Hope Bancorp Q4 2025 Earnings Call - Net Income Up 42% Driven by NII and Fee Gains, Efficiency and Deposit Mix Remain Tests

Kevin Kim, Chairman, President, and CEO, Hope Bancorp: Good day, and welcome to the Hope Bancorp 2025 fourth quarter earnings conference. Should you need assistance, please signal a conference specialist by pressing... For today’s presentation, there will be an opportunity to ask questions on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Maxime Olivan, Senior Strategic Finance Manager. Please go ahead.

Maxime Olivan, Senior Strategic Finance Manager, Hope Bancorp: Thank you, Drew. Good morning, everyone, and thank you for joining us for the Hope Bancorp Investor Conference call for the fourth quarter of 2025. As usual, we will be using a slide presentation available on our investor relations website. Beginning on slide 2, 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 previews of future performance. Actual outcomes and results may differ materially. Hope Bancorp assumes no obligation to revise any forward-looking projections that may be made on today’s call. In addition, some of the information referenced during this call today includes 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. Now, we have allotted one hour for this call. Presenting from management 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 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 Kim, Chairman, President, and CEO, Hope Bancorp: Today, I’m very pleased to report that we ended 2025 on a positive note with strong earnings growth in the fourth quarter. Beginning with slide 3, you will find a brief overview of our results. $34 million, up 42% quarter-over-quarter, net income rose, driven by growth in net interest income, strength in customer fee income, lower provision for credit losses, and a lower tax expense, partially offset by higher operating expense. Looking back at the deposits, reduced our reliance on brokered deposits... Added experienced senior leadership and talent to support and our asset quality with a steady decrease in criticized loans in each quarter of 2025. We also expanded our banking footprint to the strategically attractive market of Hawaii via the Territorial Bancorp acquisition, which closed in April 2025.

In sum, we were able to optimize our balance sheet and meaningfully improve our underlying core profitability metrics. As we look ahead, we do and believe we are well positioned to continue making progress towards our medium-term financial goals. I want to express my sincere appreciation for the dedication of our colleagues at Bank of Hope. Their steadfast commitment and strengthened our position as the leading regional bank, serving multicultural communities across the Continental United States and Hawaii. As we navigate the path ahead, I am confident that even greater positive outcomes in the years to come. Our ratios increased quarter-over-quarter and remain strong. Our board of directors declared a quarterly common stock dividend of $0.14 per share, payable on or around February 20 to stockholders of record as of February 6, 2026.

Our board of directors also reinstated our prior share purchase authorization, which still has $35 million available. Our healthy capital ratios position us to selectively and prudently return capital to shareholders via a share buyback program while maintaining strong overall capital levels to support growth opportunities and common stock dividends. Continuing to Slide 5. At December, $14.8 billion, up 1% quarter, driven by broad-based growth across commercial real loans. Year-over-year, gross loans are up 8%, largely reflecting the impact of the Territorial acquisition and organic residential mortgage growth. Loan production momentum has improved throughout 2025, with fourth quarter 2025 production volumes up 39% relative to the year over quarter.

At December 31, 2025, deposits totaled $15.6 billion, up 9% year-over-year, primarily due to the Territorial acquisition and down 1% from September 30, largely due to typical fourth quarter fund movements in certain communities. Our strategy is centered on building a durable deposit base by expanding primary customer relationships and improving funding efficiency through thoughtful mix management and pricing discipline in deposits, which declined 15% year-over-year. We are making investments in strengthening the organization. Our continued investments in people and capabilities are reinforcing disciplined growth, expanding our banking franchise, and deepening client engagements as we broaden our market footprint. With that, I will ask for the quarter. Julianna?

Julianna Balicka, Chief Financial Officer, Hope Bancorp: Thank you, Kevin, and good morning, everyone. Beginning on slide 6, our net interest income totaled $127 million for the fourth quarter of 2025, an increase of 1% from the prior quarter and up 25% from the fourth quarter of-- which was 2.90%, up 1 basis point from the third quarter, more than offset the headwind from lower earning asset yields. From the fourth quarter of 2024, primarily driven by yields, the latter being partially repositioned in 2025. On slide 7, we present the quarterly trends in our average loan and deposit balances and our weighted average yields and costs.

Reflecting the impact of Fed Funds Target Rate cuts, our average loan yield declined by 12 basis points, and the cost of average interest-bearing deposits decreased by 17 basis points from the previous quarter. In 2026, we expect to benefit from 2 ongoing tailwinds in our balance sheet: the upward repricing of maturing 5-year commercial real estate loans to current market rates and the downward repricing of time deposits. On to slide 8, where we summarize our non-interest income. In the fourth quarter of 2025, we realized growth across a number of fee income lines, and strength in customer-level swap fees was a highlight. Throughout 2025, management has been focused on improving fee income execution to diversify the bank’s revenue streams.

