Hope Bancorp, Inc. Aktie

Hello, and welcome to the Virtual 2026 Annual Meeting of Stockholders of Hope Bancorp, Inc. Please note that this meeting is being recorded. [Operator Instructions]

It is now my pleasure to turn this meeting over to the company's Chairman, President and Chief Executive Officer, Mr. Kevin S. Kim. Mr. Kim, the floor is yours.

Good morning, fellow stockholders, ladies and gentlemen. It is my great pleasure to welcome you to the Hope Bancorp, Inc. 2026 Annual Meeting of Stockholders. This year's annual meeting is being conducted slowly online via live webcast.

Joining me today are our Chief Financial Officer, Ms. Julianna Balicka; our General Counsel, Ms. Angelee Harris; and Mr. Maxime Olivan, Senior Manager of Strategic Finance and Investor Relations. On behalf of my colleagues on the Board of Directors, I would like to thank our stockholders, customers, employees and the communities we serve for their continued trust and support over the years.

Now let me begin by introducing our director nominees. Mr. Dale Zuehls is our Lead Independent Director; Mr. Donald Byun is an Independent Director; Mr. Jinho Doo is an Independent Director; Ms. Daisy Ha is an Independent Director; Mr. Joon Kyung Kim is our Deputy Lead Independent Director; Ms. Rachel Lee is an Independent Director; Mr. Takaaki Nakajima is an Independent Director; Mr. Guido Sacchi is an Independent Director. All of these directors as well as myself are standing for election to serve until our next Annual Meeting of Stockholders. Mr. Scott Yoon-Suk Whang; Mr. David Malone; and Ms. Lisa Pai, our independent directors who are retiring from our Board effective as of our Annual Stockholders Meeting today. We thank each of them for their valuable contributions and wish them all the best.

Our Board -- our director nominees represent a diverse group with broad background, experience and professional expertise that we believe strengthen the Board's oversight, decision-making and risk management capabilities. As a Board, we remain committed to serving the best interest of the company and its stockholders. Today, together with our executive management team, I am confident in our continued ability to advance the company's long-term success. I would also like to recognize Mr. Cliff Hong, who is attending from Crowe LLP, our independent registered public accounting firm.

It is now 10:34 a.m. Pacific Time. And as Chairman, President and CEO of Hope Bancorp, I would now like to call the Hope Bancorp 2026 Annual Meeting of Stockholders to order. At this point, I will ask Ms. Angelee Harris, who will serve as Secretary of this annual meeting, to conduct the formal business of the meeting.

Thank you, Chairman, Kim. Please be advised that following the formal business of the company's 2026 Annual Meeting of Stockholders, we will conduct a question-and-answer session. As noted by the operator at the beginning of this meeting, you may submit questions or comments at any time by clicking on the message icon.

Mr. Maxime Olivan has been selected by the Board to serve as the Inspector of Election for the meeting. As such, Mr. Olivan will count and certify the votes cast by proxy or in person via the Internet for the purpose of quorum and voting. It is currently 10:35 a.m. Pacific, and I declare that the polls are now officially open.

[Voting]

We will close the polls in a few minutes when all online votes cast have been received and counted. Most of you have already voted online or sent in your votes by proxy. If you have no intention to change your vote, no further action is required. If, however, you have not yet voted and wish to vote in person via the Internet at the meeting today, you may do so now by clicking on the link provided online. You must have logged in with your control number included in your notice or proxy card to cast your vote online. If you wish to change your vote, you may also do so by clicking on the link provided online.

The list of stockholders entitled to vote at the meeting is available on the meeting site. The minutes of last year's annual meeting are available to any stockholder that wishes to inspect it. To obtain access to the minutes, please send an e-mail request to me at [email protected]. We have not received notice from any stockholders as required under our bylaws of any other matter that is required to be considered at today's meeting. Therefore, no other proposals may be properly introduced by stockholders at this meeting.

It is now 10:36 a.m. Pacific Time, and the online polls for voting will now be closed. This meeting is being held pursuant to the call of the Board of Directors and the legal notice of the meeting, which was included as part of the notice of Internet availability of proxy materials and was delivered on or about April 10, 2026, along with the proxy card to each of our stockholders of record as of March 23, 2026, the record date for this year's annual meeting. A copy of the legal notice and the affidavit of mailing will be incorporated into the minutes of this meeting. All stockholders as of the meeting record date of March 23, 2026, are entitled to vote today.

We now need to establish that there is a quorum to start this meeting. A quorum is established by the presence at the meeting, either by proxy or in person via the Internet of more than 50% of the outstanding shares. Mr. Olivan, would you please report on the quorum?

Thank you, Ms. Harris. As the inspector of elections, I certify the following: the total number of outstanding shares as of March 23, 2026, and entitled to vote at this annual meeting is 127,946,655 and the preliminary count of shares voting at this meeting, either in person via Internet or cast by proxy, is at least 113,250,276 shares, representing approximately 88.5% of total shares outstanding and entitled to vote. Accordingly, we have a quorum for the transaction of business at today's meeting.

Thank you. Next, we will proceed with voting on each of the proposals that are described in the proxy statement. First proposal is the election of directors. The director nominees elected at this meeting will serve on the company's Board until the 2027 Annual Meeting of Stockholders and until their successors are duly elected and qualified. Mr. Olivan, please report on the votes for this proposal.

