Hope Bancorp, Inc. Q2 F2026 Earnings Call Transcript

Good day and welcome to the Hope Bancorp 2026 Second Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. 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. Please note this event is being recorded. I would now like to turn the conference over to Maxime Olivan, Investor Relations Manager. Please go ahead.

Thank you, Drew. Good morning, everyone, and thank you for joining us for the Hope Bancorp Investor Conference Call for the second 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 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 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 the 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, and Julianna Balicka, and Hope Bancorp Chief Financial Officer. 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, Maxim. Good morning, everyone, and thank you for joining us today. Beginning with slide three, you will find a brief overview of our results. Overall, we delivered a strong second quarter and made solid progress during the first half of the year in executing against our key operating priorities. Second quarter 2026 revenue of $148 million drove reported diluted earnings per share of 26 cents of 12% quarter over quarter or diluted earnings per share excluding notable items of 27 cents up 17% sequentially from $0.23 in the first quarter of 2026. Year over year, earnings per share excluding notable items were up 40% from $0.19 in the year-ago quarter. On a sequential quarter basis, the strong earnings growth was driven by revenue growth of 5%, net interest margin expansion of six basis points, and positive operating leverage. All our profitability ratios improved while loans and deposits grew. Pre-provision net revenue for the 2026 second quarter totaled $49 million, up 6% sequentially from $47 million in the first quarter of 2026, excluding notable items, which were primarily merger related Second quarter 2026 pre-provision net revenue was $51 million, up 10% from the prior quarter and up 25% year over year. Gross loans increased 2%, or 8% annualized, to $15 billion as of June 30, 2026, and deposits increased 1%, or 4% annualized, to $15.9 billion. Our deposit mix continued to improve with growth in non-maturity deposits more than offsetting a planned decline in time deposits to continue lowering our cost of funds. Moving on to slide four, at June 30th, 2026, our common equity tier one ratio was 12.27% and our total capital ratio was Our capital position is strong and enables us to support organic growth, complete the pending acquisition of the commercial banking unit of SMBC Manubank, and return capital to stockholders. Year to date in 2026, the company returned $45 million of capital to stockholders through cash dividends and common stock repurchases. Year to date in 2026, the company repurchased approximately 773,000 shares of common stock at an average price of $11.25 per share for a total of $9 million, pursuant to its existing $50 million share repurchase authorization. At June 30, 2026, $27 million remained available under the authorization. for providing flexibility for future capital management. Our board of directors declared a quarterly common stock dividend of 14 cents per share payable on or around August 20 of 2026 to stockholders of record as of August 6, 2026. On March 31, 2026, we announced our pending acquisition of the commercial banking unit of SMBC Manubank. We expect the transaction to close in the second half of 2026, subject to regulatory approvals and customary closing conditions. This transaction aligns with our priorities to expand our middle market and multinational banking capabilities, develop specialty deposit verticals, broaden our presence in our core Southern California market, and enhance our balance sheet with quality loans and attractive deposits. Based on June 30, 2026 balances and before-fail value marks, this all-cash transaction is anticipated to add approximately $2.3 billion in loans and $2.6 billion in deposits and result in net cash flowing to Bank of Hope. Expect the transaction to enhance our core earnings and returns on tangible equity and to support efficient capital management. Alongside the Manubank acquisition, we will enter into a collaboration and partnership agreement with SMBC to support the local banking needs of their commercial and retail Japanese customers seeking to do business in the United States. Our partnership with SMBC will broaden our multinational client reach and contribute to differentiate it long-term growth. Continuing to slide five, second quarter 2026 loan growth was led by commercial and industrial lending with additional contributions from commercial real estate and residential mortgage. Overall, loan growth is strengthening. At June 30, 2026, gross loans totaled $15 billion, up 2% quarter over quarter, equivalent to 8% annualized and up 4% year-over-year. On the deposit side, deposits totaled $15.9 billion at June 30, 2026, up 1% quarter-over-quarter, over 4% annualized. Non-interest-bearing demand deposits increased 5% from the prior quarter, and time deposits declined 1%. Compared with the year-ago quarter, non-interest-bearing demand deposits increased 2% while time deposits decreased 2%. Decreases in time deposits have been planned to help improve our deposit mix and lower our funding costs. In addition, we are benefiting from the addition of territorial savings which operate in Hawaii, a market with lower deposit costs. Year-to-date, Our customer retail deposits in Hawaii have grown 6%. With that, I will turn the call over to Julianna to review our financial performance for the second quarter in more detail. Julianna.

