Hope Bancorp, Inc. 2026 Q3 Earnings Call

Good day, and welcome to the Hope Bancorp third quarter 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference host 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 your telephone keypad. To withdraw your question, please press star then two. We do ask that you please limit yourself to two questions. Please also note today's event is being recorded. I would now like to turn the conference over to Maxime Olivan, investor relations manager. Please go ahead. Thank you, Rocco.

Good morning, everyone, and thank you for joining us for the Hope Bancorp Investor Conference Call for the third quarter of 2026. As usual, we will be using a slide presentation to accompany our discussion this morning, which is available on the presentations page of our investor relations website. Beginning on slide 2, let me start with a brief statement regarding forward-looking remarks. Today's call contains forward-looking statements and 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 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 today's call 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 earnings press release. Presenting for management today will be Kevin Kim, Hope Bancorp Chairman, President, and CEO. Julianna Balicka, Hope Bancorp Chief Financial Officer, and Peter Koh, Bank of Hope President and 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.

Beginning with slide 3, I will provide an overview of our third quarter results. Bank of Hope's positive earnings momentum in the first half of the year continued in the third quarter, supported by revenue growth, positive operating leverage, and stable asset quality with continued improvements in key asset quality metrics. Third quarter revenue growth was driven by loan growth, net interest margin expansion, and increased non-interest income. Once again, revenue growth outpaced expense growth. As a result, we delivered strong sequential and year-over-year growth in pre-provision net revenue and after-tax net income. Third quarter 2026 revenue totaled $157 million, an increase of 7% quarter over quarter and 11% year over year. Pre-provision net revenue increased to $55 million, up 11% from the prior quarter and up 21% from the prior year.

Reported diluted earnings for the third quarter were $0.28 per share, up 7% from $0.26 in the prior quarter, and up 16% from $0.24 in the year-ago quarter. Excluding notable items, which consisted of merger-related costs, diluted earnings for the third quarter were $0.29 per share, up from $0.27 sequentially and $0.25 a year ago. Our balance sheet grew in the third quarter, with gross loans of $15.1 billion and total deposits of $16.1 billion as of September 30, 2026. Alongside that growth, our funding mix improved with growth in non-maturity deposits offsetting continued planned decreases in higher cost time deposits. This shift helped lower our overall deposit costs.

The positive trends in our third quarter results are a sound foundation from which to enter a new chapter for Bank of Hope following the completion of our acquisition of SMBC MANUBANK's commercial banking unit on October 1, 2026. The transaction strengthens our commercial banking franchise, expands our presence in Southern California, and enhances our ability to serve Korean and Japanese businesses. Our partnership and collaboration agreement with SMBC also provides opportunities to develop relationships with multinational companies operating in the U.S. With the transaction closed, our focus is on serving our expanded customer base, integrating our teams and operations, and building on the organic progress we have made over the past several quarters to strengthen our earnings. We are pleased to welcome our new colleagues to Bank of Hope and look forward to combining the strengths of our organizations. Turning to capital on slide 4.

Our regulatory capital ratios remained essentially stable quarter-over-quarter. At September 30, 2026, our common equity Tier 1 capital ratio was 12.25%, and our total capital ratio was 13.92%. Higher long-term US Treasury yields in the third quarter had a negative impact on the fair value of securities available for sale and caused a decrease in accumulated other comprehensive income, which impacted our tangible common equity ratio by 31 basis points or $59 million quarter-over-quarter. Following the MANUBANK acquisition, we expect our common equity Tier 1 ratio to be approximately 10.2%, down about 200 basis points from September 30, 2026. The transaction optimizes our capital position, and we remain focused on prudent capital management. Lastly, our board of directors has declared a quarterly common stock dividend of $0.14 per share, consistent with previous quarters and reflecting our continued commitment to returning capital to stockholders.

Continuing to slide 5. Gross loans totaled $15.1 billion at September 30, 2026, up 1% quarter-over-quarter and up 3% year-over-year. Third quarter loan growth was primarily driven by commercial and industrial lending and residential mortgage loans. We remain selective in our approach to loan growth, focusing on opportunities that meet our risk-adjusted return expectations and support a diversified portfolio while ensuring that new lending is backed by optimal funding sources. On the deposit side, total deposits were $16.1 billion at September 30, 2026, up 1.5% quarter-over-quarter and up 2% year-over-year. Quarter-over-quarter, non-maturity deposits increased 6%, and time deposits decreased 5%, reflecting our continued efforts to strengthen our funding mix by reducing the share of time deposits. As of September 30, 2026, time deposits were 37% of our total deposits, compared with 40% a year ago.