I certify that each of the following 9 director nominees have each received a majority of the votes cast: Mr. Kevin Kim, Mr. Dale Zuehls, Mr. Donald Byun, Mr. Jinho Doo, Ms. Daisy Ha, Mr. Joon Kyung Kim, Ms. Rachel Lee, Mr. Takaaki Nakajima and Mr. Guido Sacchi. Accordingly, all 9 director nominees have been elected to the Board of Directors to serve until the 2027 Annual Meeting of Stockholders.

Thank you, Mr. Olivan. The second proposal is the ratification of Crowe LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2026. Mr. Olivan, please report on the votes for this proposal.

I certify based on preliminary reports from a tabulating agent, we received 109,695,468 votes in favor of proposal 2, equaling approximately 96.9% of shares present and entitled to vote at this meeting. Accordingly, the selection of Crowe LLP has been ratified by the stockholders.

Thank you, Mr. Olivan. The third proposal is an advisory and nonbinding approval of the compensation paid to our named executive officers as described in the proxy statement. Mr. Olivan, please report on the votes for this proposal.

I certify that based on preliminary reports from a tabulating agent, 95,908,343 shares approved proposal 3, equaling approximately 89.4% of shares present and entitled to vote at this meeting. Accordingly, the stockholders have provided an advisory and nonbinding vote approving the executive compensation as described in the proxy statement.

Thank you, Mr. Olivan. As there is no further business to be brought before the meeting, we will now adjourn the Hope Bancorp 2026 Annual Meeting of Stockholders at 10:40 a.m.

Now I would like to turn it back to our Chairman, President and CEO, Mr. Kevin Kim; and our Chief Financial Officer, Ms. Julianna Balicka, for the question-and-answer session, which will be moderated by Mr. Maxime Olivan.

Thank you, Ms. Harris. If you are stockholders of Hope Bancorp, you may submit questions online by clicking on the Q&A tab in the upper right corner of the meeting center screen. We will wait just a moment for any questions.

Okay. Chairman, Kim, we have no questions submitted.

Thank you, Mr. Olivan. Since there are no questions, I would like to again thank you for joining us today for our 2026 Annual Meeting of Stockholders, and we look forward to seeing you at our next year's annual meeting.

This concludes the Hope Bancorp 2026 Annual Meeting of Stockholders. You may now disconnect.

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.

Good day, and welcome to the Hope Bancorp 2025 Fourth Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Maxime Olivan, Senior Strategic Finance 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 fourth quarter of 2025. 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.

Now we have allotted 1 hour for this call. Presenting from management today will be Kevin Kim, Hope Bancorp's Chairman, President and CEO; and Julianna Balicka, our Chief Financial Officer. Peter Koh, our 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. 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?

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.

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

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

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

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?

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.

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?

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

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?

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.

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?

Sorry, can you repeat your question?

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?

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.

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.

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.

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

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.

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

Good day, and welcome to the Hope Bancorp 2025 Third Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Maxime Olivan, Strategic Finance Manager. Please go ahead.

Thank you, Billy. Good morning, everyone, and thank you for joining us for the Hope Bancorp Investor Conference Call for the Third Quarter of 2025. As usual, we will be using a slide presentation to accompany our discussion this morning, which is available in 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 on this call today are 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.

Now we have allotted 1 hour for this call. Presenting from the management side today will be Kevin Kim, Hope Bancorp's Chairman, President and CEO; and Julianna Balicka, our Chief Financial Officer. Peter Koh, our 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. Let us begin on Slide 3 with a brief overview of the quarter. The third quarter of 2025 was a very positive one for Bank of Hope marked by continued progress across our strategic priorities to improve profitability and reflecting solid execution across the organization. Improvement in asset quality was a key highlight as was loan growth across all our major loan segments. Throughout the year, we have been making sustained investments in talent to support our growth, and I'm very pleased with the progress we have made so far.

Before we dive into this quarter's results, I want to extend my deepest gratitude to all the bankers at Bank of Hope for their unwavering dedication and commitment to excellence. Their hard work is the driving force behind our success, and I'm incredibly proud of what we are building together.

And now on to a discussion of our results. Net income for the third quarter of 2025 totaled $31 million, up 28% year-over-year from $24 million in the year ago quarter and up from a net loss of $28 million in the second quarter. Second quarter results were impacted by elevated notable items related to a securities portfolio repositioning, the close of the Territorial Bancorp acquisition on April 2, and impact from a California state tax law change. Excluding notable items, third quarter 2025 net income of $32 million was up 29% from net income of $24.5 million in the second quarter of 2025.

In the third quarter, we saw loan growth across all our major loan portfolio segments of C&I, commercial real estate and residential mortgage. Our net interest margin expanded 20 basis points, which was our best linked quarter expansion since 2012. And importantly, our asset quality improved, led by our disciplined approach to credit management, which resulted in a 57% reduction in net charge-offs and noticeable improvement in classified and special mention loans including a 17% reduction in C&I criticized loans.

Moving on to Slide 4. All our capital ratios increased quarter-over-quarter and remain well above the requirements for well-capitalized financial institutions, providing us with a healthy cushion to support growth and navigate an evolving macroeconomic environment. Our Board of Directors declared a quarterly common stock dividend of $0.14 per share payable on November 21, to stockholders of record as of November 7, 2025.

