Q1 2024 Hope Bancorp Inc Earnings Call

Operator: Good day, and welcome to the Hope Bancorp 2024 First Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Angie Yang, Director of Investor Relations. Please go ahead.

Good day and welcome to the Hope Bancorp 2024 first quarter earnings Conference call.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone.

Draw. Your question. Please press Star then two.

Please note this event is being recorded.

I would now like to turn the conference over to Angie Yang Director of Investor Relations. Please go ahead.

Angie Yang: Thank you, Nicholas. Good morning, everyone, and thank you for joining us for the Hope Bancorp 2024 First Quarter Investor Conference Call. As usual, we will be using a slide presentation to accompany our discussion this morning, including an earnings call presentation and a merger agreement presentation, both of which are available on the presentations page of our Investor Relations website. Beginning on slide two, let me start with a brief statement regarding forward-looking remarks.

Thank you Nicholas.

Angie Yang: Everyone and thank you for joining us for the hope Bancorp 2024 first quarter Investor Conference call as usual, we will begin we will be using a slide presentation.

Angie Yang: Anthony our discussion this morning, including an earnings call presentation, and a merger agreement presentation, both of which are available in the presentation page of our Investor Relations website.

Speaker Change: Beginning on slide two let me start with a brief statement regarding forward looking remarks. The call. Today contains forward looking projections regarding the future financial performance of the company and future events as well as statements regarding the proposed transaction.

Angie Yang: The call today contains forward-looking projections regarding the future financial performance of the company and future events, as well as statements regarding the proposed transaction between Hope Bancorp and Territorial Bancorp, including the expected timeline for completing the transaction, future financial and operating results, benefits, and synergies of the proposed transaction, and other statements about the future expectations, beliefs, goals, plans, and prospects of Hope Bancorp as well as the combined entity. These statements constitute forward-looking statements and are not guarantees of future performance.

Speaker Change: Hope Bancorp and territorial Bank Corp, including the expected timeline for completing the.

Speaker Change: Transaction future financial and operating results benefits and synergies of the proposed transaction and other statements about the future expectations beliefs goals plans and prospects of hope Bancorp as well as the combined entities. These statements constitute forward looking statements.

Speaker Change: And are not guarantees of future performance actual outcomes and results may differ materially from what is expressed or forecasted in such forward looking statements. The closing of the proposed transaction is subject to regulatory approvals the approval of the shareholders of territorial Bancorp and other customary.

Angie Yang: Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The closing of the proposed transaction is subject to regulatory approvals, the approval of the shareholders of Territorial Bancorp, and other customary closing conditions. If the transaction is consummated, we may not achieve anticipated synergies, cost savings, and other benefits from the transaction as a result of higher than anticipated transaction costs, deposit attrition, operating costs, customer loss, and business disruption following the merger, including difficulties in integrating the two operations.

Speaker Change: Closing conditions, if the transaction is consummated we may not achieve anticipated synergies cost savings and other benefits from the transaction as a result of higher than anticipated transaction cost deposit attrition operating costs customer loss and business disruption.

Following the merger, including difficulties in integrating the two operations. In addition, some of the information referenced on this call today are non-GAAP financial measures for a more detailed description of the risk factors and a reconciliation of GAAP to non-GAAP financial measures. Please refer.

Angie Yang: In addition, some of the information referenced on this call today are non-GAAP financial measures. For a more detailed description of the risk factors and a reconciliation of GAAP to non-GAAP financial measures, please refer to the company's filings with the SEC, as well as the safe harbor statements in our press release issued this morning. Hope Bancorp assumes no obligation to revise any forward-looking projections that may be made on today's

Speaker Change: To the company's filings with the S E C.

Speaker Change: As well as the Safe Harbor statements in our press release issued this morning.

Speaker Change: Bancorp assumes no obligation to revise any forward looking projections that may be made on today's call. Now we have allotted one hour for this call presenting from the management side today will be Kevin Kim Hope Bancorp's, Chairman, President and CEO and Julie Annabel This Scott our Chief Finance.

Angie Yang: Now we have allotted one hour for this call. Presenting from the management side today will be Kevin Kim, Hope Bancorp's Chairman, President, and CEO, and Julianna Balicka, our Chief Financial Officer. Peter Koh, our Chief Operating Officer, is also here as usual and will be available for the Q&A session. With that, let me turn the call over to Kevin Kim.

Speaker Change: Shall officer, Peter Koh, our Chief operating Officer is also here with us as usual and will be available for the Q&A session with that let me turn the call over to Kevin Kim Kevin.

Kevin Sung Kim: Thank you, Angie. Good morning, everyone, and thank you for joining us today.

Kevin Sung Kim: Thank you Angie good morning, everyone and thank you for joining us today.

Kevin Sung Kim: Let us begin on slide 3, with a brief overview of the quarter. For the first quarter of 2024, we earned net income of $25.9 million, or $0.20 per diluted share, compared with net income of $26.5 million, or $0.22 per diluted share, for the fourth quarter of 2023. Excluding notable items, our net income was $27.4 million, and our earnings per share were $0.23. Notable items this quarter comprise merger-related costs of $1 million, or $752,000 after tax, an incremental FDIC special assessment of $1 million, or $721,000 after tax, and the restructuring cost of $143,000, or $103,000 after tax. Last quarter, net income excluding notable items was $38.3 million, or $0.32 per diluted share. Notable items in the fourth quarter comprised restructuring charges and an FDIC special assessment. Moving on to slide four.

Speaker Change: Let us begin on slide three.

Speaker Change: With a brief overview of the quarter.

For the first quarter of 'twenty 'twenty four we earned net income of $25 $9 million or 20 cents per diluted share compared with net income of $26 $5 million or 22 cents per diluted share for the fourth quarter of 2023.

Excluding notable items, our net income was 27 $4 million and our earnings per share or 23.

Notable items this quarter comprised.

Speaker Change: <unk> related cost of $1 million or $752000 after tax.

Speaker Change: On incremental FDIC special assessment of $1 million or $721000 after tax.

