Hope Bancorp, Inc. (HOPE) Q1 2026 Earnings Report, Transcript and Summary

Good day, and welcome to the Hope Bancorp 2026 First Quarter Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Maxime Olivan, Investor Relations Manager. Thank you, and over to you.

Thank you, Mayank. Good morning, everyone, and thank you for joining us for the Hope Bancorp Investor Conference Call for the first 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. 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 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. Presenting from management today will be: Kevin Kim, Hope Bancorp Chairman, President and CEO; and Julianna Balicka, Hope Bancorp Executive Vice President and 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, Maxime. Good morning, everyone, and thank you for joining us today. Our first quarter 2026 results reflected strong year-over-year growth in net income, revenue, loans and deposits, driven by organic growth and the strategic benefits of the Territorial Bancorp acquisition. Quarter-over-quarter, our pre-provision net revenue grew, supported by improved efficiency and continued progress in lowering our cost of deposits. Beginning with Slide 3. You will find a brief overview of our results. Net income for the first quarter of 2026 totaled $30 million, up 40% year-over-year from $21 million in the prior year period. Quarter-over-quarter, net income decreased from $34 million, reflecting higher provision for credit losses and income taxes partially offset by growth in pre-provision net revenue. Pre-provision net revenue for the first quarter totaled $47 million up 43% year-over-year from $33 million and up 1% quarter-over-quarter from $46 million. The provision for credit losses increased in 2026 first quarter, primarily reflecting higher net charge-offs due to the successful resolution of problem loans. This quarter, criticized loans decreased $26 million or 7% from the prior quarter. The effective tax rate was higher in the first quarter of 2026, as the 2025 fourth quarter tax provision benefited from true-up items. On March 31, 2026, we announced the accretive acquisition of the Commercial Banking unit of SMBC MANUBANK, which we will refer to as MANUBANK throughout this call. We expect the transaction to close in the second half of 2026, subject to regulatory approvals and the satisfaction of other customary closing conditions. We are very excited about this transaction, which aligns with our key priorities of building our commercial banking capabilities, expanding our reach among middle market and multinational clients and growing our core deposit franchise. We believe MANUBANK will deepen our presence in the Greater Los Angeles market and a highly complementary commercial banking platform including diversified middle market lending, franchise finance and specialty deposit verticals such as trust and estate banking. The pending transaction will bring a unique opportunity to combine SMBC MANUBANK's Japanese banking division with our established Korean subsidiary banking group, creating a differentiated, scaled platform to serve Asian multinational businesses operating in the United States. From a financial perspective, the pending acquisition is expected to add approximately $2.5 billion in commercial and industrial and commercial real estate loans and $2.7 billion in deposits of which only approximately 3% are CDs and which we anticipate will contribute a lower overall cost of deposits, we project this transaction to be meaningfully accretive to earnings in 2027, strengthen our recurring core earnings power and improve our profitability, including returns on equity, through an efficient deployment of capital without the issuance of new shares. In addition, we will establish a collaboration and partnership agreement with SMBC and which is expected to create meaningful opportunities to expand our services to a broader global multicultural customer base. Overall, this is a highly attractive transaction that we believe will support our progress towards achieving our strategic objectives. Moving on to Slide 4. During the quarter, we returned capital through a repurchase of approximately 604,000 common shares totaling $7 million and representing about 0.5% of total shares outstanding. We have $29 million of remaining capacity under our existing authorization, which we intend to deploy opportunistically. Our Board of Directors declared a quarterly common stock dividend of $0.14 per share payable on or around May 22, 2026, to stockholders of record as of May 8, 2026. Under the terms of the definitive agreement, the pending MANUBANK acquisition will be settled in an all-cash transaction and is expected to result in a net cash benefit to Hope. On this slide, you can see our optimized pro forma capital ratios, and we are anticipating a tangible book value earn-back period of approximately 2 years. The pro forma tangible book value dilution would come from the creation of the core deposit intangible and the net impact to equity from balance sheet marks and acquisition-related charges. Continuing to Slide 5. Loan balances were essentially stable linked quarter. At March 31, 2026, gross loans totaled $14.74 billion compared with $14.79 billion in the prior quarter. Year-over-year, gross loans increased 10% from $13.34 billion at March 31, 2025, and reflecting the impact of the Territorial acquisition and organic residential mortgage growth. As we enter the second quarter, our loan pipelines are strong and building, reflecting improving production trends and increased activity across our markets. On the deposit side, Deposits were $15.73 billion at March 31, 2026, growing 1% quarter-over-quarter. Non-maturity interest-bearing deposits were up 3% and noninterest-bearing demand deposits were up 0.5%. Higher cost CDs were intentionally run off. Year-over-year, deposits increased 9%, primarily due to the Territorial Bancorp acquisition. With that, I will ask Julianna to provide additional details on our financial performance for the first quarter. Julianna?