Continuing to Slide 5. We continue to be focused on strengthening our deposit franchise, deepening primary banking relationships with our customers and lowering deposit costs through ongoing optimization of our deposit mix and disciplined pricing. As of September 30, 2025, deposits totaled $15.8 billion, reflecting a 1% decrease from $15.9 billion as of June 30, primarily driven by a $139.5 million reduction in broker deposits, partially offset by growth in customer deposits. Noninterest-bearing deposits totaled $3.5 billion at September 30, up 1% quarter-over-quarter.

Moving on to Slide 6. At September 30, 2025, gross loans, including held for sale totaled $14.6 billion, up 1.2% quarter-over-quarter, equivalent to 5% annualized with growth across all our major loan segments. Year-over-year, production has been strengthening while maintaining disciplined underwriting and pricing standards. Loan growth this quarter also benefited from lower levels of payoffs and pay downs. Across the organization, we have been investing in talent to drive sustainable prudent growth and enhance our corporate and commercial banking capabilities. As a bank, we are focused on driving business development and deepening client relationships to expand market presence.

With that, I will ask Julianna to provide additional details on our financial performance for the third quarter. Julianna?

Thank you, Kevin, and good morning, everyone. Beginning on Slide 7. Our net interest income totaled $127 million for the third quarter of 2025, an increase of 8% from the prior quarter and up 21% from the third quarter of 2024. This reflects loan growth, improved yields on earning assets and lower cost of interest-bearing deposits. Overall, our net interest margin increased 20 basis points quarter-over-quarter to 2.89% for the third quarter of 2025, up from 2.69% from the prior quarter. 9 basis points of the linked quarter expansion came from higher earning asset yields, 6 basis points came from lower funding costs and 5 basis points came from a favorable shift in balance sheet mix.

On Slide 8, we present the quarterly trends in our average loan and deposit balances and our weighted average yields and costs. The cost of average interest-bearing deposits and the cost of average total deposits for the third quarter each declined by 8 basis points from the previous quarter. The acquisition of Territorial has enhanced our deposit position and renewals of CDs at lower rates provides a tailwind for continued cost reductions. With the September Fed funds target rate cut of 25 basis points, we realized an approximate 85% spot beta and reducing money market deposit rates.

On to Slide 9, where we summarize our noninterest income. I will highlight quarter-over-quarter growth in service fees on deposit accounts, international banking fees, foreign exchange and wire transfer fees. During the third quarter, we sold $48 million of SBA loans compared with $67 million in the second quarter. Accordingly, we recognized gains from sale of $3 million for the third quarter compared with $4 million for the second quarter.

Moving on to noninterest expense on Slide 10. Our noninterest expense totaled $97 million in the third quarter. Excluding notable items such as merger-related costs, noninterest expense was $96 million in the third quarter compared with $92 million in the second quarter. This quarter-over-quarter increase was mainly driven by higher compensation-related costs reflecting the company's sustained investment in talent to support growth. Importantly, revenue growth outpaced expense growth in the third quarter, generating positive operating leverage. For the third quarter of 2025, our efficiency ratio, excluding notable items, improved to 67.5% compared with 69.1% for the second quarter of 2025.

Next, on to Slide 11. I will review our asset quality, the improvement in which was a highlight this quarter. Criticized loans declined $42 million or 10% quarter-over-quarter to $373 million at September 30, with decreases in both special mention and classified loans, and including a 17% linked quarter decrease in C&I criticized loans. The criticized loan ratio improved to 2.56% of total loans at September 30, down from 2.87% at June 30. Net charge-offs totaled $5 million for the third quarter or annualized 14 basis points of average loans, down 57% from $12 million or 33 basis points annualized in the second quarter. The quarter-over-quarter drop in net charge-offs reflected lower charge-offs in C&I loans.

The third quarter 2025 provision for credit losses was $9 million. This compares favorably with a provision of poor credit losses of $15 million for the second quarter of 2025, which included $4.5 million of merger-related provision expenses that the company considered a notable item. Excluding notable items, the quarter-over-quarter decrease in the provision for credit losses, largely reflected lower net charge-offs.

Finally, allowance for credit losses totaled $152.5 million at September 30 compared with 159 -- excuse me, compared with $149.5 million at June 30. The allowance coverage ratio was 1.05% of loans receivable at September 30 compared with 1.04% at June 30.

With that, let me turn the call back to Kevin.

Thank you, Julianna. Moving on to the outlook on Slide 12. Our outlook for the full year 2025 is updated as follows: We remain on track to achieve high single-digit loan growth in 2025, continuing to build on the growth momentum from the third quarter. We expect net interest income growth of approximately 10% for 2025. For 2025, we expect noninterest income growth of approximately 30%, excluding the second quarter loss on the securities repositioning, reflecting the year-to-date momentum across various business lines.

We expect noninterest expenses, excluding notable items, to be up approximately 15% in 2025, reflecting the addition of Territorial's operations to our run rate and our investment in talent to enhance our production capabilities.

Throughout the year, we have been adding experienced bankers to our Corporate and Commercial Banking teams. In particular, in the third quarter, we hired a seasoned commercial banking team, which accelerated some of our hiring plans. A leading institution recently exited one of our core markets, and we had the opportunity to bring this group of professionals to Bank of Hope to support our continued expansion. Our hiring is driving improved revenue growth and we expect to see sequential positive operating leverage in the fourth quarter with an improvement to our efficiency ratio.