Speaker Change: And the restructuring cost of $143000 or $103000 after tax loss.

Speaker Change: Last quarter net income excluding notable items was $38 $3 million or 32 cents per diluted share notable items in the fourth quarter comprised of restructuring charges and FDIC special assessment move.

Moving onto slide four.

Kevin Sung Kim: This morning, we announced a definitive agreement to acquire Territorial Bancorp, the parent company of Territorial Savings Bank, a $2.2 billion institution based in the state of Hawaii. This transaction creates the largest U.S. regional bank catering to multi-ethnic customers across the continental United States and the Hawaiian Islands. Founded in 1921, Territorial has been supporting its local communities and providing personal financial services to its customers for over a century. Hope is excited to be partnering with a bank that shares our values, and we intend to preserve and continue to build on Territorial's long and storied legacy.

Speaker Change: This morning, we announced a definitive agreement to acquire a territorial bancorp the parent company of territorial savings Bank, a $2.2 billion NSS institution based in the state of Hawaii.

Speaker Change: This transaction creates the largest U S regional bank catering to multi ethnic customers across the continental United States and the Hawaiian Islands found.

Speaker Change: Founded in 1921 territorial has been supporting their local communities and providing personal financial services to their customers for over a century.

Hope: Hope is excited to be partnering with a bank that shares our values and we intend to preserve and continue to build on territorial long and storied legacy.

Kevin Sung Kim: To ensure continuity of service for the customer base and employees, after the close of the transaction, the legacy territorial franchise will continue to do business under the Territorial Savings Bank brand as a trade name of BancoPo. The partnership with Territorial Savings Bank expands our footprint into the attractive Hawaii market, which has a large Asian American and Pacific Islander community.

Hope: To ensure continuity of service for the customer base and employees. After the close of the transaction. The legacy territorial franchise will continue to do business under the territorial savings Bank brand as a trade name of Banco Pope.

Hope: The partnership with territorial expands our footprint into the attractive Hawaii market, which has a large Asian American and Pacific Islander community.

Kevin Sung Kim: It will contribute a stable, low-cost core deposit base to the combined company. The spot cost of Territorial's total deposits was 1.61% as of December 31, 2023, or 1.2%, excluding public fund deposits. Proforma, Territorial's residential mortgage loans are worth more than double the size of Hope's residential mortgage portfolio, greatly enhancing our loan mix diversification. We believe the transaction will strengthen Territorial Savings Bank for the long term and create meaningful opportunities to grow customer and market share by being part of a larger organization with greater resources and an expanded array of banking products and services.

It will contribute a stable low cost core deposit base to the combined company.

Hope: The spot Kosta territorial total deposits was 161% as of December 31, 2023, or one 2% excluding public funds deposits pro forma territorial as residential mortgage loans would more than double the size of boats the residential mortgage portfolio.

Hope: Liam.

Hope: Lately enhancing our loan mix diversification.

Hope: We believe the transaction will strengthen territorial savings bank for the long term and create meaningful opportunities to grow customer and market share by being part of a larger organization with greater resources and an expanded array of banking products and services.

Kevin Sung Kim: The transaction is expected to close by year-end 2024 and is expected to be immediately accretive to earnings after the close at a double-digit percentage growth rate, sustainably strengthening our profitability. On slide five, you can see that we ended the quarter with strong capital, and all our capital ratios expanded from December 31st, 2023. As of March 31st, 2024, our total capital ratio was 14.19%, up 27 basis points from December 31st, and our common equity tier one ratio was 12.47%, up 19 basis points quarter over quarter.

Hope: The transaction is expected to close by year end 'twenty 'twenty four and is expected to be immediately accretive to earnings after the close at a double digit percentage growth rate sustainably strengthening our profitability.

Hope: On slide five.

Hope: You can see that we ended the quarter with strong capital and all our capital ratios the expanded from December 31st 2023.

Hope: As of March 31, 2024, our total capital ratio was 410.19% up 27 basis points from December 31st and our common equity tier one ratio was 12.47% up 919 basis points quarter over quarter and our.

Kevin Sung Kim: And our tangible common equity ratio was 9.33%, up 47 basis points from year end 2023. Adjusting for the allowance for credit losses and including hypothetical adjustments for investment security marks, all our capital ratios remain high. Our board of directors declared a quarterly common stock dividend of 14 cents per share payable on May 23rd to stockholders of record as of May 9th, 2024. Continuing to slide six.

Hope: Tangible common equity ratio was 9.33% up 47 basis points from year end 2023.

Adjusting for the allowance for credit losses, and including hypothetical adjustments for investment security marks all our capital ratios remain high.

Our board of directors declared a quarterly common stock dividend of <unk> 14 cents per share payable on may 23rd to stockholders of record as of May nine 2024.

Hope: Continuing to slide six.

Kevin Sung Kim: At March 31st, 2024, our total deposits were $14.8 billion, essentially stable quarter over quarter. Our line of business, Groups, exceeded their customer deposit growth goals for the quarter, offsetting a planned reduction of broker time deposits. As of March 31st, our gross loan-to-deposit ratio was 93%. Moving on to slide seven.

Hope: At March 31, 2024 hour total deposits were $14.8 billion essentially stable quarter over quarter, our line of business.

Hope: Groups exceeded their customer deposit growth goals for the quarter offsetting a planned reduction of brokered time deposits as of March 31st our gross loan to deposit ratio was 93% moving.

Hope: Moving on to slide seven.

Kevin Sung Kim: At March 31st, 2024, our loan portfolio totaled $13.7 billion, a decrease of 1%, quarter over quarter. Commercial and commercial real estate loans decreased, partially offset by growth in SBA and residential mortgage loans. The negative rate of change in our loan balances has decelerated from recent quarters. With our teams regaining momentum following the reorganization, our pipelines are increasing, on slides 8 and 9. We provide more details on our commercial real estate loans, which are well diversified by property type and granular in size.

Hope: At March 31st of 'twenty 'twenty, four our loan portfolio totaled $13 7 billion, a decrease of 1% quarter over quarter, the commercial and commercial real estate loans decreased partially offset by growth in SBA and residential mortgage loans the negative rate of.