Thank you, Kevin, and good morning, everyone. Beginning on slide six, our net interest income totaled $129 million for the second quarter of 2026. up $5 million or 4% from the first quarter of 2026 and up $12 million or 10% from the second quarter of 2025. Second quarter 2026 average loans of $14.8 billion grew 1% quarter over quarter and 3% year over year and our net interest margin expanded. Second quarter 2026 net interest margin was 2.96% up six basis points from 2.90% in the prior quarter and up 27 basis points from 2.69% in the year-ago quarter. The sequential quarter net interest margin expansion was primarily driven by higher loan yields and a lower cost of funds. On slide seven, we provide more detail on balance trends, yields, and rates for our average loans and deposits. On to slide eight. For the second quarter of 2026, non-interest income totaled $19 million, up 11% from the prior quarter and up 19% from the year-ago quarter, excluding notable items. The quarter-over-quarter increase in non-interest income was primarily due to growth in net gains on sales of SBA loans, growth in customer-related income and fees, and higher net gains on sales of available-for-sales securities. During the second quarter, we sold $68 million of SBA loans for a net gain on sale of $4 million, compared with sales of $53 million in the first quarter for a net gain on sale of $3 million. This reflects both higher sale volume and higher sale premiums in the second quarter. Customer-related income and fees, including deposit service fees, grew 6% quarter over quarter and 18% year over year. reflecting higher customer activity across a number of fee income lines of business. Moving on to non-interest expense on slide nine. Non-interest expense totaled $98 million in the second quarter of 2026, up from $94 million in the first quarter. Excluding merger related costs, non-interest expense totaled $96 million, up 2% from the prior quarter and up 5% year over year. reflecting continued prudent expense management across all areas of operating expenses. 2026 second quarter revenue growth exceeded operating expense growth resulting in positive operating leverage and improving our efficiency. Accordingly, our efficiency ratio excluding notable items improved to 65.2% down from 66.9% in the prior quarter and down from 69.1% in the year ago quarter. Next, onto slide 10. I will review our asset quality. It remained broadly stable during the quarter and compared favorably with the year-ago period. Our priority is early identification and problem loan resolution. Our credit trends remain healthy, and criticized loans improved meaningfully from the year-ago period. Criticized loans totaled $334 million at June 30, 2026, up $9 million from March 31, 2026, and meaningfully down by $80 million or 19% from June 30th, 2025. The criticized loan ratio was 2.24% of loans receivable at June 30th, 2026, improving 63 basis points from 2.87% a year ago. Non-performing assets were $113 million or 59 basis points of total assets at June 30th, 2026 compared with 65 basis points at March 31, 2026 and 61 basis points at June 30, 2025. Second quarter 2026 net charge-offs were $9 million or annualized 24 basis points of average loans down from $11 million or annualized 29 basis points in the prior quarter and down from annualized 33 basis points in the year-ago quarter. Accordingly, the provision for credit losses was $7 million in the 2026 second quarter compared with $9 million in the first quarter. At June 30th, 2026, the allowance for credit losses totaled $153 million with a coverage ratio of 1.03% of loans receivable. With that, let me turn the call back to Kevin.

Thank you, Julianna. Moving on to the outlook on slide 11. As we enter the second half of 2026, we believe hope is well positioned to build on the progress made during the first half of the year. Our full year 2026 management outlook is essentially unchanged. We continue to expect end of period loan growth of approximately 20%, including manual bank loan balances. We continue to expect Revenue growth in the range of 15 to 20% and pre-provisioned net revenue growth in the range of 25 to 30%, both excluding notable items and including the impact of many banks' operations for the fourth quarter. Our priorities remain consistent. Prudent balance sheet growth, operating expense discipline, and active credit oversight all in support of sustainable and profitable earnings growth and effective capital management across a range of operating environments. Our loan pipelines are active, and we are pursuing opportunities that meet our pricing, structure, and credit standards. On deposits, we continue to improve MIPS and manage funding costs in support of profitable growth. Our expenses On expenses, we are balancing prudent expense control with targeted investments in technology, talent, risk management, and commercial banking capabilities. Finally, the pending Manubank transaction is closely aligned with our commercial banking strategy and long-term earnings objective. 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 one on your telephone keypad. To withdraw your question, please press star then two. 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 Matthew Clark with Piper Sandler. Please go ahead.

Hey, good morning, everyone. To start on the margin, Julianna, if you had the spot rate on deposits at the end of June, the margin in the month of June, and then just thoughts around deposit costs in general from here.

So the spot rate on deposits at the end of June was 2.58%. And on interest-bearing deposits, it was 3.32%. And as we look forward in terms of our net interest margin for the rest of the year, we should have a few basis points increase each quarter, but it'll be much more Not as great as the first quarter to second quarter, but we're still looking for continuous margin expansion. The net interest margin in June was 2.98%. And as you recall from prior conversations, we continue to benefit from the repricing of our CD portfolio, which helps to bolster margin expansion.

And just thoughts on deposit pricing in general from here and costs?

I mean, we're working very hard to continue to improve it by improving our deposit mix. But I mean, it's competitive out there.

Yep, fair enough. And then just on the SBA again on sale looked a lot stronger this quarter. Just any commentary on the outlook there? Should we expect a reset maybe a little lower from here? Are you going to try to keep that pace?

