MERGERS AND ACQUISITIONS

Merger with Wilshire Bancorp Inc.

On July 29, 2016, the merger of Wilshire Bancorp Inc. (“Wilshire”) and BBCN Bancorp, Inc. (now Hope Bancorp) was completed. On the same day BBCN changed its name to Hope Bancorp, Inc. and the subsidiary BBCN Bank was changed to Bank of Hope. The Company merged with Wilshire to create the only super regional Korean-American Bank in the Untied States and to expand our branch network nationwide. Pursuant to the merger agreement, holders of Wilshire common stock received 0.7034 of a share of common stock of HOPE for each share of Wilshire common stock held immediately prior to the effective time of the merger, rounded to the nearest whole share, plus cash in lieu of the issuance of fractional shares. Outstanding Wilshire stock options and restricted stock awards were converted into stock options with respect to shares of HOPE common stock or shares of HOPE common stock, respectively, with appropriate adjustments to reflect the exchange ratio. The merger was accounted for using the acquisition method of accounting. Accordingly, the assets and liabilities of Wilshire were recorded at their respective fair values and represents management’s estimates based on available information.

The consideration paid, the assets acquired, and the liabilities assumed are summarized in the following table:



(Dollars in thousands)	July 29, 2016
Consideration Paid:
Hope common stock issued in exchange for Wilshire common stock	$	852,939
Cash paid for fractional shares	3
Hope stock options issued in exchange Wilshire stock options	3,370
Total consideration paid	$	856,312

Assets Acquired:
Cash and cash equivalents	$	100,127
Investment securities	478,938
Loans receivable	3,800,807
FRB and FHLB stock	16,539
OREO	14,866
Premises and equipment	16,812
BOLI	25,240
Servicing assets	16,203
Low income housing tax credit investments	47,111
Core deposit intangibles	18,138
Deferred tax assets, net	17,458
Other assets	76,818
Liabilities Assumed:
Deposits	(3,812,367		)
Borrowings	(206,282		)
Subordinated debentures	(56,942		)
Other liabilities	(54,751		)
Total identifiable net assets	$	498,715
Excess of consideration paid over fair value of net assets acquired (goodwill)	$	357,597

Fair values are primarily determined through the use of inputs that are not observable from market-based information. Under ASC 805-10-25-13, management may adjust the fair values of acquired assets or assumed liabilities for a period of up to one year from the date of the acquisition to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have an affect on the measurement of the amounts recognized as of that date. During the fourth quarter of 2016, the Company made a net adjustment of $1.4 million to the deferred tax assets and taxes receivable acquired from Wilshire which reduced the previous goodwill recorded from the transaction by $1.4 million.

Acquired Loans

The fair value of loans were estimated on an individual basis based on the characteristics for each loan. A discounted cash flow analysis was used to project cash flows for each loan using assumptions for rate, remaining maturity, prepayment speeds, projected default probabilities, loss given defaults, and estimate of prevailing discount rates. The following table presents loans acquired from Wilshire with deteriorated credit quality as of the date of acquisition included as loans receivable in the table above:



	Fair Value At July 29, 2016
	(Dollars in thousands)
Contractually required principal and interest at acquisition	$	292,380
Contractual cash flows not expected to be collected (nonaccretable discount)	(40,560		)
Expected cash flows at acquisition	251,820
Interest component of expected cash flows (accretable discount)	(8,713		)
Fair value of acquired impaired loans	$	243,107

The outstanding principal balances and the related carrying amounts of the acquired loans included in the statement of financial condition at December 31, 2016 were $5.67 billion and $3.59 billion, respectively, for loans acquired from Wilshire.

Pro Forma Information

The following table presents financial information regarding the Wilshire’s operations included in our Consolidated Statement of Income from the date of acquisition through December 31, 2016. The table also presents unaudited pro forma information as if the merger had occurred on January 1, 2015. This pro forma information gives effect to certain adjustments, including purchase accounting fair value adjustments, amortization of core deposit and related income tax effects. Merger and integration expenses incurred of $25.7 million and $1.4 million for the years ended December 31, 2016 and 2015, respectively, were excluded. The pro forma information does not necessarily reflect the results of operations that would have occurred had the Company merged with Wilshire at the beginning of 2015. The pro forma combined condensed consolidated financial statements do not take into account the impact, if any, of an ownership change under Section 382 of the Code that would have occurred as of January 1, 2015. The merger is expected to result in annual cost savings to be achieved following the consummation of the merger. These expected savings have not been included in the pro forma combined amounts. These pro forma results require significant estimates and judgments particularly as it relates to the valuation and accretion of income associated with acquired loans.