Hope: Change in our loan balances has decelerated from recent quarters with our teams regaining momentum following the reorganisation our pipelines are increasing.

Hope: On slides eight and nine.

We provide more details on our commercial real estate loans, which are well diversified by property type and granular in size the loan to values remain low across the portfolio with a weighted average of approximately 46% at March 31st 2020 for the vast majority.

Kevin Sung Kim: The loan-to-values remain low across the portfolio with a weighted average of approximately 46% at March 31st, 2024. The vast majority of our commercial real estate loans have full recourse with personal guarantees. Asset quality remains strong with 98.2% of the commercial real estate portfolio being past graded at March 31st, 2024. With that, I will ask Julianna to provide additional details on our financial performance for the first quarter.

Hope: You already have a commercial real estate loans have full recourse with personal guarantees asset quality remains strong with 98, 2% of the commercial real estate portfolio being past rated at March 31st 2024.

Hope: With that I will ask Giuliana to provide additional details on our financial performance for the first quarter.

Giuliana: Juliana Thank you.

Julianna Balicka: Thank you, Kevin, and good morning, everyone. Beginning with slide 10, our net interest income totaled $115 million for the first quarter of 2024, a decrease of 9% from the fourth quarter. This largely reflects a decline in average loans and a higher cost of interest-bearing deposits, partially offset by a decrease in average CDs and wholesale borrowings. The net interest margin for the 2024 first quarter contracted 15 basis points to 255. At the end of the first quarter, we paid off $1 billion of our bank term funding program borrowing, and the remaining $695 million was paid off in early April.

Giuliana: You, Kevin and good morning, everyone.

Giuliana: Beginning with slide 10.

Giuliana: Our net interest income totaled $115 million for the first quarter of 2024, a decrease of 9% from the fourth quarter. This largely reflects the decline in average loans and a higher cost of interest bearing deposits, partially offset by a decrease in average Cds and wholesale borrowings net interest margin.

Giuliana: For the 2024 first quarter contracted 15 basis points to 255.

Giuliana: At the end of the first quarter, we paid off $1 billion of our bank term funding program borrowings and the remaining 695 million was paid off in early April we used interest, earning cash for the path.

Julianna Balicka: We used interest-earning cash for the payoff. The positive spread earned on BTFP borrowings contributed approximately $3.6 million to net interest income in the first quarter. All else equal, the payoff of the BTFP should be positive for our net interest margin going forward.

Giuliana: The positive spread earned on Bts P borrowings contributed approximately $3 6 million to net interest income in the first quarter all else equal the pay off of the Bts P should be a positive to our net interest margin going forward.

Julianna Balicka: Moving on to slide 11, our average loans of $13.7 billion decreased 2% linked quarter. The average yield on our loan portfolio increased one basis point to 6.25%. As Kevin referenced, our lending team's momentum is rebuilding, and loan growth trends are improving.

Giuliana: Moving onto slide 11.

Giuliana: Our average loans of $13 $7 billion decreased 2% linked quarter. The average yield on our loan portfolio increased one basis point to $6 25 per cent as Kevin referenced our lending teams momentum is rebuilding and loan growth trends are improving.

Julianna Balicka: Average deposits of $14.9 million decreased 3% quarter over quarter, and the weighted average cost of interest-bearing deposits increased 19 basis points. In the first quarter of 2024, we absorbed the renewal of promotional CDs from the year-ago first quarter. I would like to highlight that month-to-date in April 2024, the spot cost of our deposits has decreased slightly as we benefit from an improved pricing approach following our, on to slide 12. Our non-interest income was $8 million for the first quarter, compared with $9 million for the fourth quarter of 2023; growth and deposit service fees were offset by a decrease in other non-interest income.

Giuliana: Average deposits of $14 $9 million decreased 3% quarter over quarter and the weighted average cost of interest bearing deposits increased 19 basis points in the first quarter of 2024, we absorbed a renewal of promotional Cds from the year ago first quarter I would like to highlight that month to date in April 2020 for the stock.

Cost of our deposits has decreased slightly as we benefit from an improved pricing approach following our line of business focus reorganization.

Giuliana: Onto slide 12.

Giuliana: Our noninterest income was $8 million for the first quarter compared with $9 million for the fourth quarter of 2023.

Giuliana: Growth in deposit service fees was offset by a decrease in other noninterest income.

Julianna Balicka: Similar to the prior quarter, we did not record any gain on the sale of SBA loans in the first quarter. However, secondary market premiums have improved in April 2024 compared with the beginning of the year, and we are likely to resume a small volume of SBA loan sales in the second quarter. We continually evaluate market pricing conditions for selling or retaining SBA loan origination.

Giuliana: Similar to prior quarter, we did not record any gain on the sale of SBA loans in the first quarter.

Giuliana: Secondary market premiums have improve by April 2024, compared with the beginning of the year and we are likely to resume a small volume of SBA loan sales in the second quarter. We are continually we continually evaluate market pricing conditions for selling our retaining SBA loan originations.

Julianna Balicka: Moving on to expenses, on slide 13. In our first quarter of 2024, GAP non-interest expense was $85 million, compared with $99 million in the fourth quarter of 2023. Excluding notable items from both quarters, which Kevin outlined, our first quarter non-interest expense of $83 million is down 2% quarter over quarter from $84 million in the fourth quarter of 2023 and is down 7% from $89 million in the first quarter of 2023. First quarter 2024 salaries and employees' benefits expense increased 1% quarter over quarter to $48 million, up from $47 million, reflecting seasonal increases in payroll taxes and vacation accruals, partially offset by reduced salary and benefits costs following our restructuring in the fourth quarter.

Giuliana: Moving on to expenses on slide 13, our first quarter 2024, GAAP noninterest expense was $85 million compared with $99 million in the fourth quarter of 2023.

Giuliana: Excluding notable items from both quarters, which Kevin outlined our first quarter noninterest expense of $83 million is down 2% quarter over quarter from $84 million in the fourth quarter of 2023, and it's down 7% from $89 million in the first quarter of 2023.