Lastly, we anticipate the fourth quarter 2025 effective tax rate to be approximately 14%, excluding the impact of notable items. With the improvement of our financial performance and strengthening of our balance sheet in the third quarter, along with the strategic additions to our banking teams, we believe we are well positioned to drive profitable growth and create long-term value for our stockholders.

With that, operator, please open up the call for questions.

[Operator Instructions] Our first question comes from Matthew Clark with Piper Sandler.

Just on the margin, do you have the spot rate on deposits, I didn't see in the deck at the end of September and maybe the average margin in the month of September?

One second. On the spot rate of deposits at the end of September, it was 2.82% for total deposits and 3.62% for interest-bearing costs. And the average of deposits you see in our earnings tables in the NIM table, yes.

The average margin for the month of September?

The average margin for the month of September, one second. The margin for the month of September was 2.96%.

Okay. Great. And then just on Territorial. Any update there on how things are progressing? Cost saves you may have extracted so far from that deal?

We are continuing to focus on stabilizing and expanding operations there. As we mentioned last quarter, following the acquisition, there's been some homework in terms of staffing up branches and just making sure that our products are rolled out to that platform. So we're continuing to incrementally see cost savings as we kind of align the operations there, but nothing headline grabbing to report this quarter.

Our next question comes from Gary Tenner with D.A. Davidson.

I wanted to ask, Julianna, if you could give us the purchase accounting impact this quarter. I think last quarter maybe in the deck, but I didn't see it. So the loan discount accretion and then kind of the net purchase accounting benefit as well.

So yes, last quarter was the acquisition quarter. So we had the accretion number last quarter. So last quarter, the accretion was $4 million. And this quarter, the accretion was $5 million.

It was -- I'm sorry, how much?

$5 million.

$5 million was the loan accretion or the net benefit, overall?

The loan accretion. All other items were minimal. If you look at the table from last quarter, I mean, pretty much it was de minimis on each of those line items.

Yes, they were canceled out, I think, last quarter. Okay. And then in terms of the CD maturities in the fourth quarter, can you give us the amount of maturing CDs and the rate they're rolling off at?

One second, let me grab that. Our CDs that are maturing in the fourth quarter, we've got $2.3 billion of maturity and an average rate of 4.08%.

Okay. I'm sorry, you're fading out. $2.2 billion, you said?

$2.3 billion at a rate of 4.08%.

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

I would like to circle back to the expense side of things. You guys mentioned in your prepared remarks that you've made a number of frontline hires that increased the expense run rate. Can you remind us kind of where you are in the process? It seems like some of the better revenue growth is helping to offset some of these investments you're making. So what -- two-part question, where are you adding? And where do you stand in this process?

Well, Kelly, we have been adding new team members throughout the year. And the additions will strengthen our presence in strategic segments like lower middle markets, project finance, structured finance, entertainment, et cetera, as well as treasury management spread products and so on. Our focus remains on strengthening existing capabilities. And we are somewhat optimistic about the growth prospects with the addition of all these new people.

I would say, if you think about it, in the beginning, you hire leadership and more senior positions and then you're kind of filling more mid-level after that. So we -- we've filled in all the key leadership positions, and we've made a number of senior RM hires than the team that we referenced. But I mean, in the fourth quarter, we have more hiring plans and in 2026, obviously, because we're in a great position to be in to expand our organic presence and growth.

[Operator Instructions] Our next question comes from Tim Coffey with Janney.

Question, with the government shutdown, does that make it hard to predict revenue from the SBA loan on sale business line?

Yes. Well, first of all, outside of SBA, we do not really foresee any material impact to -- from the recent government shutdown. As to the SBA, as you may know, the U.S. Small Business Administration has suspended acceptance of new SBA loan applications and additionally, the secondary market for new SBA 7(a) loan sales has been halted. But -- from our side internally, there is no impact to the loans that have already received an SBA approval number. So in the meantime, while the government shutdown continues, we will continue to proceed business as usual for new applications so that these loans are fully prepared to submission to the U.S. SBA once operations resume. So hopefully, the government shutdown ends in a new future. But no matter what happens, I think we are in a good position in terms of our noninterest income in the fourth quarter and throughout 2025.

Okay. Great. That's excellent color. And then the other question I had was on the nonaccrual loans. Commercial real estate, I think about half of them right now. And in relation to the totality of the portfolio, it's a relatively small percentage, but they are up quarter or year-to-date rather. Can you kind of describe some of the challenges some of those loans are experiencing?

Yes, this is Peter. I think our NPLs have been relatively flat this quarter. Some of the CRE loans and actually for all the loans in that category, sometimes it just takes time to work out. And we feel good. I think there's a level of problem credits there that we are honed in on. And I think it's just a matter of time before we're able to come to resolutions there.

Our next question comes from Kelly Motta with KBW.

I just wanted to ask a bit broader about kind of the loan growth ahead. I think you mentioned that growth this quarter was positively benefited by lower payoffs and paydowns. Just given the potential for rates to decrease here. Wondering how you guys are thinking through that impact and your ability to offset that with the pipeline ahead, both next quarter and beyond, if possible?

