Hope Bancorp (HOPE) Q4 2025 Earnings Transcript

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Date

Jan. 27, 2026 at 12:30 p.m. ET

Call participants

• Chairman, President, and Chief Executive Officer — Kevin Kim
• Senior Executive Vice President and Chief Financial Officer — Julianna Balicka

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Takeaways

• Net Income -- $34 million, up 42% year over year and up 12% quarter over quarter, attributed to higher net interest income, fee income, lower provisions, and a lower tax expense, partially offset by increased operating expenses.
• Net Interest Income -- $127 million, an increase of 1% from the prior quarter and 25% year over year, driven by lower funding costs and partially repositioned investment securities.
• Net Interest Margin -- 2.90%, up 1 basis point sequentially and up 40 basis points year over year, reflecting improved funding costs outweighing lower earning asset yields.
• Gross Loans -- $14.8 billion as of year-end, up 1% quarter over quarter (4% annualized) and 8% year over year, with broad-based growth and the Territorial Bancorp acquisition contributing.
• Deposit Base -- $15.6 billion at year-end, up 9% year over year (attributed mainly to the Territorial acquisition), down 1% sequentially due to typical fourth-quarter commercial client movement.
• Broker Deposits -- Declined 15% year over year as part of ongoing funding mix improvements.
• Quarterly Dividend -- $0.14 per share declared, payable on or around February 20, 2026.
• Share Repurchase -- Authorization reinstated with $35 million available for buybacks.
• Noninterest Expense -- $99 million, rising from $97 million in the prior quarter and $78 million prior year, with year-over-year growth reflecting inclusion of Territorial Savings Bank expenses and ongoing hiring initiatives.
• Efficiency Ratio -- 68%, stable quarter over quarter, as revenue growth absorbed added expenses.
• Criticized Loans -- $351 million, down 6% sequentially and 22% year over year, including a 48% sequential decline in C&I special mention loans.
• Criticized Loan Ratio -- 2.39% of loans, improved from 2.56% last quarter and 3.30% one year ago.
• Net Charge-Offs -- $3.6 million (annualized 10 basis points), down from $5.1 million (14 basis points) in the third quarter.
• Provision for Credit Losses -- $7.2 million, lower sequentially by $1.5 million, reflecting reduced charge-offs and lower unfunded commitment allowance.
• Allowance for Credit Losses -- $157 million year-end, up from $152.5 million at prior quarter-end; coverage ratio rose 2 basis points to 1.07%.
• CD Repricing -- $6.3 billion in CDs scheduled for repricing in 2026; $2.5 billion repricing in Q1 from a weighted rate of 3.99% with new branch CDs rolling on at 3.75%-3.80% and institutional CDs at 3.70%.
• Spot Deposit Cost -- 2.68% on total deposits at year-end.
• Loan Production -- Fourth quarter 2025 loan production volumes rose 39% versus the prior year, evidencing renewed origination momentum.
• 2026 Outlook — Loan Growth -- Management projects high single-digit percentage year-over-year loan growth, fueled by ongoing hiring in revenue-generating roles.
• 2026 Outlook — Revenue Growth -- Expected year-over-year increase of 15%-20%, based on loan and margin expansion plus continued fee income strength.
• 2026 Outlook — Pre-Provision Net Revenue -- Anticipated 25%-30% yearly growth (excluding notable items), led by revenue gains and operating leverage.
• 2026 Outlook — Expense Guidance -- The fourth quarter noninterest expense level is suggested as an expected quarterly run rate, with projected OpEx growth in the low single digits, sub-5%.
• 2026 Outlook — Asset Quality -- Assumes a steady backdrop; no material deterioration anticipated by management.
• 2026 Outlook — Effective Tax Rate -- Guided to a range of 20%-25% for the full year.
• Medium-Term Target — ROAA -- Aims to achieve approximately 1.2% return on average assets, with high single-digit loan growth and over 10% normalized annual revenue growth as key drivers.
• Medium-Term Target — Efficiency Ratio -- Management sets a mid-50% target, driven by ongoing strategic investments, operational process improvements, and expense discipline.
• Hawaii Integration -- The Territorial Bancorp acquisition completed in April 2025 expanded Hope Bancorp's footprint, with “no meaningful deposit fluctuations” and “positive” customer reception in Hawaii.