Giuliana: First quarter 2020 for salaries and employees benefits benefits expense increased 1% quarter over quarter to $48 million up from $47 million, reflecting seasonal increases in payroll taxes and vacation accruals, partially offset by reduced salary and benefits costs following our restructuring in the fourth quarter.

Julianna Balicka: Year over year, our salaries and employee benefits expense is down 16%. For the first quarter of 2024, the effective tax rate was 28%, compared with 25% for the full year of 2023. For the full year of 2024, we expect the effective tax rate will be approximately 26 percent. Income tax provision for the first quarter was $10 million and included $1.1 million of true-if adjustments, which are not expected to recur.

Giuliana: Year over year, our salaries and employee benefits expense was down 16% for.

Giuliana: For the first quarter of 2020 for the effective tax rate was 28% compared with 25% for the full year 2023 for.

Giuliana: For the full year 2024, we expect the effective tax rate will be approximately 26% income tax provision for the first quarter was $10 million and included $1 1 million of true up adjustments, which are not expected to recur.

Julianna Balicka: Now, moving on to slide 14, I will review asset quality. Our non-performing assets as of March 31st, 2024 increased to $107 million compared with $46 million as of December 31st and $80 million as of March 31st, 2023. The quarter-over-quarter increase was largely attributable to one relationship consisting of three commercial real estate loans that were accruing 90 days past due as of March 31st, 2024. The exposure is fully secured, and sales agreements are in place for the collateral properties. Net charge-offs for the 2024 first quarter were $3.5 million, or 10 basis points of average loans annualized, compared with 5 basis points in the prior quarter.

Speaker Change: Now moving on to Slide 14, I will review asset quality I know.

Nonperforming assets at March 31, 2024, it increased to $107 million compared with $46 million as of December 31st at $80 million as of March 31, 2023, the quarter over quarter increase was largely attributable to one relationship consisting of three commercial real estate loans that were accrued.

Speaker Change: <unk> and 90 days past due as of March 31, 2024.

Speaker Change: The exposure is fully secured and sales agreements are in place for the collateral properties with no expected loss.

Speaker Change: Net charge offs for the 2024 first quarter with $3 $5 million or 10 basis points of average loans annualized compared with five basis points in the prior quarter for the first quarter, our provision for credit losses was $2 $6 million compared with $2 $4 million in the prior year quarter.

Julianna Balicka: For the first quarter, our provision for credit losses was $2.6 million, compared with $2.4 million in the prior quarter. At March 31st, 2024, our allowance for credit losses was $159 million, representing 116 basis points of loans receivable, compared with 115 basis points as of December 31st, 2023, and up from 109 basis points as of March 31st, 2023. With that, let me turn the call back to Kevin. Thank you, Julianna.

Speaker Change: At March 31st 2020 for allowance for credit losses was $159 million.

Speaker Change: Representing 116 basis points of loans receivable compared with 115 basis points as of December 31, 2023, and up from 109 basis points as of March 31 2023.

Speaker Change: Let me turn the call back to Kevin.

Kevin Sung Kim: Thank you Julianna.

Kevin Sung Kim: Onto the outlook on slide 15.

Kevin Sung Kim: Our pending transaction with territorial Bancorp is expected to close by year end 2024, and does not impact our fourth quarter 2024 outlook in terms of our fourth quarter 2024, our outlook relative to the fourth quarter 2023, actuals, we have the following updates.

Kevin Sung Kim: Thank you, Julianna. Moving on to the Outlook on slide 15. Our pending transaction with Territorial Bancorp is expected to close by year-end 2024 and does not impact our fourth quarter 2024 outlook. In terms of our fourth quarter 2024 outlook, relative to the fourth quarter 2023 actuals, we have the following updates. From fourth quarter to fourth quarter, we still expect average loans to grow at a percentage rate in the low single digits, up from $14.05 billion in the fourth quarter of 2023.

Kevin Sung Kim: Fourth quarter to fourth quarter, we still expect average loans to grow at a percentage rate in the low single digits up from 14 point all $5 billion in the fourth quarter of 2023.

Kevin Sung Kim: In terms of net interest income we utilized the current implied forward interest rate curve in our baseline. Therefore, we are factoring in one fed funds target rate cut of 25 basis points. Since September. This compares with five fed funds target rate cuts implied by the who.

Kevin Sung Kim: A word group in January of 2024.

Kevin Sung Kim: Accordingly, we now expect net interest income for the fourth quarter of 24 to decline between five and 7% from $126 million in the fourth quarter of 2023. This includes the net impact of the pay off the bank term funding program, which contributed a.

Kevin Sung Kim: In terms of net interest income, we utilize the current implied forward interest rate curve in our baseline. Therefore, we are factoring in one Fed Funds target rate cut of 25 basis points in September. This compares with five Fed Funds target rate cuts implied by the forward curve in January of 2024.

Kevin Sung Kim: Positive $4 million to our net interest income in the fourth quarter of 2023.

Kevin Sung Kim: Year to date secondary market premiums for SBA loan sales have improved and we are likely to resume SBA loan sale activity with a small volume in the second quarter.

Kevin Sung Kim: Accordingly, we now expect net interest income for the fourth quarter of 2024 to decline between 5 and 7 percent from $126 million in the fourth quarter of 2023. This includes the net impact of the payoff of the bank term funding program, which contributed a positive $4 million to our net interest income in the fourth quarter of 2023. Year-to-date secondary market premiums for SBA loan sales have improved, and we are likely to resume SBA loan sale activity with a small volume in the second quarter.

Kevin Sung Kim: Fourth quarter to fourth quarter, we still continue to expect operating expenses to decrease by over 5% from $85 million in the fourth quarter of 2023.

Kevin Sung Kim: Our outlook translates into a positive operating leverage when comparing the fourth quarter of 2024 with the fourth quarter of 2023 with the decrease in expenses plus the gains from the resumption of SBA sales exceeding net interest income pressure.