Yes. As to our current pipeline, we have a strong pipeline going into the fourth quarter. And we expect our strong pipeline will support our loan growth outlook for the rest of the year. And our fourth quarter loan pipeline is pretty comparable to what we had at the beginning of the third quarter. And we continue to see improvements in our C&I driven by recent frontline additions, as you said. And our CRE pipeline remains pretty, pretty stable. Although we -- in the past, we typically experienced some seasonal slowdown towards the year-end. We expect that our loan growth guideline for the entire 2025 will be a good number for us to share.

Got it. And I appreciate the color around both the deposit spot rates as well as the spot rate beta on the money market where it seems like you're being successful there. Just wondering, in terms of the competitive environment for deposits, it seems like you're having success on the money market. Can you remind us where new CDs are coming on? And the beta was relatively high on the way up, how you guys are thinking about balancing beta with the outlook for a need for funding ahead?

Yes. So we reduced our CD pricing with the last Fed funds cut, right? And new CDs most recently have been coming on closer to 4% for the exceptions and below 4% for the non-exceptions. And so we're kind of continuing to think of deposit pricing as moving with Fed funds market pricing. And with the additional Territorial, we have been in a good position to where we can afford to be more price sensitive, if you will. And the beta was high on the way up because the balance sheet dynamics were different at that point in time. And I'll remind the analyst community that on the way down, right now, our loan-to-deposit ratio is in the low 90%, which is a much different starting point. And I'll also remind the analyst community that on the way up, we had a much higher percentage of broker deposits in our deposit mix. And today, we're sub-5%, around 5% kind of numbers that we shared with you previously. So we're in a much different position today than we were on the way up. So I am optimistic about our ability to have good deposit cost results.

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

Thank you. Once again, thank you all for joining us today, and we look forward to speaking with you again in 3 months. So long, everyone.

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

Good day, and welcome to the Hope Bancorp 2025 Second Quarter Earnings Conference Call.

[Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference over to Angie Yang, Director of Investor Relations. Please go ahead.

Thank you, Drew. Good morning, everyone, and thank you for joining us for the Hope Bancorp 2025 Second Quarter Investor Conference Call. As usual, we will be using a slide presentation to accompany our discussion this morning, which is available in 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 on this call today are 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.

Now we have allotted 1 hour for this call. Presenting from the management side today will be Kevin Kim, Hope Bancorp's Chairman, President and CEO; and Julianna Balicka, our Chief Financial Officer. Peter Koh, our 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, Angie. Good morning, everyone, and thank you for joining us today.

Let's begin on Slide 3 with a brief overview of the quarter. The second quarter of 2025 was a milestone quarter for Hope Bancorp as we completed the acquisition of Territorial Bancorp, entering the strategically important market of Hawaii. We are excited about the opportunities that this presents. We also repositioned a portion of our legacy securities portfolio to enhance our interest income. Accordingly, we believe net income, excluding notable items, is more indicative of our fundamental performance this quarter. Net income for the 2025 second quarter, excluding notable items, totaled $24.5 million, up 7% from $22.9 million, excluding notable items in the preceding first quarter. Earnings per diluted share, excluding notable items, were $0.19 for both quarters as we issued 9 million shares with the Territorial transaction.

As a result of the onetime loss incurred from selling lower yielding legacy securities and from merger-related items, together with a onetime impact from a change in California's state tax apportionment law, we reported a net loss of $27.9 million for the second quarter. Pretax pre-provision net revenue, excluding notable items, grew to $41.2 million in the second quarter of 2025, up 17% from $35.2 million in the 2025 first quarter. This reflected the impact of the Territorial acquisition, legacy loan growth, improvement in the cost of deposits and core fee income growth.

Moving on to Slide 4. All our capital ratios remain well above the requirements for well-capitalized financial institutions after the close of the Territorial acquisition. Our strong capital levels and ample liquidity provide us a healthy cushion with which to navigate various macroeconomic scenarios and support prudent balance sheet growth. Our Board of Directors declared a quarterly common stock dividend of $0.14 per share, payable on August 15 to stockholders of record as of August 1, 2025.

Continuing to Slide 5, strengthening our deposit franchise remains a key priority. At June 30, 2025, our total deposits with the completion of the Territorial acquisition, grew to $15.9 billion, an increase of 10% from the end of the prior quarter. The addition of Territorial's low-cost deposits drove a substantial improvement in our cost of deposits. In addition, the ongoing maturity and renewal of CDs to lower rates will contribute to the improvement in the cost of funds. Our average cost of interest-bearing deposits declined 37 basis points quarter-over-quarter, and our average cost of total deposits decreased by 22 basis points quarter-over-quarter.

Similar to past quarters, we continued to reduce our brokered deposits exposure, which decreased by $183 million or 19% quarter-over-quarter. Overall, the broker deposits ratio declined to 5% of total deposits at June 30, 2025, down from 7% as of March 31, 2025, and 9% as of June 30, 2024.

Moving on to Slide 6. At June 30, 2025, loans receivable of $14.4 billion were up 8% from the end of the prior quarter, reflecting the addition of Territorial's loan portfolio as well as strengthening organic loan production. Organic loan production increased 57% from the first quarter levels with a well-diversified mix of originations across all our areas of lending. Stronger production has translated into modest net growth in our legacy portfolio. Similar to past quarters, we saw robust net growth from Bank of Hope's residential mortgage team. In addition, commercial real estate loans were up slightly quarter-over-quarter. Late in the quarter, we experienced some short-term paydowns in certain commercial lines of credit and those balances have largely rebuilt immediately after the quarter end.

