Operator: Good day, and welcome to the HOPE Bancorp Q3 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.
Operator: 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.
Maxime Olivan: Thank you, Rocco. Good morning, everyone, and thank you for joining us for the HOPE Bancorp Investor Conference Call for the Q3 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.
Maxime Olivan: 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.
Maxime Olivan: 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.
Maxime Olivan: 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?
Kevin Kim: Thank you, Maxime. Good morning, everyone, and thank you for joining us today. Beginning with slide three, I will provide an overview of our Q3 results. Bank of Hope's positive earnings momentum in the H1 of the year continued in the Q3, supported by revenue growth, positive operating leverage, and stable asset quality, with continued improvements in key asset quality metrics.
Kevin Kim: Q3 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. Q3 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.
Kevin Kim: Reported diluted earnings for the Q3 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 Q3 were $0.29 per share, up from $0.27 sequentially and $0.25 a year ago.
Kevin Kim: Our balance sheet grew in the Q3, with gross loans of $15.1 billion and total deposits of $16.1 billion as of 30 September 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.
Kevin Kim: The positive trends in our Q3 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 1 October 2026. The transaction strengthens our commercial banking franchise, expands our presence in Southern California, and enhances our ability to serve Korean and Japanese businesses.
Kevin Kim: Our partnership and collaboration agreement with SMBC also provides opportunities to develop relationships with multinational companies operating in the United States. 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.
Kevin Kim: Turning to capital on slide 4. Our regulatory capital ratios remained essentially stable quarter-over-quarter. At 30 September 2026, our common equity Tier 1 capital ratio was 12.25%, and our total capital ratio was 13.92%. Higher long-term U.S. Treasury yields in Q3 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.
Kevin Kim: Following the MANUBANK acquisition, we expect our common equity Tier 1 ratio to be approximately 10.2%, down about 200 basis points from 30 September 2026. The transaction optimizes our capital position, and we remain focused on prudent capital management.
Kevin Kim: 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.
Kevin Kim: Continuing to slide 5. Gross loans totaled $15.1 billion at 30 September 2026, up 1% quarter-over-quarter, and up 3% year over year. Q3 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.
Kevin Kim: On the deposit side, total deposits were $16.1 billion at 30 September 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 30 September 2026, time deposits were 37% of our total deposits, compared with 40% a year ago.
Kevin Kim: 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 Q3 in more detail. Julianna?
Julianna Balicka: Thank you, Kevin, and good morning, everyone. Beginning on slide 6, our net interest income totaled $135 million for Q3 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% annualized.
Julianna Balicka: Our net interest margin has continued to expand. Q3 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.
Julianna Balicka: 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 Q3 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.
Julianna Balicka: In addition, we booked $3 million in net gains on sales of other loans, partially offset by $1 million decrease in gains on sale of investment securities. During Q3, 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 Q2. Moving on to non-interest expense in slide nine.
Julianna Balicka: Non-interest expense totaled $103 million in Q3 2026, up $4 million or 4%, from $99 million for Q2, and up $6 million or 6% from $97 million for Q3 2025. Excluding merger related notable items, non-interest expense in Q3 was $100 million. Our reported efficiency ratio improved to 65.3% for Q3 2026.
Julianna Balicka: Excluding notable items, our efficiency ratio improved to 63.6% for Q3 2026, down from 65.2% in Q2 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.
Julianna Balicka: Criticized loans totaled $335 million at 30 September 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 30 September, compared with 224 basis points last quarter and 256 basis points a year ago.
Julianna Balicka: 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 30 September 2026. Q3 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 Q3 provision for credit losses increased to $9 million compared with $7 million in Q2, primarily reflecting loan growth, partially offset by lower net charge-offs.
Julianna Balicka: The allowance for credit losses totaled $154 million as of 30 September 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 Q4 earnings, but there are a few items we want to walk through here regarding the MANUBANK acquisition.
Julianna Balicka: From the transaction, we received approximately $307 million of cash from the net settlement. 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.
Julianna Balicka: We estimate the discount on the acquired loans to be approximately $90 million, comprising the interest rate mark, the accretable credit mark, and the non-accretable credit mark, which is equivalent to the allowance for credit losses. The commercial portfolio included $0.2 billion of SBA loans purchased by MANUBANK in the secondary market.