	Actual from Acquisition Date Through December 31,		Pro forma Year Ended December 31,
	2016		2016		2015

	(Dollars in thousands)
Net interest income	$	197,953	$	456,556	$	449,501
Provision for loan losses	6,490		4,000		8,700
Non-interest income	29,546		75,266		89,345
Non-interest expense	120,954		235,013		255,401
Income tax provision	39,828		$	118,613	$	111,581
Net income	$	60,227	$	174,196	$	163,164

Pro forma earnings per share:
Basic			$	1.29	$	1.21
Diluted			$	1.29	$	1.21

Acquisition-Related Expenses

The following table presents acquisition-related expenses associated with the acquisition of Wilshire and other previous acquisitions which were reflected in the Consolidated Statements of Income in merger and integration expense. These expenses are comprised primarily of severance payments, professional services, and other noninterest expense related to prior acquisitions.



	Twelve Months Ended December 31,
	2016		2015
	(Dollars in thousands)
Wilshire	$	16,818	$	1,414
Other	96		126
Total merger related expenses	$	16,914	$	1,540

Federally Assisted Acquisition of Mirae Bank

The FDIC placed Mirae Bank (“Mirae”) under receivership upon Mirae’s closure by the California Department of Business Oversight (“DBO”) at the close of business on June 26, 2009. Wilshire purchased substantially all of Mirae’s assets and assumed all of Mirae’s deposits and certain other liabilities. Further, the Company entered into loss sharing agreements with the FDIC in connection with the Mirae acquisition. In June, 2014, the remaining loss-share agreement with the FDIC related to losses expired. As such, losses on loans acquired from Mirae Bank are no longer covered by the FDIC. However, recoveries will still be shared with the FDIC until June 2017.

Pending Acquisition of U & I Financial Corp

On January 23, 2017, the Company announced the signing of a definitive agreement and plan of merger (the “Merger Agreement”) with U & I Financial Corporation (“U & I”) pursuant to which U & I will merge (the “merger”) with and into Hope Bancorp with Hope Bancorp as the surviving corporation. As part of the merger, UniBank, a wholly-owned subsidiary of U & I, will merge with and into the Bank. Under the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each outstanding share of U & I common stock will be converted into shares of the Company’s common stock based on a value of $9.50 for the U & I common stock, which value will be subject to adjustment if U & I’s financial advisory and legal fees exceed certain amounts as provided in the Merger Agreement (the “Merger Consideration”). The number of shares of Company common stock to be issued for the Merger Consideration will be based on the 10-day trade weighted, volume weighted average price of the Company’s common stock as of the closing as determined in accordance with the Merger Agreement (as so determined, the “Closing Stock Price”); provided that:

(i) if the Closing Stock Price is less than $17.28832, the Company may terminate the Merger Agreement unless U & I Financial elects to accept an adjustment to the Merger Consideration through the issuance of fewer shares based on the $17.28832 instead of the lower Closing Stock Price; and

(ii) if the Closing Stock Price is greater than $25.93248, U & I may terminate the Merger Agreement unless the Company elects to accept an adjustment to the Merger Consideration through the issuance of additional shares based on the $25.93248 price instead of the higher Closing Stock Price.

Each outstanding U & I stock option held by an U & I employee who will be retained by the Company after the Effective Time (each, a “Covered Employee”) shall cease to represent the right to acquire shares of U & I common stock and shall instead be converted automatically into an option to acquire shares of the Company’s common stock, and such assumed options will be assumed by the Company on substantially the same terms and conditions as were applicable under the corresponding U & I stock options. Each U & I stock option held by a U & I employee who will not be a Covered Employee shall become fully vested and be converted into the right to receive an amount in cash equal to the product obtained by multiplying (i) the excess, if any, of the per share Merger Consideration over the exercise price per share of such stock option by (ii) the total number of shares of U & I common stock subject to such stock option.

The Merger Agreement contains representations and warranties customary for transactions of this type from the Company and U & I, and each party has agreed to customary covenants, including, among others, covenants relating to the conduct of its business during the interim period between the execution of the Merger Agreement and the Effective Time and, in the case of U & I, its obligation, subject to certain exceptions, to recommend that its shareholders adopt the Merger Agreement and its non-solicitation obligations relating to alternative acquisition proposals.

The consummation of the Merger is subject to customary conditions, including receipt of regulatory approvals, receipt of the requisite approval of the shareholders of U & I, the absence of any law or order prohibiting the closing, and effectiveness of the registration statement to be filed by the Company with respect to the Company’s common stock to be issued in the Merger, and the absence of the occurrence of a material adverse effect upon the Company or U & I. In addition, each party’s obligation to consummate the Merger is subject to certain other conditions, including the accuracy of the representations and warranties of the other party and compliance of the other party with its covenants, in each case subject to certain materiality standards.

The Merger Agreement provides certain termination rights for both the Company and U & I and further provides that a termination fee of $2 million will be payable by U & I to the Company upon termination of the Merger Agreement under certain circumstances.