Overall, with the addition of Territorial, our loan portfolio diversification has improved notably. Residential mortgage and other loans represented 16% of our total loans as of June 30, 2025, up from 9% at March 31, 2025.

On slides 7 and 8. We provide more details on our commercial real estate loans, which are well diversified by property type and granular in size. The loan to values remain low with a weighted average of approximately 46% at June 30, 2025, and the profile of our commercial real estate portfolio has not changed meaningfully. Asset quality remains stable.

With that, I will ask Julianna to provide additional details on our financial performance for the second quarter. Julianna?

Thank you, Kevin, and good morning, everyone.

Before I begin my remarks, let me just make a quick clarification to an earlier comment. We issued 7 million shares with the Territorial Bancorp transaction.

And now beginning on Slide 9. Our net interest income totaled $118 million for the second quarter of 2025, an increase of 17% from the prior quarter. This reflects the positive impact of the Territorial acquisition and organic loan growth as well as an expansion in our net interest margin. On the bottom left quadrant of this slide, you can see the 2025 second quarter pretax acquisition accounting adjustments associated with the Territorial transaction. We will continue to recognize such adjustments on a quarterly basis through the amortization periods, as noted in the table. Accretion income from Territorial loans was $4 million in the second quarter. Accretion income is expected to become a recurring stable component of our interest income due to the long-dated nature of Territorial loans.

The amortization period of this portfolio is currently estimated to be 12 years. I will point out that the prepayment rate on this portfolio is slower than what was initially estimated at merger close in part due to changed forward interest rate curve expectations. For 2025, we are now expecting to recognize approximately $12 million of loan accretion income at approximately $4 million per quarter compared with $14 million anticipated initially for 2025.

In June, we sold a portion of our legacy investment securities available for sale with a fair value of $418 million and an aggregate weighted average book yield of 2.33%. The net proceeds from the sale were redeployed to purchase higher-yielding securities with an aggregate average market yield of 5.42% at the time of purchase.

All else equal, the impact of this repositioning is expected to contribute approximately $12 million per year to interest income. Overall, our net interest margin increased by 15 basis points quarter-over-quarter to 2.69% for the second quarter of 2025.

On Slide 10, we show you the quarterly trends in our average loan and deposit balances and our weighted average yields and costs.

On to Slide 11. Let's look at our noninterest income. Included in noninterest income is a $39 million net loss on the investment securities repositioning that I just discussed, which we consider a notable item. Excluding notable items, the trajectory in our noninterest income has been a highlight over the last year. Second quarter 2025 noninterest income of $15.9 million, excluding the notable loss was up 44% year-over-year. Service fees on deposit accounts have continued to grow quarter-over-quarter. Swap fee income increased year-over-year by $1 million and year-over-year -- excuse me, customer swap fee income increased quarter-over-quarter by $1 million and year-over-year by $1.6 million, reflecting improved customer demand. I will also note that first quarter 2025 other income included a favorable valuation mark of $1.7 million related to the sale of non-SBA loans, and this did not recur in the second quarter.

In the second quarter, we sold $67 million of SBA loans and recognized net gains on sale of $4 million. This compares with sales of $50 million in the first quarter and $3.1 million of net gains on sale. Some sales that were initially planned for the first quarter moved into the second quarter, so we look at this result on a first half basis in aggregate.

Moving on to noninterest expense on Slide 12. Our noninterest expense totaled $109.5 million in the second quarter, including notable items, which largely comprised onetime merger-related costs. Excluding notable items, noninterest expense was $92 million in the 2025 second quarter, which compared with $81 million in the first quarter, also excluding notable items. The quarter-over-quarter increase generally reflected the addition of the Territorial operations to our organization. Our efficiency ratio, excluding notable items, improved quarter-over-quarter to 69.1% compared with 69.8% for the first quarter of 2025. I will also mention a notable tax item this quarter.

On June 27, 2025, California state tax apportionment law changed. Consequently, the onetime remeasurement of our deferred tax asset cost us $4.9 million this quarter, which we include in notable items. On an ongoing basis, this tax law change will lower our company's effective tax rate by approximately 1%.

Now moving on to Slide 13. I will review our asset quality. Our allowance coverage of loans was 1.04% as of June 30, 2025, compared with 1.11% as of March 31. The change in the coverage ratio primarily reflected the addition of the loans acquired from Territorial, which have a lower reserve requirement due to the lower credit risk profile of residential mortgage loans.

Criticized loans declined by $34 million or 8% quarter-over-quarter to $415 million at June 30, 2025. Within that, special mention loans decreased by $47 million or 26%. As a percentage of total loans, our criticized loan ratio was 2.87% at June 30, down from 3.36% at March 31, 2025. Nonperforming assets as of June 30th totaled $113 million, representing 61 basis points of total assets, up from 49 basis points of assets as of March 31. This fluctuation is largely driven by 1 commercial real estate loan, which is well secured by collateral property in a prime location.