Thank you, Kevin, and good morning, everyone. Beginning on Slide 6. Our net interest income totaled $124 million for the first quarter of 2026, up 23% from the first quarter of 2025 and a decrease of 3% from the prior quarter. Quarter-over-quarter, the decrease in net interest income reflected the impact of a lower day count in the first quarter and a modest decrease of 0.4% on average earning assets in which average loans were up but other earning assets declined. The first quarter 2026 net interest margin was 2.90%, unchanged quarter-over-quarter, the impact from decreased loan yields was more than offset by lower deposit costs. Year-over-year, our net interest margin expanded 36 basis points from the first quarter of 2025. The increase was primarily driven by improvements in our funding costs. The cost of our average interest-bearing deposits decreased 77 basis points to 3.37% in the first quarter of 2026 and down from 4.14% in the first quarter of 2025, equivalent to a deposit beta of over 100% relative to the decline in the federal funds target rate over the same period. The full impact of the Fed fund's target rate cuts is still benefiting us with the continued repricing of time deposits. In the first quarter of 2026, we originated time deposits at a blended rate of 3.62%, down from a blended rate of 3.99% on our maturing CDs. On Slide 7. The we present the quarterly trends in our average loan and deposit balances and our weighted average yields and costs. On to Slide 8, where we summarize our noninterest income. For the first quarter of 2026, noninterest income totaled $17 million, down $1 million compared with $18 million in the prior quarter and up $1 million compared with $16 million for the first quarter of 2025. The quarter-over-quarter decrease in noninterest income was primarily due to less gains on the sale of investment securities and lower customer level swap fee income, the latter of which reflected less underlying transaction activity in the first quarter. During the first quarter of 2026, we sold $53 million of SBA loans compared with $46 million sold in the fourth quarter of 2025. Accordingly, we recognized SBA gains on sale of $3 million for the first quarter of 2026, up approximately $700,000 from the fourth quarter of 2025. Moving on to noninterest expense on Slide 9. Our noninterest expense totaled $94 million in the first quarter of 2026, down from $99 million in the fourth quarter of 2025. The sequential quarter decrease reflected continued expense management discipline. Year-over-year, noninterest expense increased from $84 million in the first quarter of 2025, primarily due to the inclusion of Territorial's operating expenses. The efficiency ratio for the first quarter of 2026 improved to 67% and down from 68.2% in the prior quarter and down from 72% in the year ago quarter, demonstrating continued positive operating leverage alongside disciplined expense management. Next, on to Slide 10. I'll review our asset quality, which has continued to steadily improve and reflected a quarter-over-quarter reduction in nonperforming loans. This was primarily driven by successful resolutions of problem loans. At March 31, 2026, criticized loans totaled $325 million, down 7% quarter-over-quarter and down 28% year-over-year. The sequential quarter improvement included a 23% reduction in special mention loans and a 2% reduction in classified loans. But the criticized loan ratio improved to 2.22% of total loans at March 31, 2026, down from 2.39% at December 31, 2025, and down from 3.36% at March 31, 2025. Net charge-offs were $11 million for the 2026 first quarter or annualized 29 basis points of average loans, compared with 10 basis points annualized for the prior quarter and 25 basis points annualized for the year ago quarter. Reflecting the linked quarter change in net charge-offs, the 2026 first quarter provision for credit losses was $9 million up from $7 million for the '25 fourth quarter -- 2025 fourth quarter. The allowance for credit losses totaled $155 million and the coverage ratio was 1.06% at March 31, 2026, compared with $157 million and a coverage ratio of 1.07% at December 31, 2025. With that, let me turn the call back to Kevin.