This shift away from time deposits has continued to help lower our overall cost of funds. Quarter-over-quarter, on an average basis, non-interest-bearing demand deposits grew 4%, money market interest-bearing demand and savings deposits increased 5% in aggregate, and time deposits decreased 3%. With that, I will turn the call over to Julianna to review our financial performance for the third quarter in more detail. Julianna? Thank you, Kevin, and good morning, everyone.

Beginning on slide six, our net interest income totaled $135 million for the third quarter of 2026, up $6 million or 5% from the prior quarter and up $9 million or 7% from the year-ago quarter. The sequential increase reflected average earning asset growth, higher loan yields, and lower deposit costs. Average loans grew 1% from the prior quarter, equivalent to 5% annually. Our net interest margin has continued to expand. Third quarter 2026 net interest margin was 3.02%, up six basis points from 2.96% in the prior quarter and up 13 basis points from 2.89% in the year-ago quarter. The sequential quarter improvement reflected higher earning asset yields, including a five basis point increase in loan yields, as well as a favorable shift in our funding mix. On to slide seven. We provide more detail on balance trends, yields, and rates for our average loans and deposits.

On to slide eight. For the third quarter of 2026, non-interest income totaled $22 million, up $3 million or 17% from the prior quarter and up $7 million or 44% from the year-ago quarter. Sequential quarter increase reflected growth in customer-related income and fees and higher SBA loan sale gains. In addition, we booked $3 million in net gains on sales of other loans, partially offset by a $1 million decrease in gains on sale of investment securities. During the third quarter, we sold $72 million of SBA loans for a net gain of $4.7 million, compared with $68 million sold for a net gain of $4.4 million in the second quarter. Moving on to non-interest expense in slide nine.

Non-interest expense totaled $103 million in the third quarter of 2026, up $4 million or 4%, from $99 million for the second quarter, and up $6 million or 6% from $97 million for the third quarter of 2025. Excluding merger-related notable items, non-interest expense in the third quarter was $100 million. Our reported efficiency ratio improved to 65.3% for the third quarter of 2026. Excluding notable items, our efficiency ratio improved to 63.6% for the third quarter of 2026, down from 65.2% in the second quarter and 67.6% for the year-ago quarter. Our efficiency ratio improvement reflects incremental positive operating leverage achieved each quarter of the year. Next, onto slide 10. Our asset quality metrics reflect proactive portfolio management and attention to sound credit fundamentals. Criticized loans totaled $335 million at September 30, 2026, essentially unchanged from the prior quarter, and down $38 million or 10% from a year ago.

The criticized loan ratio was 222 basis points at September 30th, compared with 224 basis points last quarter and 256 basis points a year ago. Non-performing assets declined both quarter-over-quarter and year-over-year to $108 million, and the non-performing asset ratio improved to 57 basis points of total assets at September 30th, 2026. Third quarter 2026 net charge-offs were $7 million or an annualized 19 basis points of average loans, compared with 24 basis points annualized in the prior quarter. The third quarter provision for credit losses increased to $9 million compared with $7 million in the second quarter, primarily reflecting loan growth, partially offset by lower net charge-offs. The allowance for credit losses totaled $154 million of September 30th, 2026, with the allowance coverage ratio remaining stable at 1.03% of loans receivable.

On slide 11, I will provide an update on the financial aspects of the MANUBANK transaction. We will provide detailed guidance for 2027 with fourth quarter earnings, but there are a few items we want to walk through here regarding the MANUBANK acquisition. From the transaction, we received approximately $307 million of cash from the net settlement, and we did not pay a deposit premium. We also received $65 million of interest-bearing Fed funds, plus the proceeds from the SBA loan sale that we executed in October. As of the acquisition date, loans acquired from MANUBANK totaled approximately $2.2 billion before purchase and other accounting adjustments, consisting of $1.3 billion of real estate loans and $1.9 billion of commercial loans.