Kevin Sung Kim: Finally in our 'twenty 'twenty four outlook, we continue to assume an essentially stable coverage ratio of allowance for credit losses to loans, which was 116 basis basis points of loans as of March 31, 2024, and 115 basis points of loans as of this.

Kevin Sung Kim: Quarter to quarter, we still continue to expect operating expenses to decrease by over 5% from $85 million in the fourth quarter of 2023. Our outlook translates into positive operating leverage when comparing the fourth quarter of 2024 with the fourth quarter of 2023, with the decrease in expenses plus the gains from the resumption of SBA sales exceeding net interest income pressure. Finally, in our 2024 outlook, we continue to assume an essentially stable coverage ratio of allowance for credit losses to loans, which was 116 basis points of loans as of March 31st, 2024, and 115 basis points of loans as of December 31st, 2023.

Kevin Sung Kim: 31 2023.

Speaker Change: With that I will proceed to discuss our pending merger with territorial Bancorp and switch to the transaction related slide deck available on our Investor Relations website.

Beginning with slide three of the merger.

Speaker Change: Presentation the.

Speaker Change: The transaction with territorial Bancorp is strategically compelling and financially attractive, bringing together two culturally aligned organizations I reviewed the key highlights in my opening remarks and will now review some of the details.

Speaker Change: The aggregate consideration of $79 million based on the closing price of April 26 of 'twenty 'twenty four is equivalent to 31% of territorial December 31 tangible book value.

Kevin Sung Kim: With that, I will proceed to discuss our pending merger with Territorial Bancorp and switch to the transaction-related slide deck available on our investor relations website. Beginning with slide three of the merger presentation, the transaction with Territorial Bancorp is strategically compelling and financially attractive, bringing together two culturally aligned organizations. I reviewed the key highlights in my opening remarks and will now review some of the details.

Speaker Change: The exchange ratio is fixed at 0.8048 <unk> shares for a territorial share the estimated earn back period, who hopes tangible book value dilution is approximately three years, we expect the transaction to be immediately accretive to earnings after the close at a double digit.

Speaker Change: Just percentage growth rate no capital raise will be needed to complete the transaction and the combined company will have strong capital and capital ratios to support growth after the close.

Kevin Sung Kim: The aggregate consideration of $79 million, based on the closing price of April 26, 2024, is equivalent to 31% of Territorial's December 31 Tangible Book Value. The exchange ratio is fixed at 0.8048 Hope Shares per Territorial Share. The estimated earnback period for Hope's Tangible Book Value dilution is approximately three years.

Speaker Change: On slide four.

We provide a closer look at territorial Bancorp.

Speaker Change: Headquartered in Honolulu, Hawaii Territorial savings Bank has the fifth largest market share in the state operating 28 branches on the island of Oahu, Maui Kauai in Hawaii.

Kevin Sung Kim: We expect the transaction to be immediately accretive to earnings after the close at a double-digit percentage growth rate. No capital raise will be needed to complete the transaction, and the combined company will have strong capital and capital ratios to support growth after the close. Slide four.

Speaker Change: With $2.2 billion in total assets as of December 31st 2023 Territorial had gross loans of $1 3 billion and total deposits of $1 $6 billion.

Speaker Change: Territorial has very strong capital and it's tangible common equity ratio was over 11% as of December 32023.

Kevin Sung Kim: We provide a closer look at Territorial Savings Bank. Headquartered in Honolulu, Hawaii, Territorial Savings Bank has the fifth largest market share in the state, operating 28 branches on the islands of Oahu, Maui, Kauai, and Hawaii. With $2.2 billion in total assets as of December 31, 2023, Territorial had gross loans of $1.3 billion and total deposits of $1.6 billion. Territorial had very strong capital, and its tangible common equity ratio was over 11 percent as of December 30, 2023.

Speaker Change: Territorial asset quality is excellent and nonperforming assets represented just 10 basis points of total assets at the end of the year, 97% of territorial loan portfolio residential mortgages, which have a low weighted average loan to value ratio of 63%.

Speaker Change: <unk>.

Speaker Change: On slide five we show the pro forma loans and deposits of the combined company you can see that the transaction accelerates the prudent diversification of our loan portfolio with territorial contribution more than doubling hopes residential mortgage loans to approximately 15% of total loan.

Speaker Change: Outstanding of the combined company.

Kevin Sung Kim: Territorial's asset quality is excellent, and non-performing assets represent just ten basis points of total assets at the end of the year. Ninety-seven percent of Territorial's loan portfolio is residential mortgages, which have a low-weighted average loan-to-value ratio of 63 percent.

Speaker Change: Pro forma Hawaii will become the combined companies' third largest market in terms of deposits by state.

Speaker Change: On slide six.

Speaker Change: We highlight territorial low cost stable and granular core deposit base the cost the cost of total deposits was 161% as of December 31, 2023, and one 2% excluding public funds deposits.

Kevin Sung Kim: On slide five, we show the performer loans and deposits of the combined company. You can see that the transaction accelerates the prudent diversification of our loan portfolio with Territorial's contribution more than doubling Hope's residential mortgage loans to approximately 15% of total loans outstanding of the combined company. Proforma, Hawaii will become the combined company's third largest market in terms of deposits by state, on slide six. Additionally, we highlight Territorial's low-cost, stable, and granular core deposit base.

Speaker Change: The average account size is $30000 and the median account size is a little over $4000, 73% of territorial deposit balances, excluding public funds offer them accounts equal to or less than $250000 in size 93 per se.

Speaker Change: Of the non CD deposit balances of territorial art from consumer accounts.

Kevin Sung Kim: The cost of total deposits was 1.61% as of December 31, 2023, and 1.2% excluding public funds deposits. The average account size is $30,000, and the median account size is a little over $4,000. 73% of Territorial's deposit balances, excluding public funds, are from accounts equal to or less than $250,000 in size. 93% of the non-CD deposit balances at Territorial are from consumer accounts.

Speaker Change: Slide seven recaps the financial details of the transaction, which I have already covered in my remarks, but are presented here for your easy reference the merger will require the approval of the regulators the approval of a territorial shareholders and dissatisfaction of customary closing conditions.