That charge-offs totaled $12 million or 33 basis points of average loans for the second quarter on an annualized basis compared with $8 million or annualized 25 basis points of average loans in the first quarter. The 2025 second quarter provision for credit losses was $15 million and included merger-related provision for credit losses of $4.5 million, comprising $3.9 million of day 1 provision for Territorial loans at acquisition close and $600,000 net write-off related to the exit of Hope's credit card portfolio. These items we consider as notable.

With the acquisition, Hope is adopting Territorial's white label credit card program. Excluding notable items, the second quarter provision for credit losses of $10.5 million compared with $5 million in the first quarter, reflecting second quarter net charge-offs as well as a quarter-over-quarter increase in the allowance for unfunded loan commitments.

With that, let me turn the call back to Kevin.

Thank you, Julianna.

Moving on to the outlook on Slide 14. We continue to expect 2025 loan growth at a high single-digit percentage rate. Drivers in the second half of the year include continued improved frontline productivity, building on trends from the second quarter as well as the impact of frontline hiring that we are continuing to make. In our outlook, we customarily used the forward interest rate curve, which currently assumes Fed funds target rate cuts in October and December of 2025. A quarter ago, cuts were expected in June, September and December. All else equal, higher for longer interest rates negatively impact our net interest income.

Accordingly, in our outlook, we continue to expect net interest income growth in the high single-digit percentage range for 2025. The negative impact of fewer funds rate cuts on our net interest income, and the updated slightly lower amount of loan accretion income expected to be recognized in 2025 will be offset by the incremental increase in interest income from the legacy investment portfolio repositioning that we executed in June. We are increasing our year-over-year fee income growth expectations to be in the high 20s percentage range for 2025 based on the year-to-date momentum across various business lines. This excludes notable items.

Our outlook for noninterest expenses, excluding notable items, is unchanged at low double-digit percentage growth year-over-year. Lastly, we anticipate an effective tax rate of approximately 14% in both the third quarter and the fourth quarter. This reflects the California state tax apportionment law change and the impact and timing of the tax credit investments we are making. With that, Drew, please open up the call for questions.

[Operator Instructions]

The first question comes from Matthew Clark with Piper Sandler.

On your fee income guide, I think it looks like you're on pace to do roughly $63 million for the year. So -- sorry I'm we're getting some feedback -- $63 million for the year. I guess, I know it sounds like SBA was a little heavy with a delay in sales in 2Q. But anything else going on in the second half within fee income that we should think about?

Yes. I think for second half fee income, Matthew, the FDA, basically, it's a question of timing. You take a look at on first quarter and second quarter and average it out, right? But for the second half of the year, things that we can think about that are positive drivers, as we pointed out, customer swap fee income growth has been a real highlight vis-a-vis year ago levels as a company, we've made a concentrated effort towards promoting that product and underwriting CRE loans with a customer swap in place as opposed to the traditional fixed rate loans.

So that is continuing to drive fee income growth. And also as our loan growth momentum continues -- the production momentum continues to improve. We are looking at positive trends in other loan-related fee income -- fee income really origination fees, unused commitment fees, a range of fees, that general -- that general bucket.

Okay. Okay. And then shifting to the margin, I didn't see a spot rate in your deck or in the release. But if you had the spot rate on deposits at the end of June and what you're assuming within your outlook in terms of cumulative beta on deposits through the cycle?

The spot rate at the end of June was 2.93%. And that's down, by the way, quarter-to-date by midpoint in July as well. So it's continuing to improve. And in terms of the full beta that we're assuming for the cycle, given the fact that rate cuts have delayed themselves towards October and December, we don't really -- there's not much more beta to be had this year. So there isn't any change to beta expectations vis-a-vis last quarter, but I will share that for the coming cut when that happens, we're planning on executing betas at a higher pace than we have in initial cuts, so 100% or better -- and deposit product, obviously, and then the impact of CDs changes to total deposit beta calculation, as you know, since that's timing based.

Yes. Okay. And then can you just remind us what percent of your loans are truly floating, that reset with each Fed cut with Territorial now on board?

About 42% of our loans is truly floating.

Got it. And then do you have -- how much in the way of cost saves do you have left for Territorial so we can consider that going forward?

In the Territorial franchise, we are very delighted to welcome the Territorial team members into the Bank of Hope family, and we have been focusing on strengthening those operations, as you well know, through other M&A. Generally in M&A, the upfront cost saves are executed in the beginning, which generally relate to corporate administrative cost cuts. And as we have said in the past, we plan to focus on maintaining the continuity of the customer experience. So right now, I will say that there is still more integration and cost fees coming in the second half of the year. But as far as the magnitude, we will share that later in the year.

[Operator Instructions]

The next question comes from Gary Tenner with D.A. Davidson.

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?

Well, Gary, 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, I think I can say that much.

Okay. And then just in terms of the conversion timing for Territorial, when is that going to occur?

Conversion, meaning the system conversion?

Yes. System conversion?

Yes, that is expected to be completed by the end of next year. We have tentatively decided to run a Territorial system for the time being because they're system is very close to the expiration of their contract and we are very close to that.

Okay. So does that just push out the cost savings that you had talked about when the deal was announced, I think it was like 27% or so of Territorial expenses that just pushed that out deeper next year.

Not necessarily the core costs and the IT costs were not the biggest component of Territorial's cost base. If you look at Territorial's disclosures and their proxy statements, you will see that the largest component of cost savings from that franchise would come from the form of executive compensation.