For example, customer-level swap fees were $6 million for the full year of 2025, an increase of 270% from $1.6 million in 2024. During the fourth quarter, we sold $46 million of SBA loans, compared with $48 million in the third quarter. Accordingly, we recognized SBA loan gains on sale of $2.6 million for the fourth quarter, compared with $2.8 million for the third quarter. Moving on to non-interest expense on slide 9. Our non-interest expense totaled $99 million in the fourth quarter of 2025, up from $97 million in the third quarter. The sequential quarter increase was mainly driven by compensation-related costs, reflecting the impact of hiring to support the company’s strategic initiatives and revenue-generating capabilities.

The year-over-year increase in non-interest expense from $78 million, inclusion of Territorial Savings Bank operating expenses. The fourth quarter 2025 efficiency ratio was essentially stable linked-quarter at 68%, with revenue growth effectively absorbing the incremental investments that we have been making. Next, on to slide 10. Throughout the year, with sequential quarterly balance decreases in credit selected our disciplined and proactive approach to underwriting and portfolio management, as well as successful workouts of problem loans. At December 31, 2025, criticized loans were $351 million, down 6% quarter-over-quarter and down 22% year-over-year. The sequential-quarter improvement included a 48% linked-quarter decrease in C&I special mention loans.

The criticized loan ratio improved to 2.39% of loans at December 31, 2025, down from 2.56% at September 30, 2025, and down from 3.30% at December 31, 2024. Net charge-offs were $3.6 million for the fourth quarter of 2025, or annualized 10 basis points of average loans, compared with $5.1 million, or 14 basis points annualized in the third quarter. The fourth quarter of 2025 provision for credit losses was $7.2 million, compared with $8.7 million for the third quarter of 2025. The quarter-over-quarter decrease in the provision for credit losses primarily reflected lower net charge-offs and a linked quarter change in the allowance for unfunded commitments.

The allowance for credit losses totaled $157 million at December 31, 2025, up from $152.5 million at September 30. The allowance coverage ratio was 1.07% of loans receivable at December 31, 2025, up 2 basis points, compared with 1.05% at September 30.

Kevin Kim, Chairman, President, and CEO, Hope Bancorp: Thank you, Julianna. Moving on to the outlook on Slide 11, 2026. We expect to see year 2026 continuing to build on the growth momentum from the second half of 2025 and supported by the hiring that we have been making in our frontline teams throughout 2025. We expect year-over-year revenue for 2026. This will be driven by our strong fee income growth. Two Fed Funds target rate cuts, 25 basis points each in June and September 2026, in line with the current forward interest rate curve. In addition, we anticipate a tailwind to net interest margin expansion from the downward repricing of time deposits, as well as from the upward repricing of maturing commercial real estate loans to current rates.... In terms of fee income, we expect to see a continuation that we delivered in 2025.

Overall, our outlook is for year-over-year pre-provision net revenue growth, excluding notable items, to be in the range of 25%-30%. The combination of our revenue growth outlook and the investments the bank has been making in people and platforms to strengthen its franchise are anticipated to support our revenue growth outlook in 2026. Going forward, we would consider the fourth quarter 2025 quarterly run rate for 2026, factoring in strength and frontline capabilities, as well as a steady asset quality backdrop and an effective tax rate between 20% and 25% on a full year basis. With that, I will briefly review our medium-term financial targets on slide 12. We continue to make progress towards our medium-term financial targets and believe we are well positioned to achieve these goals.

Our bottom line financial target continues to be a return on average assets of approximately 1.2%. To achieve this metric, we are targeting loan growth in the high single-digit percentage range and revenue growth over 10% on an annual normalized basis. The loan growth target is part of our outlook and plan for 2026 and is expected to drive our revenue growth alongside continued expansion of net interest margin and strong fee income growth. We expect to exceed our normalized revenue target this year. Over the medium term, we are continuing to target an enhanced efficiency ratio. Our current target is for an efficiency ratio in the mid-50% range, which reflects our recent and planned strategic investments in the business and personnel to support the development of our commercial and corporate banking capabilities.

We believe that our efficiency enhancement will come from a combination of sustained strong revenue growth, disciplined expense management, and ongoing operational process improvement. Improved efficiency remains a medium-term goal in 2026 through positive operating leverage [that] will take more than just one year. Ultimately, the leverage over the medium term is expected to improve it. In summary, building on the execution of our improved 2025 financial results, our stronger balance sheet positioning, as well as targeted team and talent additions, have enhanced our capacity to deliver disciplined, profitable, and sustainable growth, creating durable value for our stakeholders in the years ahead. With that, operator, please open up the call for questions.

Conference Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you’re using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. Please limit yourself to two questions. At this time, we will pause momentarily to assemble our roster. The first question comes from Ahmad Hasan with D.A. Davidson. Please go ahead.

Analyst, D.A. Davidson/KBW: Hey, guys. On for Gary Tenner here. Can I quickly just get the PAA accretion number?

