Hope Bancorp, Inc.

Good day and welcome to the HOPE Bancorp 2025 Third 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 one on a touch-tone phone. 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, Strategic Finance Manager. Please go ahead.

Thank you, Bailey. Good morning, everyone, and thank you for joining us for the Hope Bancorp Investor Conference Call for the third quarter of 2025. As usual, we'll be using a slide presentation to accompany our discussion this morning. which is available in the Presentations page of our Investor Relations website. 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. Forward-looking statements are not guarantees of future performance. Actual outcomes and results may differ materially. Hope Bank Corp pursues new obligation to revise any forward-looking projections that may be made on today's call. 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. We have allotted one hour for this call. Presenting from the management side today will be Kevin Kim, Polk Bank Works Chairman, President, and CEO, and Juliana Beliska, 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?

Thank you, Maxime. Good morning, everyone, and thank you for joining us today. Let us begin on slide three with a brief overview of the quarter. The third quarter of 2025 was a very positive one for Bank of Hope, marked by continued progress across our strategic priorities to improve profitability and reflecting solid execution across the organization. Improvement in asset quality was a key highlight, as was loan growth across all our major loan segments. Throughout the year, we have been making sustained investment in talent to support our growth, and I'm very pleased with the progress we have made so far. Before we dive into this quarter's results, I want to extend my deepest gratitude to all the bankers at Bank of Hope, for their unwavering dedication and commitment to excellence. Their hard work is the driving force behind our success, and I'm incredibly proud of what we are building together. And now, on to a discussion of our results. Net income for the third quarter of 2025 totaled $31 million, up 28 percent year-over-year, from $24 million in the year-ago quarter, and off from a net loss of $28 million in the second quarter. Second quarter results were impacted by elevated notable items related to a securities portfolio repositioning, the close of the territorial Bancorp acquisition on April 2nd, and impact from a California state tax law change. Excluding notable items, third quarter 2025 net income of $32 million was up 29% from net income of $24.5 million in the second quarter of 2025. In the third quarter, we saw loan growth across all our major loan portfolio segments of CNI, commercial real estate, and residential mortgage. Our net interest margin expanded 20 basis points, which was our best linked quarter expansion since 2012. And importantly, our asset quality improved, led by our disciplined approach to credit management, which resulted in a 57 percent reduction in net charge-ups and noticeable improvement in classified and special mention loans, including a 17 percent reduction in CNI-criticized loans. Moving on to slide four, All our capital ratios increased quarter over quarter and remain well above the requirements for well-capitalized financial institutions, providing us with a healthy cushion to support growth and navigate an evolving macroeconomic environment. Our board of directors declared a quarterly common stock dividend of $0.14 per share, payable on November 21st, to stockholders of record as of November 7, 2025. Continuing to slide five, we continue to be focused on strengthening our deposit franchise, deepening primary banking relationships with our customers, and lowering deposit costs through ongoing optimization of our deposit mix and disciplined pricing. As of September 30, 2025, Deposits totaled $15.8 billion, reflecting a 1% decrease from $15.9 billion as of June 30th, primarily driven by a $139.5 million reduction in broker deposits, partially offset by growth in customer deposits. Non-interest-bearing deposits totaled $3.5 billion as of September 30th, up 1%, quarter of a quarter. Moving on to slide six, at September 30th, 2025, gross loans, including health for sale, totaled $14.6 billion, up 1.2 percent quarter of a quarter, equivalent to 5 percent annualized, with growth across all our major loan segments. Year over year, production has been strengthening. while maintaining disciplined underwriting and pricing standards. Loan growth this quarter also benefited from lower levels of payoffs and paydowns. Across the organization, we have been investing in talent to drive sustainable, prudent growth and enhance our corporate and commercial banking capabilities. As a bank, we are focused on driving business development and deepening client relationships to expand market presence. With that, I will ask Juliana to provide additional details on our financial performance for the third quarter. Juliana?