Summary

Management emphasized the positive impact of lower funding costs and strengthened asset quality on overall profitability, with net interest margin and criticized loan ratios both improving year-end. Strategic initiatives in 2025 included a focus on reducing brokered deposit reliance, broadening geographic reach via the Hawaiian market, and continued investment in new talent to drive growth. The reinstatement of the share repurchase program and a stable quarterly dividend reflect management’s intent to enhance capital return alongside organic and acquired expansion. Guidance for 2026 points to accelerated growth and operational leverage, as expense increases are managed below projected revenue gains. Management’s medium-term targets, framed by clear numerical objectives, suggest sustained focus on efficiency and profitability through the next cycle.

• Hope Bancorp (NASDAQ:HOPE) expects net interest margin improvement from both the downward repricing of time deposits and upward repricing of commercial real estate loans in 2026.
• Noninterest income growth in 2025 was supported by a 270% increase in customer level swap fees to $6 million for the year.
• Hiring is strategically targeted to revenue generation, with fourth quarter expenses reflecting the embedded cost of 2025’s additions; future operating expense growth is projected below 5%.
• The CD portfolio’s sizable $6.3 billion scheduled repricing is a key lever for 2026 funding cost reductions and margin enhancement.
• The efficiency ratio target in the mid-50% range is stated as a medium-term (not one-year) objective, requiring multiple years to achieve despite expected progress in 2026.
• Guidance embeds two Federal Reserve rate cuts (25 basis points each) occurring in June and September 2026 as a planning assumption.

Industry glossary

• Criticized Loans: Loans classified as having potential weaknesses that may jeopardize repayment, including special mention and substandard loans, commonly used by bank regulators to track asset quality trends.
• CD (Certificate of Deposit): A time deposit with a fixed maturity date and specified interest rate, used by banks to raise funding, often re-priced as market rates shift.
• Net Interest Margin (NIM): The difference between interest income generated and interest paid out, expressed as a percentage of average earning assets; a key measure of bank profitability.

Full Conference Call Transcript

Kevin Kim: Thank you, Maxime. Good morning, everyone, and thank you for joining us 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. Net income for the fourth quarter of 2025 totaled $34 million, up 42% year-over-year from $24 million in the year-ago fourth quarter. Quarter-over-quarter, net income rose 12% from $31 million in the third quarter, 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 year as a whole, we significantly lowered our cost of deposits, reduced our reliance on broker deposits, enhanced our earning assets mix, added experienced senior leadership and talent to support our revenue-generating capabilities, and strengthened 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 are excited about the opportunities in 2026 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 to excellence has propelled our organization forward 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 our collective focus and hard work will drive even greater positive outcomes in the years to come. Moving on to Slide 4.

All our capital ratios increased quarter-over-quarter and remain well above the requirements for well-capitalized financial institutions. 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 31, 2025, gross loans totaled $14.8 billion, up 1% quarter-over-quarter, equivalent to 4% annualized, driven by broad-based growth across commercial real estate, residential mortgage, and commercial and industrial 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-ago 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 commercial clients, which normally return in the first quarter of the year.

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 2025, we continue to reduce our reliance on broker deposits, which declined 15% year-over-year. Overall, we are pleased with the progress we are making 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 Julianna to provide additional details on our financial performance for the quarter. Julianna?

Julianna Balicka: 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 2024. The fourth quarter 2025 net interest margin was 2.90%, up 1 basis point from the third quarter, reflecting the positive impact of lower funding costs, which more than offset the headwind from lower earning asset yields. Year-over-year, our net interest margin expanded by 40 basis points from the fourth quarter of 2024, primarily driven by lower cost of interest-bearing deposits and higher investment securities 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 two 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 noninterest 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 gain on sale of $2.6 million for the fourth quarter compared with $2.8 million for the third quarter. Moving on to noninterest expense on Slide 9.

Our noninterest 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 noninterest expense from $78 million in the fourth quarter of 2024 additionally reflected the 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.