Julianna Balicka, Chief Financial Officer, Hope Bancorp: I’m sorry, we don’t disclose that number separately.

Analyst, D.A. Davidson/KBW: All right. And then maybe can I get your thoughts on deposit costs from here in terms of, pricing? And do you guys disclose the spot rates for deposit costs?

Julianna Balicka, Chief Financial Officer, Hope Bancorp: We did not provide the spot rate for deposit costs on this call. I can look that up momentarily. One second. Our spot rate on total deposits was 2.68% as of December thirty-first, 2025. In terms of deposit costs going forward, as we mentioned in our remarks, the continued downward repricing of CD portfolio as it turns over, will continue to lower our deposit costs in the future. Then we reduced our non-maturity deposit rates alongside Fed funds cuts. So to the extent that there are future cuts, we will continue that practice, of course.

And then, thirdly, in our outlook embedded, there’s also, in terms of, behind the DDA growth that we are anticipating and planning for in this year, we have been investing in strengthening our TMS, Treasury Management Products and Services infrastructure and teams in order to be able to expand our customer relationships and capture more of the operating deposit wallet share. So an improved deposit mix will be the third factor in helping to reduce our deposit costs in 2026.

Analyst, D.A. Davidson/KBW: Appreciate the color there. And then maybe last one for me. You guys mentioned new hiring as a potential lever for loan growth in your outlook slide.

... how should we think about new hiring going forward in 2026? Any sort of new hire targets you guys can give out?

Julianna Balicka, Chief Financial Officer, Hope Bancorp: Not specific new hire targets, but our business plan does have very specific roles outlined in the hiring that we are bringing on board. Our hiring is focused on supporting revenue generation and the capabilities related to that as well, obviously, frontline and related support. So, in terms of thinking about that from your perspective, I would say that if you start with the fourth quarter run rate that you saw that already, five, and then from here on out, when you think about it as a OpEx growth rate in the-

Analyst, D.A. Davidson/KBW: Got it. That was helpful. Thanks.

Conference Operator: A question, please press star then one. The next question comes from Kelly Motta with KBW. Please go ahead.

Analyst, D.A. Davidson/KBW: Hi, this is Charlie on for Kelly Motta. What the CD repricing looks like, as you mentioned, that downward repricing is a core repricing there going forward in 2026. Thank you.

Julianna Balicka, Chief Financial Officer, Hope Bancorp: In 2026, we’re looking at a repricing of $6.3 billion. So obviously a lot of it reprices quickly. I mean, CDs are by nature 12 months. In the first quarter, we’ve got a total of that weighted average rate that they’re repricing from is the new CDs have been coming in at somewhere between 3.90%. CDs were coming in at that 3.90% kind of percent level, repricing of institutional CDs, and those are coming in at 3.70%. So it’s going to be a blend of both kind of going forward.

Analyst, D.A. Davidson/KBW: Awesome. Thank you for the color there. And then I guess just following up on the overall margin dynamics, can you remind us any, like, sensitivity to cuts and how you view the overall? Just the overall margin dynamics and any sensitivity to when you’re heading into 2026.

Julianna Balicka, Chief Financial Officer, Hope Bancorp: Actually, I need to make a correction. The 3.90s that I quoted you from the branch CDs, I was reading from the roll-off WAC column. So I’m very sorry. Let me correct that. The new roll-on from branch CDs has been in the 3.75-3.80 range.

Analyst, D.A. Davidson/KBW: Okay.

Julianna Balicka, Chief Financial Officer, Hope Bancorp: So that’s-

Analyst, D.A. Davidson/KBW: Thank you.

Julianna Balicka, Chief Financial Officer, Hope Bancorp: Let me make that correction. The sensitivity, our margin to the rate cuts, I would probably take a look at, the third quarter and the fourth quarter margin relative to the rate cuts you’ve seen in this half of the year and extrapolate from that. I mean, at this point in time, margin, the rate cuts are expected in the second half of next year, so a lot can change between now and then, so I’ll just extrapolate from recent trends.

Analyst, D.A. Davidson/KBW: Okay. Thank you. And I guess from a high level, like looking back on the year you guys entered Hawaii, just an update on the operations there and the strategy there if your hiring teams are still stabilizing operations. Thank you.

Kevin Kim, Chairman, President, and CEO, Hope Bancorp: Yeah, our focus in 2025 in Hawaii was to ensure the successful integration of the teams and add resources as necessary. During the transition period in 2025, we were pleased to see that we did not experience any meaningful deposit fluctuations and the reception by our customer base in Hawaii. We are looking forward to generating growth from this strategy.

Analyst, D.A. Davidson/KBW: Great. Thank you.

Conference Operator: That’s our question and answer session. I would like to turn the conference back over to Kevin Kim, CEO, for any closing remarks.

Kevin Kim, Chairman, President, and CEO, Hope Bancorp: Thank you. Once again, thank you all for joining us today, and we look forward to speaking with you again next quarter. So long, everyone.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.