Speaker Change: Moving on to slide eight.

Speaker Change: Upon completion of the transaction, we intend to continue operating in Hawaii on there.

Speaker Change: The territorial savings Bank brand.

Kevin Sung Kim: Slide 7 recaps the financial details of the transaction, which I have already covered in my remarks, but are presented here for your easy reference. The merger will require the approval of regulators, the approval of territorial shareholders, and the satisfaction of customary closing conditions. Moving on to slide 8.

Speaker Change: With any merger cultural integration is a very important aspect that must be addressed with great care. We are pleased that <unk> been territorial organizations share similar corporate and cultural values that emphasize a strong commitment to employees customers and the communities that we serve.

Kevin Sung Kim: Upon completion of the transaction, we intend to continue operating in Hawaii under the Territorial Savings Bank brand. With any merger, cultural integration is a very important aspect that must be addressed with great care. We are pleased that Hope and Territorial Organizations share similar corporate and cultural values that emphasize a strong commitment to employees, customers, and the communities that we serve. We look forward to building on the long-standing legacy and positive impact that the Territorial Franchise has made on the Hawaii market.

We look forward to building on the long standing legacy and positively impact positive impact that the territorial franchise has made to the Hawaii market.

Speaker Change: We have a deeply experienced board and management team with proven history of successfully completing and integrating M&A transactions with diverse business models, we fully expect to have a smooth and seamless integration process, which will enable us to quickly begin.

Speaker Change: Realizing the benefits of this combination for our shareholders our customers and our employees.

Kevin Sung Kim: We have a deeply experienced board and management team with proven histories of successfully completing and integrating M&A transactions with diverse business models. We fully expect to have a smooth and seamless integration process, which will enable us to quickly begin realizing the benefits of this combination for our shareholders, our customers, and our employees. With this transaction, we are taking another strong and purposeful step to fortify the long-term growth prospects of Hope Bancorp and ensure the success of the franchise for many, many years to come. With that, Operator, please open up the call for questions.

Speaker Change: With this transaction, we are taking another strong and purposeful steps to fortify the long term growth prospects of <unk> Bancorp and ensure the success of the franchise for many many years to come.

Speaker Change: With that operator, please open up the call for questions.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key.

Speaker Change: Anytime your question has been addressed and you would like to withdraw your question.

Speaker Change: Please press Star then two.

Speaker Change: Please limit yourself to two questions.

At this time, we will pause momentarily to assemble our roster.

Speaker Change: The first question comes from Gary Tenner with D. A Davidson. Please go ahead.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Please limit yourself to two questions. At this time, we will pause momentarily to assemble our roster. The first question comes from Gary Tenner with D.A. Davidson. Please go ahead. Thanks, good morning.

Gary Peter Tenner: Thanks, Good morning.

Gary Peter Tenner: I wanted to ask for some more color if possible in terms of some of the.

Gary Peter Tenner: Financials around the deal Oh, including what your expectations are for onetime merger expenses thoughts around credit marks.

Our projected cost saves and timing of those.

Gary Peter Tenner: Thanks. Good morning. I wanted to ask for some more color, if possible, in terms of some of the financials around the deal, including what your expectations are for one-time merger expenses, thoughts around credit marks, and projected cost saves and timing of this.

Gary Peter Tenner: Hi, Gary this is julianna.

Julianna: The deal market as you know are something that is going to.

Reflect the forward rate curve that.

Julianna: The evaluation at that point in time, so those will shift.

Gary Peter Tenner: Right now we are assuming.

Gary Peter Tenner: Earmarks of approximately 15% below.

Gary Peter Tenner: Approximately 17% of change on the securities.

Julianna Balicka: Hi Gary, this is Julianna. The deal marks, as you know, are something that is going to reflect the forward rate curve or the evaluation at that point in time, so those will shift. But right now, we are assuming deal marks of approximately 15% on the loans; approximately 17% have changed on the securities. And on the loans, we're assuming that the accretion from that will be lower in the first couple years, accretion income, because this is a residential mortgage portfolio, right? It's going to be a little bit longer dated.

Gary Peter Tenner: And on the loan.

Gary Peter Tenner: We're assuming that our accretion and that will be lower in the first couple of years. The accretion income because this is a residential mortgage portfolio right, it's going to be a little bit more longer dated the average life and that will be seven years, but we expect to prepay.

Ken loaded when interest rate changes change in client events.

Gary Peter Tenner: We're not assuming a frontloaded accretion.

Gary Peter Tenner: <unk>.

Gary Peter Tenner: Uh huh.

Deal expenses were assuming deal expenses, and we're still working out some of that.

Julianna Balicka: The average life of it will be seven years, but we expect the prepay to be back-end loaded, you know, when interest rates change, and life events change, so we're not assuming a front-loaded accretion. In terms of the deal expenses, we're assuming deal expenses, and we're still working out some of the related expenses as we go through our integration planning process, will be in the $25 to $30 million range. And the cost savings, we're assuming 75% in the first year and then 100% in the subsequent year.

Gary Peter Tenner: Related expenses as they go through R. R.

Gary Peter Tenner: Our integration planning process will be in the $25 million to $30 million range and the cost saves, whereas to me 75% in the first year and then 100% in the subsequent here I will say that this is not necessarily a cost saves transaction. This is a strategic market expansion transaction.

Gary Peter Tenner: It provides us and excellent high.

Gary Peter Tenner: Quality core deposit base.

Gary Peter Tenner: And.

Gary Peter Tenner: And we are focused on.

Gary Peter Tenner: Making sure that the customer experience and transition period, it's seamless so unlike maybe an in market transaction. The cost saves are going to be the number that I just told you about.

Julianna Balicka: I will say that this is not necessarily a cost-savings transaction. This is a strategic market expansion transaction. It provides us with an excellent, high-quality core deposit base, and we are focused on making sure that the customer experience and transition period are seamless. So, unlike maybe an in-market transaction, the cost savings are going to be the number that I just told you about.