Julianna Balicka: These loans would have had a relatively low effective yield for HOPE after the acquisition. Therefore, on 21 October, we sold the MANUBANK SBA loan portfolio for total proceeds of $191 million with no gain or loss recognized on the sale. Excluding the SBA loans sold, the acquired loan portfolio had a weighted average coupon of 5.69% at 30 September before purchase and other accounting adjustments.
Julianna Balicka: Deposits acquired from MANUBANK totaled $2.6 billion before purchase and other accounting adjustments, consisting of $0.6 billion of non-interest-bearing demand deposits, $1.8 billion of interest-bearing non-maturity deposits, and $0.2 billion of time deposits. Pro forma with the MANUBANK deposits, the share of time deposits in our mix decreased to 33%, compared with 37% at 30 September 2026.
Julianna Balicka: The acquired deposits had a weighted average cost of 2.22% at 30 September before purchase and other accounting adjustments. Pro forma, the impact of the MANUBANK deposits would reduce our cost of deposits by 5 basis points.
Julianna Balicka: The deposits acquired from MANUBANK exceeded acquired loan balances, resulting in an estimated pro forma loan-to-deposit ratio of 91% and providing flexibility to optimize our overall funding profile. Total loans at closing were below what they were at the deal announcement, and customer deposits were largely stable.
Julianna Balicka: Combined with the SBA loan sale, this provides us additional flexibility to reduce maturing highest cost funding in the near term or to grow assets, which we plan on doing in Q4 and throughout 2027. We believe this positions our balance sheet very well into a higher for longer interest rate environment and prioritizes profitability and profitable growth.
Julianna Balicka: Market conditions and interest rate expectations have changed meaningfully since announcement. We have gone from an interest rate environment that was forecasting 3 rate cuts through 2027 at the start of the year to flat rates at deal announcement, and now the market projects 3 rate increases in 2027. All that would need to be reflected in forward estimates.
Julianna Balicka: Overall, the addition of the new deposit segments from MANUBANK, namely the Japanese Banking Division and specialty deposits, enhances our funding base with which to support profitable loan growth in a range of operating environments. The acquired loan portfolio and the banking teams that join us from MANUBANK strengthen our growth capabilities for next year and beyond.
Julianna Balicka: In terms of cost savings, we expect fully phased in cost savings of over 40% off of MANUBANK's starting operating expense run rate of $136 million. Overall, we expect cost savings to come in better than originally estimated, and this will help offset some of the impact of the lower loan balances once fully phased in. Relative to original expectations, fully phased in timing is later, and this is due to the scheduled timing of the core conversion. With that, let me turn the call back to Kevin.
Kevin Kim: Thank you, Juliana. Moving on to the 2026 outlook on slide 13. With the close of the MANUBANK acquisition and 2 months left in 2026, we updated our full year 2026 management outlook. Including the acquired MANUBANK balances and net of the SBA loan sale, we expect end of period loan growth of approximately 15% year over year.
Kevin Kim: Excluding notable items, we expect full year revenue growth in the range of approximately 16% to 18% and pre-provision net revenue growth in the range of approximately 23% to 25%, reflecting year to date organic trends from Bank of Hope plus the impact of MANUBANK for the Q4. Our Q3 results reflected the continued improvement in Bank of Hope fundamentals throughout 2026. With the MANUBANK transaction complete, we are well positioned to build on this momentum.
Kevin Kim: With an active loan pipeline, we see opportunities to grow selectively while maintaining close credit oversight and prudent capital management. Our priority now is execution, to build a more profitable and resilient Bank of Hope for a range of operating environments and to deliver long-term value for our stockholders. With that, operator, please open up the call for questions.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing keys.
Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Once again, we do ask that you please limit yourself to 2 questions. Today's first question comes from Matthew Clark at Piper Sandler. Please go ahead.
Matthew Clark: Thank you. Good morning, everyone. Just putting the 2 banks together, thinking about the Fed potentially hiking here again. What percentage of your loan book will truly float or benefit from the rate hikes?
Julianna Balicka: One second. We will get you that number in terms of the floating fixed mix.