Thank you, Kevin, and good morning, everyone. Beginning on slide seven, our net interest income totaled $127 million for the third quarter of 2025, an increase of 8% from the prior quarter and up 21% from the third quarter of 2024. This reflects loan growth, improved yields on earning assets, and lower costs of interest-bearing deposits. Overall, our net interest margin increased 20 basis points quarter over quarter to 2.89% for the third quarter of 2025, up from 2.69% from the prior quarter. Nine basis points of the linked quarter expansion came from higher earning asset yields. Six basis points came from lower funding costs and five basis points came from a favorable shift in balance sheet mix. On slide eight, we present the quarterly trends in our average loan and deposit balances and our weighted average yields and costs. The cost of average interest-bearing deposits and the cost of average total deposits for the third quarter each declined by eight basis points from the previous quarter. The acquisition of territorial has enhanced our deposit position and renewals of CDs at lower rates provides a tailwind for continued cost reductions. With the September Fed Fund's target rate cut of 25 basis points, we realized an approximate 85% spot beta in reducing money market deposit rates. On to slide 9, where we summarize our non-interest income. I will highlight quarter-over-quarter growth in service fees on deposit accounts, international banking fees, foreign exchange and wire transfer fees. During the third quarter, we sold $48 million of SBA loans compared with $67 million in the second quarter. Accordingly, we recognized gains from sale of $3 million for the third quarter compared with $4 million for the second quarter. Moving on to non-interest expense on slide 10. Our non-interest expense totaled $97 million in the third quarter. Excluding notable items such as merger-related costs, Non-interest expense was $96 million in the third quarter, compared with $92 million in the second quarter. This quarter-over-quarter increase was mainly driven by higher compensation-related costs, reflecting the company's sustained investment in talent to support growth. Importantly, revenue growth outpaced expense growth in the third quarter, generating positive operating leverage. For the third quarter of 2025, our efficiency ratio, excluding notable items, improved to 67.5%, compared with 69.1% for the second quarter of 2025. Next, on to slide 11. I will review our asset quality, the improvement in which was a highlight this quarter. Criticized loans declined $42 million, or 10%, quarter over quarter, to $373 million at September 30th, with decreases in both special mention and classified loans. and including a 17% lean quarter decrease in CNI-criticized loans. The criticized loan ratio improved to 2.56% of total loans at September 30th, down from 2.87% at June 30th. Net charge-offs totaled $5 million for the third quarter or annualized 14 basis points of average loans, down 57% from $12 million or 33 basis points annualized in the second quarter. The quarter-over-quarter drop in net charge-offs reflected lower charge-offs in CNI loans. The third quarter of 2025 provision for credit losses was $9 million. This compares favorably with a provision for credit losses of $15 million for the second quarter of 2025, which included $4.5 million of merger-related provision expenses that the company considered a notable item. Excluding notable items, the quarter-over-quarter decrease in the provision for credit losses largely reflected lower net charge-offs. Finally, allowance for credit losses totaled $152.5 million at September 30th, compared with $149.5 million at June 30th. The allowance coverage ratio was 1.05% of loans receivable at September 30th, compared with 1.04% at June 30th. With that, let me turn the call back to Kevin.

Thank you, Juliana. Moving on to the outlook on slide 12, our outlook for the full year 2025 is updated as follows. We remain on track to achieve high single-digit loan growth in 2025, continuing to build on the growth momentum from the third quarter. We expect net interest income growth of approximately 10 percent for 2025. For 2025, we expect non-interest income growth of approximately 30 percent, excluding the second quarter loss on the securities repositioning, reflecting the year-to-date momentum across various business lines. We expect non-interest expenses, excluding notable items, to be up approximately 15 percent in 2025, reflecting the addition of territorial operations to our run rate, and our investment in talent to enhance our production capabilities. Throughout the year, we have been adding experienced bankers to our corporate and commercial banking teams. In particular, in the third quarter, we hired a seasoned commercial banking team, which accelerated some of our hiring plans. A leading institution recently exited one of our core markets, and we had the opportunity to bring this group of professionals to Bank of Hope to support our continued expansion. Our hiring is driving improved revenue growth, and we expect to see sequential positive operating leverage in the fourth quarter with an improvement to our efficiency ratio. Lastly, we anticipate the fourth quarter 2025 effective tax rate to be approximately 14 percent excluding the impact of notable items. With the improvement of our financial performance and strengthening of our balance sheet in the third quarter, along with the strategic additions to our banking teams, we believe we are well positioned to drive profitable growth and create long-term value for our stockholders. With that, operator, please open up the call for questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw the question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Matthew Clark with Piper Sandler. Please go ahead.