Thank you, Julianna. Moving on to the outlook on Slide 11. We present our updated management outlook for the full year 2026, including the preliminary impact of the pending MANUBANK transaction, which we expect to close in the second half of 2026, subject to regulatory approvals the satisfaction of other customary closing conditions. Accordingly, we expect loan growth of over 20% between December 31, 2025, and December 31, 2026, reflecting the impact of the MANUBANK transaction and organic growth. Relative to our assumptions at the beginning of the year, we are moderating CRE loan growth ahead of the transaction close to manage pro forma loan concentration. Our current pipelines are strong and building, and we anticipate commercial and residential mortgage loan growth will continue to be robust in 2026. We anticipate year-over-year total revenue growth to be at the higher end of our 15% to 20% range for the full year of 2026 assuming 1 quarter of contribution from the pending MANUBANK transaction. The incremental revenue from MANUBANK would be partially offset by the impact from the aforementioned slower commercial real estate loan growth. We assume no Fed funds target rate cuts in 2026. We anticipate unchanged pre-provision net revenue growth excluding notable items, at a range of 25% to 30% for the full year 2026. This includes a quarter's worth of impact of MANUBANK's operating expenses. We anticipate the benefits of cost savings from the Man Bank transaction will begin from 2027. Accordingly, we project the MANUBANK transaction to be meaningfully accretive in to 2027 earnings. We continue to assume a steady asset quality backdrop and a full year effective tax rate between 20% and 25% in 2026. With that, operator, please open up the call for questions.

[Operator Instructions] We have the first question from the line of Gary Tenner from D.A. Davidson.

I wanted to ask about the repurchase activity in the quarter. Could you characterize the forward appetite here and whether you've got an updated target payout ratio or target capital levels we should be thinking about?

We -- that will depend on capital generation and growth opportunities. We will continue to evaluate opportunistic repurchases within that framework. We still have capacity under our share repurchase authorization. And we already purchased $7 million of shares since it was refreshed last quarter. So that's where we stand today, and we regularly review our capital allocation priorities. So our use of capital to repurchase our shares will be opportunistic.

Okay. Appreciate that. And then Julianna, can you provide the purchase accounting benefit for the quarter?

Not material.

Not materially different than last quarter or just in dollars, not material?

Not materially different quarter-over-quarter, it's about similar. It's $4 million. I mean I told you last -- I believe I answered this question in prior quarters, it might have been even your question. With the territorial transaction, right, these residential mortgage loans are long dated loans, it's a long-term portfolio. So the purchase accounting benefit is going to be a steady benefit each quarter for a number of years as opposed to when you do commercial loan acquisition where it's a much shorter weighted average life of the portfolio. So it's a much more -- there's much more fluctuations to purchase accounting benefit.

We have the next question from the line of Matthew Clark from Piper Sandler.

Good morning, everyone. I want to start on expense run rate, some pretty good improvement here from the fourth quarter. Just wanted to get a sense for -- whether that's sustainable and what a normalized run rate might be here in the first quarter?

Thank you, Matt. So this quarter, you we saw some good expense management. And I would say I'll go back to our comments about expenses for the full year of 2026 relative to last quarter, when we gave -- we made comments around the fourth quarter as a jump-off point for a run rate. So the first quarter was a good quarter with some good expense control, but I would anticipate that as our production strengthens and our revenue growth strengthens throughout the year, the expenses will tick up from there. But overall, we'll stay within that original comments that we made for you last quarter with full year growth that we talked about.

Got it. Okay. And then are you opting out of the CECL double account with the acquisition?

We are still going to evaluate.

Okay. Okay. And then just the spot rate on deposits, if you have it. And I know there's going to be an incremental benefit from CD repricing, but just thoughts on deposit cost outlook with the Fed on hold?

Sorry, could you repeat the second part of your question?