Matthew Clark: Okay. Then just-
Julianna Balicka: Yeah, go ahead.
Matthew Clark: Yeah, maybe another one, Juliana, while you are looking through. You may know the number off the top of your head, but in terms of the purchase accounting accretion, the $90 million, I think that there is a portion in there that is non-accretable tied to the reserve. Do you have the reserve amount so we can deduct that and the life of that $90 million?
Julianna Balicka: Yeah. The life of that $90 million is pretty short, about 5 years overall, but there is a big portion of it that is pretty short, like 2 years or so maybe. It is very front-weighted because it is on the variable rate loans on what we acquired. Let me just get back to you on that. On the piece that is the ACL equivalent, we are still finalizing our estimate on that ACL portion, and it is probably going to be, I want to say around $30 million.
Matthew Clark: Okay.
Julianna Balicka: Back to the variable question. The variable rate loans, straight variable rate loans on our loan portfolio at 30 September were 48%, and then we have a further 27% loans that are hybrid.
Matthew Clark: Okay. Got it. Okay.
Julianna Balicka: Let me actually add a remark, Matt, since you asked this question. For those that have been following Hope Bancorp for a long time, this is a higher percentage than in past cycles because we have been focusing our originations for the last couple of years on variable rate loans, particularly in CRE.
Julianna Balicka: For those that have been following Hope Bancorp for a long time, you may recall that CRE originations used to be largely fixed and/or hybrid. For the last couple of years, they have been predominantly variable rate. That is a shift into a new rising rate environment vis-à-vis past cycles. I will turn the call back to the operator for the queue.
Matthew Clark: Got it. Okay.
Julianna Balicka: Thanks, Matt.
Operator: Thank you. Our next question today comes from Gary Tenner at D.A. Davidson. Please go ahead.
Gary Tenner: Thanks. Good morning. Just following up on that comment, Juliana, on differences kind of the balance sheet this rate cycle versus past. With adding Territorial a couple years ago and now with MANUBANK, could you talk about thoughts around deposit betas as we go over the next several months?
Julianna Balicka: Yeah. Great question. I can share with you the beta that we have had thus far. So maybe as a starting point. For Bank of Hope, including Territorial and excluding CDs, because as you know, those lag, our beta on our interest-bearing non-maturity deposits from this most recent hike was a little under 24%. That is one of our best betas ever.
Julianna Balicka: The beta at MANUBANK was similarly very low. Obviously, it is a balance between providing exception pricing to your most valuable customers and holding the line on across the board overall. When we think about betas for future hikes, obviously we expect that the betas will accelerate with each incremental hike.
Julianna Balicka: But overall, I think that with the approach that we have taken to managing pricing over the last couple of years and the addition of Territorial to our mix and now the addition of MANUBANK to our mix, I think will position us well to continue to have a relatively better performance on beta.
Julianna Balicka: Just for your context, the interest-bearing non-maturity deposit beta at the Territorial was only less than 5%. Okay, so that is a nice benefit. So I think that overall will be a positive. Also, another thing that I would like to highlight on this beta question is the excess liquidity that we picked up with the MANUBANK transaction.
Julianna Balicka: That is important because when you think about the highest cost funding, some of which is wholesale market rate linked, that funding would reprice at 4.4% in Q4, and we no longer need to have to chase that kind of price, and that will help the beta overall through the cycle.
Gary Tenner: Thanks very much for that. I just wanted to also ask on the kind of expense add from MANUBANK. Are there incremental cost saves out of the gate before the full cost saves are recognized later in 2027? It just feels like adding the kind of annualized expense to the Q4 run rate pushes the expense level quite a bit above where consensus is, and I just wanted to make sure that that is the appropriate method to follow.
Julianna Balicka: I would say that the expense curve is a barbell. Is that the right word? We have expense cost savings that we are realizing upfront this quarter, and then there will be a period of time where there will be less incremental realization. Then with the core conversion, there is going to be the next phase of cost savings.
Operator: Thank you. Our next question today comes from Andrew Liesch with StoneX Financial. Please go ahead.