Yeah, the premiums in the secondary market remain healthy. And the current premium range from mid to low eights. We will continue our balance between gain on sales economics with portfolio retention decisions. And although we will Be flexible. Our current outlook for 2026 will be around $16 to $17 million of SBA gains on sale.

Perfect. Thank you.

Thank you. The next question comes from Gary Tenner with VA Davidson. Please go ahead.

Thank you. Good morning. Just a follow-up question on time deposits, Kevin. I think you kind of talked about really working to lower those further as a percentage of the overall portfolio. Give us a sense of what that looks like. Is there a target you're trying to get to or maybe what your longer-term mix preferences would be?

Hi, Gary. This is Julianna. Longer-term, We would like to continue to reduce our reliance on or the mix of CDs in our overall deposit book. But it takes time to move the mix, even one percentage point, as you well know. And our core customer base is CDs is a preferred product for our core customer base. So over time, we're continuing to diversify the franchise with the acquisition of Territorial Bancorp last year. The pending acquisition of ManuBank, which will bring different sources of deposits to the mix, and that will overall help us lower the percentage of CDs in the total book. But as far as stating a particular target, just the reality is this will take time to reduce closer to industry norms.

Yeah, makes sense. And, you know, you also flag pretty good success year to date on growing deposits in the Hawaii franchise. Can you talk about the relative pricing of What you're seeing from that part of the franchise versus mainland deposits?

Lower than mainland.

All right. Thank you.

Thank you. The next question comes from Kelly Mata with KBW. Please go ahead.

Good morning. Thanks for the question. On the Pebbing Manubank transaction, do you have any updated insight in terms of time and close? I believe you're still waiting for regulatory approvals, but any help there as well as what's assumed in your guide would be helpful for modeling purposes. Thank you.

Kelly, we still expect the transaction to close in the second half of 2026, and I think our timeline is right on track. but it ultimately depends upon the actual timing of the approvals. But I think we are feeling pretty comfortable about the second half closing of this transaction.

Great. Julianna, I believe your guide includes some contribution from Manube. Is that about a quarter?

Yes, for modeling purposes, as you can see from Kevin's remarks in our outlook slide, we're assuming a quarter's worth of contribution from Manu Bank operations. But I mean, that's just merely taking the midpoint of second half into a model. And as Kevin clearly stated, the timing is dependent on approvals and other factors rather than just a clean midpoint.

Understood, totally. That's helpful. And then in terms of kind of the, I know we hit on it at Nauseam, but the deposit competitive landscape, obviously, Monubank helped quite a bit with that. I'm wondering what the cost of new money is coming in at this stage. It seems rather competitive.

The cost of new money is ranging between 350 and 380 on the incremental interest-bearing deposits, depending on sub-market, sub-product. I would say a range to say, you know, time deposits on the higher end of that range, money markets, on the lower end of that range, and low-cost IB deposits even lower than that range. But the incremental competitive deposit, I would say, is somewhere between 350 and 380, if that helps.

That's really helpful. And then closing the loop on deposits, you guys had some really nice non-interest-bearing growth this quarter. I'm wondering, it looks like it's above the averages. If you could provide any color in terms of the drivers of that and if there was any sort of shorter term fluctuations that we should be mindful of when thinking through the outlook ahead.

One driver I can point you to, or not driver, one item that I can highlight in DDA growth this quarter I would say is we saw an inflow of tariff refund money and to a number of our commercial and small business customers. So that helped with deposit growth this quarter.

Thank you. The next question comes from Tim Coffey with Breen Capital. Please go ahead.

Thank you, everybody. I have some questions about kind of the loan origination activity in the quarter and how that might have compared to the first quarter.

Well, our loan production was pretty robust in the second quarter and our pipeline coming into the third quarter is also pretty, pretty solid. So we expect a robust loan origination again in the third quarter. But what I want to point out is that, you know, we are continuing our efforts to prioritize the relationship economics structure and credit quality over headline growth.

Right. OK. That's helpful. And then what were new loan yields in the quarter?

The new loan yields this quarter, they ranged from about 6% on commercial real estate, a little above 6% on commercial real estate, to close to 8% on SBA. So there was a full gamut of new loan yield range.

Okay, but all pretty much higher than the average yield for the quarter. And then...

Probably about six and a quarter if you wanted to average it out.

Okay. Okay. That's great, Julianna. Thanks. And then, does the company have a, on buybacks, does the company have a 10b5 or some other tools to continue to repurchase shares through the closing of the transaction?

We do have a plan out there like that, yes.

Okay, great.

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

Thank you. As we look ahead, we remain committed to building a more profitable and resilient franchise and delivering sustainable long-term value for our stockholders. In closing, I want to thank our colleagues for their dedication and commitment. Their efforts are essential to executing our strategy and strengthening our organization. Thank you all for joining us today and we look forward to speaking with you again next quarter.