Speaker Change: Okay I appreciate that and then just more broadly as it relates to the territorial franchise, and how youre thinking about that market longer term.

Speaker Change: If you go back several years, you know growth of territorial as deposits have lagged the state of Hawaii in total I Wonder if you guys could provide any kind of color in terms of.

Kevin Sung Kim: Okay, I appreciate that, and then just more broadly, as it relates to the territorial franchise and how you're thinking about that market longer term, you know, I know if you go back several years, growth of territorial deposits has lagged the state of Hawaii in total, you know, wonder if you guys could provide any kind of color in terms of why that may have been the case and kind of how you're thinking about approaching that market longer term.

Speaker Change: Why that may have been the case in and kind of how you're thinking about approaching that market longer term.

Speaker Change: Yeah.

Speaker Change: Well, we believe that a territorial long legacy in the state of Hawaii.

Speaker Change: Has established a very good market presence in Hawaii.

Speaker Change: And with our larger balance sheet and our broader.

Speaker Change: Ray of banking products and services I think we have really good market share expansion opportunities in Hawaii.

Kevin Sung Kim: Well, we believe that Territorial's long legacy in the state of Hawaii has established a very good market presence in Hawaii. And with our larger balance sheet and our broader array of banking products and services, I think we have really good market share expansion opportunities in Hawaii. And this will also become a very beneficial experience for the customers of Territorial.

Speaker Change: And this will also become a very.

Speaker Change: A beneficial experience for the customers with territorial.

Speaker Change: Okay. Thank you.

Speaker Change: Gary if I can just add real quick.

Julianna Balicka: Gary, if I can just add real quick that you asked about the transaction expenses, and what I quoted you was the pre-tax number, so I just want to make sure that's clear.

Speaker Change: You asked about the transaction expenses, what I quoted you list a pre tax number so I just want to make sure that's clear.

Speaker Change: Did you share the 27, 5% of territorial Stan.

Julianna Balicka: Did you share that 27.5% of territorial non-interest expenses will be the expected cost savings? And the cost savings will be 27.5%. It just happens to be the same range.

Interest expenses, what is the expected cost savings and the cost savings will be 25% just happens the same ranges there.

Speaker Change: Dale cough.

Speaker Change: Got it thank you.

Speaker Change: Again, if you have a question. Please press Star then one.

Julianna Balicka: And their cost savings will be 27.5%. It just happens to be in the same range as the...

Speaker Change: The next question comes from Chris Mcgratty with K B W. Please go ahead.

Operator: Again, if you have a question, please press star then 1. The next question comes from Chris McGratty with KBW. Please go ahead. Have a great morning.

Christopher Edward McGratty: Great Good morning.

Christopher Edward McGratty: Kevin or Giuliana I, just wanted to go to slide three for a second.

Christopher Edward McGratty: Oh, great. Good morning.

Christopher Edward McGratty: Double digit earnings accretion.

Julianna Balicka: Kevin or Julianna, I just want to go to slide three for a second, the double-digit earnings accretion that you referenced. Julianna, you mentioned that accretable isn't going to be notably higher or front-loaded. If you were to kind of unpack the double-digit, like how much is purchase accounting versus just core, what would you say?

Christopher Edward McGratty: That you're referencing Julien you mentioned that accretable isn't going to be notably higher or front run that frontloaded.

Christopher Edward McGratty: If you were to kind of unpack the double digit like how much is purchase accounting versus.

Christopher Edward McGratty: Just core I would say.

Christopher Edward McGratty: Well.

Julianna Balicka: I mean, in the current interest rate environment, accretion is core. But between the kind of three components of EPS accretion, it's going to be a combination of cost-safe, right, which is going to be phased in over time as we do the transition, accretion on the balance sheet, and then the third component will be balance sheet restructuring and repositioning. So it does provide us with balance sheet liquidity optionality with their securities and their cash position.

Christopher Edward McGratty: I mean in the current interest rate environment.

Christopher Edward McGratty: Accretion is core.

Christopher Edward McGratty: But between the three it's going to be mix between the kind of three components of EPS accretion is going to be a combination of cost save right, what's you're gonna be phased in over time as we do the transition are the accretion on the balance.

Christopher Edward McGratty: Balance sheet and then the third component will be balance sheet restructuring repositioning territorial does provide us balance sheet liquidity optionality with their securities and our cash position. So there'll be some redeployment of that as well are built into our earnings accretion and were going through our transaction.

Julianna Balicka: So there will be some redeployment of that as well built into our earnings accretion. And we're going through our integration planning process right now. So as we kind of tighten up the... Model, in the sense of going through this process, we will share more details.

Christopher Edward McGratty: The integration planning process right now so as we kind of tighten up that.

Yeah.

Christopher Edward McGratty: The model in a sense of going through this process, we will share more details.

Julianna Balicka: Okay, great. If I could just add one more. The interest rate marks are understandably large, but aside from that, maybe a little bit more color on just the perception of their credit portfolio, the diligence you did, any portfolios that might not be core to the legacy Hope Bancorp portfolio. It's excellent asset quality.

Speaker Change: Okay great.

Speaker Change: And if I could just add one more of the interest rate marks are understandably large, but aside from from that maybe a little bit more color on just.

Speaker Change: The perception of their credit portfolio that the diligence you did.

Speaker Change: Any portfolios that might not.

Speaker Change: Not be core to the legacy hope Bancorp.

Julianna Balicka: It's an excellent asset quality portfolio. We took a look at it in multiple ways through the due diligence process. Obviously, we needed to make sure that we had the marks on the balance sheet correctly. Estimated between interest rates and credit, I mean, with an NPA ratio of only 10 basis points, I mean, 97% of that is a residential mortgage portfolio at a low LTV. It's a clean asset quality portfolio.

Speaker Change: It's an excellent asset quality portfolio, we took a look at it in multiple ways through the due diligence process, obviously, we needed to make sure that we had the marks on the balance sheet correctly.

Speaker Change: Estimated between interest rate and credit I mean, with NPA ratio only 10 basis points I mean this is a.

