Hope Bancorp, Inc. Q2 FY2025 earnings call

• Completed acquisition of Territorial Bancorp, entering the Hawaii market. - Repositioned legacy securities portfolio to enhance interest income. - Net income excluding notable items for the 2025 second quarter was $24.5 million, up 7% from the preceding first quarter. - Strong capital ratios remained well above requirements after the Territorial acquisition. - Deposits grew to $15.9 billion, an increase of 10% from the prior quarter, with average cost of interest-bearing deposits and total deposits decreasing. - Loans receivable were $14.4 billion, up 8% from the prior quarter, with organic loan production up 57%. - Net interest margin increased by 15 basis points quarter-over-quarter to 2.69%.

Net interest income totaled $118 million for the second quarter of 2025, an increase of 17% from the prior quarter. Noninterest income for the second quarter of 2025, excluding the notable loss, was $15.9 million, up 44% year-over-year. Noninterest expense totaled $109.5 million in the second quarter, including notable items, while excluding notable items, it was $92 million. Asset quality: Allowance coverage of loans was 1.04% as of June 30, 2025, criticized loans declined by $34 million or 8% quarter-over-quarter to $415 million, nonperforming assets totaled $113 million, charge-offs totaled $12 million in the second quarter.

• Expect 2025 loan growth at a high single-digit percentage rate. - Anticipate net interest income growth in the high single-digit percentage range for 2025. - Increase year-over-year fee income growth expectations to be in the high 20s percentage range for 2025. - Noninterest expenses, excluding notable items, expected to grow at low double-digit percentage year-over-year. - Anticipate an effective tax rate of approximately 14% in both the third quarter and the fourth quarter.

• Macroeconomic uncertainties impacting financial performance. - Higher for longer interest rates negatively impacting net interest income. - Changes in California's state tax apportionment law causing one-time tax impacts. - Potential volatility in credit quality, including with commercial real estate loans.

Q: On your fee income guide, anything else going on in the second half within fee income that we should think about?

A: Customer swap fee income growth has been a highlight, and loan-related fee income trends are positive with continued loan growth momentum.

Q: A couple of my questions were already asked. But with the deal closed, CET1 ratio over 12% and the stock below tangible book, any thoughts here on a buyback as the dust settles on the transaction?

A: We have been carefully evaluating our capital efficiencies and the securities repositioning in June was part of our capital deployment strategies, and we are continuing to assess additional opportunities.

Q: I was hoping to circle back to your expectations for loan growth. On an organic basis, it was relatively modest this quarter, but you mentioned you're making some frontline hires to help drive the outlook ahead. I'm wondering if you could share a bit more as to what you're doing on that front.

A: We have been hiring very experienced, talented commercial and corporate bankers over the past several months, and loan production increased from the first quarter, with pipeline indicating continued increase in the rest of the year.

Q: A second one from me on asset quality. You guys called out in the release the migration about CRE credit so per disclosure, it's well secured and in a prime location. Just as you think about the overall credit picture and what you're seeing, I'm wondering if there's been any shift in how you're viewing asset quality of the portfolio relative to maybe a quarter ago when things were more uncertain with tariffs and just -- could just provide us with a bit more color as to how you're feeling about credit and what you're watching more carefully?

A: We're actively monitoring our portfolio, feeling cautiously optimistic, with criticized assets declining and NPLs having a little uptick but from a well-secured commercial real estate loan.

Q: Kevin, I was wondering, could you provide some commentary on the legacy borrowers in Hope Bancorp, the ones that are on the commercial side more towards the retail aspect of those businesses. How they did in the second quarter?

A: The level of uncertainty was higher at the start of the quarter but has started to settle, with the economy and consumer base remaining fairly resilient with no significant impact seen yet.

Q: Looking at the deposit portfolio, right? I mean there seems to be a pretty good balance now between commercial and consumer balances. Is that something, one you'd like to continue to maintain that kind of that balance? And also, do you have a target for how much broker deposits you'll need going forward?

A: We have stated our target loan-to-deposit ratio is up to 95% and are below 91%, with broker deposits down to 5% of total deposits, focusing on generating growth and expanding customer wallet share.