Just the deposit cost outlook, with the Fed on hold and competitive pricing on the CD side?

Right. So our CDs are continuing to reprice as we quoted in our script about how much pickup we're getting each quarter. So when we look at our deposit cost outlook for the rest of the year, each quarter, we see about 5 to 7 basis points of interest-bearing deposit cost reduction just from the mathematics. And then just giving refresh on the CECL double count in our 10-K and Q, you would have seen that we already adopted the ASU for Territorial transaction.

[Operator Instructions] We have the next question from the line of Kelly Motta from KBW.

Maybe to kick it off with loan growth. Your guidance implies some pullback in commercial real estate with an eye to manage those concentrations. Can you provide any color into, Q1 was down a little bit. I'm wondering if that was in anticipation of signing this deal, kind of what you were seeing in terms of payoffs and kind of strategically moving forward your organic outlook for resi and commercial as you manage ahead?

I think that for our outlook, organic outlook kind of looking forward, I would say on a full year basis, I would expect organic loan growth to be mid-single digits and it would come from C&I and residential mortgage. C&I of course, being the higher percentage loan grower, and I would expect flat CRE balances.

Okay. That's pretty helpful. And can you remind us your pro forma CRE concentrations for SMBC MANUBANK?

It will be something in the 320% range depending on where the final balances land.

Got it. That's helpful. And then just wanted...

If I could, we'll land at that pro forma concentration, but it is our belief, and we are planning for organically growing into that. So although we are slowing down CRE loan growth ahead of the transaction. We also don't foresee the closing to be anything disruptive and be able to grow into that concentration within a fairly reasonable time frame.

Got it. That's very helpful color. A point of clarification on your guidance. I believe you said that you have about 1/4 of SMBC MANUBANK, like a quarter's worth of results. I know the close is in the second half of the year. Could you just provide what's baked into the guidance in terms of how much timing versus earlier in the first half -- the second half of the year versus the I want to make sure I'm modeling that appropriately, right?

Nothing more complicated to that other than just plugging in a close at the midpoint of the second half of the year for simple arithmetic. The close will come when it comes in the second half of the year. Obviously, we would like to close earlier than later. But for the pure mathematics of an outlook, we're just doing it mid of second half.

Got it. That's helpful. Maybe last question for me, just slip it in. Net charge-offs were up a little bit, although you did have improvement in NPAs and I believe, criticized. Can you provide any color and overview as to what you guys are seeing in the book? And anything you're incrementally watching more?

Sure. This is Peter. Yes, net charge-offs, I think, are a little elevated this quarter. It's up and down a little bit, but still within kind of the reasonable range that we've been expecting. And a lot of these represent sort of previously identified credit concerns that we are cleaning up right now. So overall, we feel very good about asset quality. I think you see continuing improvement in asset quality trends. I think NPLs were down and criticized assets have been coming down sequentially quarter-over-quarter. So overall, I think we're in good shape in terms of credit.

We have the next question from the line of Tim Coffey from Brean Capital.

Julianna, what were the new loan yields the yields on the new loans in the quarter?

The yields on the new loans were approximately 6.4%.

And then kind of on the organic margin, I think the conventional thinking was that we'd see expansion going into the back half of this year. Is that still a reasonable expectation?

Well, if the Fed fund stays flat and we continue to have improvement on our cost of deposits from the repricing of CDs. And if interest rates stay flat for loan yields, all else equal, then you would see margin expansion because the earning asset side would not come down with rate cuts, and in fact, it would benefit because the back book of our low-yielding CRE loans would continue to mature and reprice to market rates, and we're continuing to improve our cost of funds.

That was the last question. I would like to turn the conference back over to the management for any closing comments.

Thank you. In summary, with our continued progress across our key strategic priorities and the addition of a compelling strategic transaction we believe we are well positioned to continue building momentum and delivering long-term value for our stockholders. In closing, I would also like to thank our colleagues for their ongoing dedication and commitment which remain critical to the execution of our strategy and the strength of our organization. Thank you all again for joining us today, and we look forward to speaking with you next quarter. Bye, everyone.

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