Speaker Change: 97% of that is our residential mortgage portfolio at a low LTV, it's it's a clean asset quality portfolio.

Speaker Change: Okay. Thanks, Sean.

Speaker Change: Yeah.

Operator: Again, if you have a question, please press star then 1. The next question comes from John Dasher on Pinnacle. Please go ahead.

Speaker Change: Again, if you have a question. Please press Star then one.

Speaker Change: The next question comes from John <unk> with Pinnacle. Please go ahead.

John Dasher: Hi, good morning. I was just curious if you could tell us how this deal came about, how you found Territorial, and were there any other bidders for the bank?

John: Hi, Good morning, I was just curious if you could tell us how this deal.

John: It came about how you found territorial and were there any other bidders for the bank.

Kevin Sung Kim: Well, hi, this is Kevin. Well, my counterpart at Territorial and I have had casual interactions over the years. And in the current interest rate environment, both of us concluded that a strategic partnership between Hope and Territorial would be very, very compelling. So we engaged in serious conversations toward the end of 2023, and we came up with announcing the deal signing this morning. So I understand that Territorial has talked to other potential buyers, but from a strategic perspective, they must have concluded that Hope would be the ideal deal partner for this.

John: Well hi.

John: Hi.

Speaker Change: As Kevin well my counterpart that territorial and I have had a casual interactions over the years.

Speaker Change: And in the current interest rate environment.

Speaker Change: Both of US concluded that a strategic partnership between hope and territorial.

Speaker Change: Would be very very compelling.

Speaker Change: So we.

Speaker Change: We had engaged a serious conversations from the.

From towards the end of 2023.

Speaker Change: And.

Speaker Change: We came up with are announcing.

Speaker Change: Announcing the deal signing this morning.

Speaker Change: So I understand that.

Speaker Change: Territorial has talked to other potential buyers, but.

Speaker Change: From strategic strategic perspective, they are most have concluded that would be the most ideal.

Kevin Sung Kim: Thanks, that's helpful. You're going to keep the franchise intact. What about the management team at Territorial? We are planning to... We plan to maintain most of the customer-facing and front-line employees at Territorial. And we believe that capitalizing on their very good reputation and traditionally good services and loyal customers at Territorial would be very important for us to continue after the close. So we will retain most of the employees, and the cost savings will come from mainly duplicative corporate and public company expenses that will be redundant after the close.

Speaker Change: The old partner for this.

Speaker Change: For this deal.

Speaker Change: Okay. Thanks, that's helpful Youre going to keep the franchise intact, what about the management team of territorial.

Speaker Change: We it was kind of explaining to me.

Speaker Change: We plan to maintain.

Speaker Change: Most of the customer facing in frontline <unk>.

Speaker Change: Employees.

Speaker Change: At a territorial.

And we believe that capitalizing on there.

Speaker Change: Every good reputation and.

Traditionally good services and loyal customers at a territorial would be very important for us to continue.

Speaker Change: After the close so we will we will retain most of the employees.

And the.

Speaker Change: The cost savings the cost savings will come from mainly.

Uh huh.

Speaker Change: <unk> corporate and public company expenses.

Speaker Change: That will be redundant after the close.

Kevin Sung Kim: Like we said, this is not a deal for mainly cost savings or elimination of competition. This is more of a strategic merger to improve our market share growth opportunities in the new market. Understand. Thank you very much and good luck.

Speaker Change: Like we said this is not a deal for mainly.

Speaker Change: Cost savings or elimination of competition. This is.

Speaker Change: More of a strategic merger.

To improve our market share growth opportunities in the new market.

Speaker Change: Understood. Thank you very much and good luck.

Speaker Change: Thank you.

Operator: Again, if you have a question, please press star then 1. The next question comes from Gary Tenner on D.A. Davison's with a follow-up. Please go ahead.

Speaker Change: Again, if you have a question. Please press Star then one.

Speaker Change: The next question comes from Gary Tenner with D. A davidson's with a follow up. Please go ahead.

Gary Peter Tenner: Thanks. I had a quick follow-up. Julianna, in terms of your comment regarding the deposit rates month-to-date in April, were you referencing that relative to the full quarter average from the first?

Gary Peter Tenner: Thanks, I had a just a quick follow up Giuliana in terms of your comment regarding the deposit rates month to date April re referencing that relative to the full quarter average.

Julianna Balicka: from the first quarter, the March 31st spot. So from March 31st, the spot...

Gary Peter Tenner: From the first quarter relative.

March 31st spot.

Speaker Change: So for Mark to answer you bought.

<unk>.

Speaker Change: Hmm.

Julianna Balicka: Did you give us the March 31st spot? If I'm not mistaken? No, our March 31st spot was three...

Speaker Change: Okay did you did you give us the March 31st spot if I missed it I apologize.

Julianna Balicka: No, our March 31st spot was $367 for total deposits, and we're down several basis points from that as of right now in April.

Speaker Change: No our March 31st spot was 367 four.

Speaker Change: For total deposits and we're down several basis points from that as of right now in April.

Speaker Change: Okay.

Speaker Change: Thank you.

Operator: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.

Julianna Balicka: May I make a comment? The spot that I just quoted to Gary at $367 excludes some cost benefits that we have from hedge accounting on our deposit book. So the hedge-adjusted spot that is present in our average balance sheet is $342, and we're down several basis points from that $342. So I just wanted to clarify that. Apologies.

Speaker Change: Actually excuse me may I make a comment.

Speaker Change: That the spot that I, just quoted to Gary at $3 67.

Speaker Change: Excludes some cost benefits that we have from a hedge accounting on our deposit books are there yeah. The hedge adjusted spot that is present in our average balance sheet is $3 42, and we were down several basis points from that $3 42. So I wanted to just wanted to clarify that I apology.

Kevin Sung Kim: Okay, once again, thank you all for joining us today, and we look forward to speaking with you next quarter. So long, everyone. The conference is now over. Thank you for...

Speaker Change: Okay. Once again, thank you all for joining us today, and we look forward to speaking with you next quarter, so long everyone.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Yeah.

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