealized losses on AFS securities and dividend payments274 - Both Hope Bancorp and Bank of Hope maintained capital ratios well above regulatory minimums, with the Bank categorized as 'well capitalized' at September 30, 2023179277278 Liquidity Management Outlines liquidity sources and management strategies to meet short-term and intermediate-term funding needs - The Company's primary liquidity sources include deposits, federal funds facilities, and borrowings from FHLB and FRB (including BTFP), augmented by loan and securities payments and sales280 Liquidity Sources (September 30, 2023 vs. December 31, 2022): | Item | Sep 30, 2023 (in billions) | Dec 31, 2022 (in billions) | | :------------------------------------ | :------------------------- | :------------------------- | | Total borrowing capacity, cash, and unpledged securities | $8.29 | $7.23 | | Available borrowing capacity (FHLB, FRB, Fed funds) | $5.49 | $4.84 | | Cash and cash equivalents | $2.50 | $0.51 | | Unpledged investment securities AFS | $0.2995 | N/A | - Management believes current liquidity sources are sufficient to meet all reasonably foreseeable short-term and intermediate-term needs281 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Details market risk management, primarily interest rate risk, through ALM activities, including NII and EVE sensitivity Interest Rate Risk Discusses interest rate risk management, its significance, and impact on net interest income and economic value of equity - Interest rate risk is the most significant market risk, managed by the Asset and Liability Management Committee (ALM) to optimize earnings while maintaining adequate liquidity and acceptable exposure to interest rate fluctuations284285 Hypothetical Impacts on Net Interest Income (NII) and Economic Value of Equity (EVE) (September 30): | Simulated Rate Changes | Sep 30, 2023 Estimated NII Sensitivity | Sep 30, 2023 EVE Volatility | Sep 30, 2022 Estimated NII Sensitivity | Sep 30, 2022 EVE Volatility | | :------------------------------------ | :------------------------------------- | :-------------------------- | :------------------------------------- | :-------------------------- | | +200 basis points | 2.14% | (10.56)% | 5.18% | (5.61)% | | +100 basis points | 1.21% | (4.91)% | 2.77% | (2.36)% | | -100 basis points | (3.28)% | 1.92% | (2.06)% | 1.38% | | -200 basis points | (6.73)% | 2.60% | (4.47)% | 0.67% | - The simulation results indicate that the Company's net interest income is more sensitive to falling interest rates than rising rates at September 30, 2023, compared to the prior year290 LIBOR Transition Reports on the successful transition from LIBOR-indexed financial instruments to alternative benchmark rates - The Company has substantially completed its efforts to modify financial instruments tied to LIBOR by establishing an alternative benchmark rate, with no material impact on consolidated financial statements292 Item 4. CONTROLS AND PROCEDURES Management confirmed effective disclosure controls and procedures as of September 30, 2023, with no material internal control changes - The Company's disclosure controls and procedures were determined to be effective as of September 30, 2023296 - There have been no material changes in the Company's internal control over financial reporting during the quarter ended September 30, 2023297 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Details legal claims and accrued loss contingencies, with management assessing no material adverse effect - Accrued loss contingencies for all legal claims totaled approximately $325 thousand at September 30, 2023300 - Management believes that none of the legal claims, individually or in the aggregate, will have a material adverse effect on the Company's results of operations or financial condition, although additional losses are reasonably possible300 Item 1A. RISK FACTORS No material changes to previously disclosed risk factors were identified in the current period - No material changes to the risk factors discussed in the Annual Report on Form 10-K for the year ended December 31, 2022, or subsequent Quarterly Reports on Form 10-Q, were identified301 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES Reports no unregistered equity sales or share repurchases during the quarter, with remaining repurchase capacity - No unregistered sales of equity securities occurred during the three months ended September 30, 2023302 - The Company did not repurchase any shares under its $50.0 million share repurchase program during the thre
Hope Bancorp(HOPE) - 2023 Q3 - Quarterly Report