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Mergers and Acquisitions
12 Months Ended
Dec. 31, 2017
Business Combinations [Abstract]  
Mergers and Acquisitions
MERGERS AND ACQUISITIONS
Termination of Acquisition of U & I Financial Corp
On January 23, 2017, the Company announced the signing of a definitive agreement and plan of merger (the “U & I Merger Agreement”) with U & I Financial Corporation (“U & I”) pursuant to which U & I would have merged 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, would have merged with and into the Bank.
Subsequently on September 15, 2017, the Company announced the mutual termination of the proposed merger with U & I as the Company was unable to obtain the required regulatory approval. The Mutual Termination Agreement provided, among other things, that each party will bear its own costs and expenses in connection with the terminated transaction, without penalties or termination fees. In connection with the termination, the parties have provided mutual releases from any claims of liability to one another relating to the merger transaction.
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 United 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 restricted 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:
 
July 29, 2016
 
(Dollars in thousands)
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
13,173

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
17,698

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
$
497,262

Excess of consideration paid over fair value of net assets acquired (goodwill)
$
359,050


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 effect 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. Subsequently in the first quarter of 2017, the
Company made an adjustment which increased goodwill by $978 thousand consisting of a $1.7 million adjustment to OREO partially offset by a $716 thousand adjustment to deferred tax assets. During the second quarter of 2017, the Company made an
adjustment of $475 thousand to deferred tax assets which increased goodwill by the same amount.
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)
(8,002
)
Expected cash flows at acquisition
284,378

Interest component of expected cash flows (accretable discount)
(41,271
)
Fair value of acquired impaired loans
$
243,107


The carrying balance of the acquired loans from Wilshire included in the Statement of Financial Condition at December 31, 2017 was $2.60 billion compared to $3.59 billion at December 31, 2016.
Pro Forma Information
The following table presents financial information regarding the Wilshire’s operations included in the 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 merger and integration expenses associated with the merger with Wilshire, the terminated merger with U & I, and other previous mergers and 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 mergers and acquisitions.
 
Year ended December 31,
 
2017
 
2016
 
2015
 
(Dollars in thousands)
Wilshire
$
1,224

 
$
16,818

 
$
1,414

U & I
467

 

 

Other
90

 
96

 
126

Total merger and integration expenses
$
1,781

 
$
16,914

 
$
1,540