Andrew Liesch: Thanks. Good morning, everyone. Just sticking with the expense question here. It looks like they are operating maybe over 5% of assets that are coming on. I guess, what is different from their operating model versus Hope's? Because even with the cost saves, they will be a little over 3% of assets, but your efficiency is outstanding and closer to 2%. I guess, what is different with what you are acquiring and legacy Hope?
Julianna Balicka: Let me phrase your question back to you. So you are asking why is their expense run rate higher relative to their asset base than ours?
Andrew Liesch: Yeah. That expense number just took me by surprise.
Julianna Balicka: Okay. Sure.
Andrew Liesch: for what they're operating as.
Julianna Balicka: Yes, no, understood. It is a good question. Thank you for asking that. I would say that the reason that their expense base starting out the gate relative to their assets is higher is, I think a lot of it had to do with the fact that they were a subsidiary of a global institution, SMBC.
Julianna Balicka: As you can imagine, regardless of the size of the subsidiary, you were held to the standard of the parent. So there were a lot of costs embedded in the run rate and operations at MANUBANK itself that really reflected the fact that they were perceived to be part of a very large bank. That is the difference between independent banks and the run rates of larger.
Julianna Balicka: Then when it comes to the ratio, as you are pointing out, they have got that higher expense burden, but they do not have the assets with which to spread it out. So the math ends up not working very well. And so in our case, we are able to absorb the MANUBANK operations, and we do not need to duplicate certain functions because we already have it, and our functions are sized to our balance sheet size.
Andrew Liesch: Got it. All right. That is helpful. But it sounds like then the expense run rate is going to be a little bit higher here. Like you mentioned in to Gary's question, some cost save right off the bat, but really it is going to be 2028 that we will see the full cost save number?
Julianna Balicka: That is fair. 2028 is going to be the full cost saves. And, as I mentioned in my remarks, that is related to timing of when the core conversion is scheduled for. We had hoped that we would be able to schedule it for earlier, but of course, core conversions are not just dependent on the banks doing the conversion, but also on the core providers.
Julianna Balicka: At the end of the day, this is actually better for our book value because we avoid some excessive contract breakage fees that would otherwise impact the bottom line, even if they are notable items. So net-net, it is a good outcome.
Andrew Liesch: Got it. Very helpful. Thanks for the color. I will step back.
Julianna Balicka: Thank you.
Operator: Thank you. Our next question comes from Kelly Motta at KBW. Please go ahead.
Kelly Motta: Good morning. Thanks for the question. To kick it off, you alluded to it in your prepared remarks, but one of the benefits of MANUBANK is it gives you a lot of liquidity and a lot of flexibility with how to profitably fund ahead. You have some borrowings. Just wondering as this closes, if there is any incremental action here with reducing higher cost borrowings close to day one. With this level of liquidity, how are you managing it near term. Thanks.
Julianna Balicka: Thank you, Kelly. Great question. My treasurer has already given me his wish list of highest cost funding that we can now reduce as it matures in Q4. I would say a lot of that, a half billion dollars plus of excess liquidity that we gained, we can find very good use for it to avoid, as I mentioned in my other Q&A, 4.4% funding.
Kelly Motta: Okay. That is helpful. In Q3, you had really nice fees. Part of that you sold a portfolio of other loans. I am hoping to get a bit more color on that, as well as on SBA, where we are hearing premiums have come in, although you guys got some nice gains. Just wondering kind of the outlook for that portion of the business.
Julianna Balicka: We will answer the SBA question. The SBA question, just for clarity, you are talking about our SBA originations from our team, as opposed to what we purchased from MANUBANK, because that was directly related to purchase accounting marks and discounts on those loans. Our SBA originations are holding up well. Our SBA team is able to continue to generate great volume in SBA originations.
Operator: Thank you. That concludes our question and answer session. I would like to turn the conference back over to the management team for any closing remarks.
Kevin Kim: Thank you. In closing, I want to extend my sincere appreciation to our colleagues for their dedication and the care that they bring to work every day. We are grateful for all they do for Bank of Hope and warmly welcome our new MANUBANK colleagues to our team. Thank you all for joining us today and for your continued interest and support. We look forward to speaking with you again next quarter.
Operator: Thank you. That does conclude our conference call for today. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