I will review our asset quality, which steadily improved throughout the year with sequential quarterly balance decreases in criticized loans in each of the quarters of 2025. This reflected our disciplined and proactive approach to underlying -- 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 the 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. With that, let me turn the call back to Kevin.

Kevin Kim: Thank you, Julianna. Moving on to the outlook on Slide 11. We present our management outlook for the full year 2026. We expect to see year-over-year loan growth in the high single-digit range in 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 growth in the range of 15% to 20% for 2026. This will be driven by our loan growth outlook, continued net interest margin expansion, and strong fee income growth.

In terms of net interest income, our budget assumes 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 of the strong customer fee income momentum 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% to 30% for the full year 2026.

This reflects the combination of our revenue growth outlook and positive operating leverage. The investments that 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 noninterest expense level to be a reasonable starting quarterly run rate for 2026, factoring in ongoing plans to support revenue-generating hires, strengthen frontline capabilities as well as manage quarterly fluctuations. Our outlook assumes 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 percentage 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 target, and we expect to make progress on the efficiency ratio in 2026 through positive operating leverage, but achieving our target will likely take more than just one year.

Ultimately, the combination of attractive revenue growth and positive operating leverage over the medium term is expected to improve our return on assets toward the 1.2% target. 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.

Operator: [Operator Instructions] The first question comes from Ahmad Hasan with D.A. Davidson.

Ahmad Hasan: On for Gary Tenner here. Can I quickly just get the PAA accretion number?

Julianna Balicka: I'm sorry, we don't disclose that number separately.

Ahmad Hasan: 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 rate for deposit costs?

Julianna Balicka: 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 31, 2025. And in terms of deposit costs going forward, as we mentioned in our remarks, the continued downward repricing of the CD portfolio as it turns over will continue to lower our deposit costs in the future. And then we reduced our non-maturity deposit rates alongside Fed fund 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.

Ahmad Hasan: 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: 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. And 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 has embedded in it, the hiring that we've made in 2025. And then from here on out, when you think about 2026, we're going to continue to add to the hiring.

But I would think about it as an OpEx growth rate in the low single digits, sub-5%.

Operator: [Operator Instructions] The next question comes from Kelly Motta with KBW.

Unknown Analyst: This is Charlie on for Kelly Motta. I just wanted to dig into what the CD repricing looks like, as you mentioned, that down and repricing is a core driver of the NIM going forward. So any detail you can provide about the CD schedule and repricing there going forward into 2026?

Julianna Balicka: So in terms of our CDs 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 or less. And so maybe for the near term, in the first quarter, we've got a total of $2.5 billion of CDs repricing and that weighted average rate that they're repricing from is 3.99%. And the new CDs have been coming in at -- one second, I'll tell you. The new CDs have been coming in at somewhere between 3.90%. Well, actually, I'll take that back. The branch CDs were coming in at that 3.90% kind of percent level.

So there's a little bit more competitive, but we also are benefiting from repricing of institutional CDs, and those are coming in at more kind of lower pricing. And so that kind of pricing has been coming in at 3.70%. So it's going to be a blend of both kind of going forward.

Unknown Analyst: Awesome. And then I guess just following up on the overall margin dynamics. Can you remind us any sensitivity to cuts and how you view the overall margin expansion kind of heading into 2026?

Julianna Balicka: Sorry, can you repeat your question?

Unknown Analyst: I guess, the overall margin dynamics and any sensitivity to cuts and how you view kind of the margin expansion from here heading into 2026?

Julianna Balicka: 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 WACC column. So I'm very sorry, let me correct that. The new roll-on from branch CDs has been in the 3.75% to 3.80% range. Let me make that correction. And the sensitivity of our margin to the rate cuts, I would probably take a look at the third quarter and the fourth quarter margin relative to 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.

Unknown Analyst: Okay. 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 you're hiring teams are still stabilizing operations.

Kevin Kim: Yes. Our focus in '25 in Hawaii was to ensure the successful integration of the teams and add resources as necessary. And 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 was pretty positive. In 2026, we are looking forward to generating growth from the strategically attractive market in Hawaii.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Kim, CEO, for any closing remarks.

Kevin Kim: 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.

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

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