Good morning, everyone. Just on the margin, do you have the spot rate on deposits I didn't see in the deck at the end of September and maybe the average margin in the month of September?

One second. The spot rate of deposits at the end of September, it was 2.82% for total deposits and 3.62% for interest-bearing deposits. And the average of deposits you see in our earnings tables, in the table, yes?

The average margin for the month of September?

Oh, the average margin for the month of September, one second. The margin for the month of September was 2.96%. Okay, great.

And then just on Territorial, any update there on how things are progressing? Cost saves you may have extracted so far from that deal?

We are continuing to focus on stabilizing and expanding operations there. As we mentioned last quarter, following the acquisition, there's been some homework in terms of staffing up branches and just making sure that our products are rolled out to that platform. So we're continuing to incrementally see cost savings as we kind of align the operations there, but nothing headline grabbing to report this quarter. Okay, thank you.

Our next question comes from Gary Tenner with DA Davidson. Please go ahead.

Thanks. Good morning, everybody. I wanted to ask, Juliana, if you could give us the purchase accounting impact this quarter. I think last quarter it may have been in the deck, but I didn't see it. So the loan discount accretion and then kind of the net purchase accounting benefit as well?

So, yeah, last quarter was the acquisition quarter, so we had the accretion number. uh last quarter um so last quarter the accretion was four million dollars and um this quarter the accretion was five million dollars it was uh i'm sorry how much five million five five was the loan accretion or the net benefit overall all other items were um minimal okay if you look at the table from last quarter i mean Pretty much it was de minimis on each of those line items.

Yeah, they pretty much canceled out, I think, last quarter. Okay. And then in terms of the CD maturities in the fourth quarter, could you give us the amount of maturing CDs and the rate that they're rolling off at?

One second. Let me grab that. There are CDs that are maturing in the fourth quarter. We've got $2.3 billion of maturity and an average rate of 4.08%.

Okay, I'm sure you were fading out. $2.2 billion, you said?

$2.3 billion at a rate of 4.08%. Okay. All right.

Thank you.

Just a reminder, please limit yourself to two questions. Our next question comes from Kelly Mota with KBW. Please go ahead.

Hey, good morning. Thanks for the question. I would like to circle back to the expense side of things. You guys mentioned in your prepared remarks that you've made a number of frontline hires increase the expense run rate. Can you remind us kind of where you are in the process? It seems like some of the better revenue growth is helping to offset some of these investments you're making. So what two-part question, where are you adding and where do you stand in this process? Thank you.

Well, Kelly, you know, we have been adding new team members throughout the year. And, you know, the additions will strengthen our presence in strategic segments like lower middle markets, project finance, structured finance, entertainment, et cetera, as well as treasury management, spread products, and so on. Our focus remains on strengthening existing capabilities, and we are, you know, somewhat optimistic about the growth prospects. with the addition of all these new people.

Got it. I would say if you think about it, in the beginning you hire leadership and more senior positions and then you kind of fill in more mid-level after that. So we filled in all the key leadership positions and we've made a number of senior RM hires in the team that we referenced, but I mean in the fourth quarter we have more hiring plans and in 2026 obviously because we are in a great position to be in to expand our organic presence and growth.

Got it. That's helpful. That was a two-parter so I will step back. Thank you.

Again, if you have a question, please press star, then one. Our next question comes from Tim Coffey with Jannie. Please go ahead.

Thanks for it, everybody. Question, with the government shutdown, does that make it hard to predict revenues from the SBA loan-on-tail business line?

Yeah. Well, first of all, outside of SBA, we do not really foresee any uh, material impact, uh, to, from the recent government shutdown, uh, as to the SBA, uh, you know, as you may know, the U S a small business administration has suspended acceptance of new, uh, SBA loan applications. And, uh, additionally secondary market for new SBA 7A loan sales has been halted. Um, but, uh, From our side internally, there is no impact to the loans that have already received an SBA approval number. So in the meantime, while the government shutdown continues, we will continue to proceed business as usual for new applications so that these loans are fully prepared for submission to the U.S. SBA once operations resume. So hopefully the government shutdown ends in a new future, but no matter what happens, I think we are in a good position in terms of our non-interest income in the fourth quarter and throughout 2025. Okay.

Great. Thank you. That's excellent, Khaled. And then the other question I had was on the non-accrual loans. You know, commercial real estate, I think about half of them right now. And in relation to the totality of the portfolio, it's a relatively small percentage, but they are up quarter or year to date. Can you kind of describe some of the challenges some of those loans are experiencing?

Yeah, this is Peter. You know, I think our NPLs have been relatively flat this quarter. You know, some of the CRE loans and actually for all the loans in that category are Sometimes it just takes time to work out, and we feel good. I think there's a level of problem credits there that we are honed in on, and I think it's just a matter of time before we're able to come to resolutions there.

Okay. Great. Thank you, Peter. Those are my two questions.

Thank you.

Our next question comes from Kelly Mata with KBW. Please go ahead.

Hey, thanks for letting me step in. I just wanted to ask a bit broader about kind of the loan growth ahead. I think you mentioned that growth this quarter was positively benefited by lower payoffs and pay downs. Just, you know, given the potential for rates to decrease here, wondering how you guys are thinking through that impact and your ability to offset that with the pipeline ahead. Thank you. Both next quarter and beyond, if possible.

Yeah. As to our current pipeline, we have a strong pipeline going into the fourth quarter. And we expect our strong pipeline will support our loan growth outlook for the rest of the year. And our fourth quarter pipeline is pretty comparable to what we had at the beginning of the third quarter. And we continue to see improvement in our CNI driven by recent front line additions, as you said, and our CRE pipeline remains pretty stable. Although we In the past, we typically experienced some seasonal slowdown toward the year end. We expect that our loan growth guideline for the entire 2025 will be a good number for us to share.

Got it. Thank you. And I appreciate the color around both the deposit spot rates as well as the spot rate data on the money market where it seems like you're being successful there. Just wondering, in terms of the competitive environment for deposits, it seems like you're having success on the money market. Can you remind us where new CDs are coming on? And the beta was relatively high on the way up. How you guys are thinking about balancing beta with the outlook for a need for funding ahead? Thank you.

Yeah. our CD pricing with the last Fed Funds cut, right? And new CDs most recently have been coming on closer to 4% for the exceptions and below 4% for the non-exceptions. And so we're kind of continuing to think of deposit pricing as moving with Fed Funds market pricing. You know, with the addition of territorial, we have been in a good position to where we can afford to be more price sensitive, if you will. And the beta was high on the way up because the balance sheet dynamics were different at that point in time. And I'll remind, you know, the analyst community that on the way down right now, our loan to deposit ratio is in the low 90%, which is a much different starting point. And I'll also remind the analyst community that on the way up, we had a much higher percentage of broker deposits in our deposit mix. And today, we're sub 5%, around 5% kind of numbers that we shared with you previously. So we're in a much different position today than we were on the way up. So I am optimistic about our ability to have good deposit cost results.

Got it. Thanks for letting me step in. Thanks. Thank you, Kelly.

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

Thank you. Once again, thank you all for joining us today, and we look forward to speaking with you again in three months. So long, everyone.

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