The next question comes from Kelly Motta with KBW.

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. And kind of the cadence of their contributions, as I know, it can take a bit of time in order for new hires to add to net growth?

Yes. We have been hiring a very experienced, talented commercial and corporate bankers over the past several months, and we are continuing to do that. And if you look at our loan production in the second quarter, we have a very meaningful increase from the first quarter. And I think the -- based upon the pipeline that we have at the beginning of the third quarter, our loan production will continue to increase over the rest of the year. In our payoff trends, our payoff in the second quarter was not as high as it was in the first quarter, but still the payoffs and paydown trends remain at elevated levels. And I think once this -- the payoffs and paydowns have been stabilized, and normalized without the added origination volumes that we can expect from these new bankers, I think the loan growth expectation in the third and fourth quarter is pretty doable for us.

Got it. That's helpful. And then 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?

Sure. This is Peter. Yes, we're actively monitoring our portfolio. I think we're feeling cautiously optimistic. I think a lot of the high levels of uncertainty, although there's still around, and we're definitely monitoring the situation, but we remain cautiously optimistic. I think if you look at our just overall level of potential problem loans, which is really represented by our level of criticized assets, you saw some meaningful decline this quarter. So really, I think, barring any unexpected volatilities in the macroeconomic environment, we are -- we do think that asset quality remains manageable and stable.

The next question comes from Tim Coffey with Janney.

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? Because I think at the beginning of the quarter, there might have been a lot of uncertainty around it, but it seems like that uncertainty started to evaporate by the end of the quarter.

Actually, this is Peter. I can probably answer that. I think just the level of uncertainty was much higher, I think, as we sort of started the quarter in Q2. I think a little bit of that dust is little bit settling down. There's obviously still a lot of uncertainty. But actually, I think as we've been monitoring the situation. I think the economy and particularly, the consumer base has remained fairly resilient. And although there's still some risk there and we're definitely being proactive around that, we have -- really haven't seen much impact to our customer base as of yet.

All right. Great. Thanks a lot, that appears great. And then 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?

Well, we have stated in the past our target loan-to-deposit ratio is to be up to 95%. We're obviously at below 91% there. So we do have some growth and excess liquidity at the moment. However, but that should give you an idea for how much deposit growth we believe we need on an ongoing basis because we've also said in the past that on a medium-term basis, we would like to target loan growth in the high single digits, right?

Now in terms of the customer base balance, I think we have a pretty great balance right now between consumer and commercial loans. Our broker deposits are down to 5% of total deposits. So this is a pretty good place from which to focus on generating growth and expanding the customer wallet share and adding new relationships.

And we have a follow-up from Kelly Motta with KBW.

Thanks for letting me jump back in. Just a quick modeling question for Julianna. Can you remind us how much more onetime costs are yet to be realized? And now with the conversion kicked out a bit, would those occur closer to conversion? Or is there a cadence to expect for the back half of the year?

One second. In the back half of the year, there'll be probably a couple of million more of onetime costs in the third quarter and then probably a couple of million more in the fourth quarter just from various odds and ends, if you will. So that's what I can share with you right now.

And we have a follow-up from Gary Tenner from D.A. Davidson.

I just wanted to ask, I apologize if I missed this. But in terms of the new production in the quarter, what was the average yield on new production?

The average yield on the new production was approximately [ 76 ]%.

And we have a follow-up from Matthew Clark from Piper Sandler.

Just another housekeeping item. For next year, the tax rate I know it's going to come down by 100 basis points, but does that imply 24% for next year?

No, I think that the tax rate for this year, on a full year basis sits at 21%. When you look at 2026, I think our kind of tax year kind of going forward beyond this year will be in the 20 percentage -- again, not taking into account any tax law changes that may impact 2026 from the passage of recent federal legislation, okay? So just based on what is in place today, I would say that our tax year kind of going -- tax rate and then going forward will be kind of in that 20%, 21% range, and it's down from the prior year because of the state apportionment tax law change, but also because we are continuing to invest in low-income housing and other tax credit investments to help lower our tax burden.

Okay. Great. And then just net charge-offs this quarter up a little bit. Anything chunky in there or anything maybe unusual to call out? Just trying to get a sense for where that might go going forward? I know it's tough to say, but?

Yes. The charges were up slightly this quarter. I think that we remain at manageable levels. I mean we still have some cleanup that we're undergoing right now. So I would just look at sort of just portfolio management as the reason there. But going forward, as you have heard, I think our level of overall [ problem ] credits or criticized assets going down. NPLs did have a little uptick, but it's a real estate property that's well secured. So on the asset quality front, we are, again, cautiously optimistic. Do you think there is a road map here. The macroeconomic environment continues to support that we will remain at stable manageable levels going forward.

And we have a follow-up from Kelly Motta from KBW.

Thanks for letting me hop in a third time now. Last question for me on the guidance, you maintained it, but you also had the benefit of the securities restructuring in the back half of the year. It seems like some of the guide change is related to taking out a rate cut, the accretion from Territorial, but on a core, core basis, it's still seems down. Wondering if you could share if that's really just the function of rates or if there's something else that is creating that variance, whether it's maybe some additional pressure on the deposit side or slower loan growth. Just wondering if you could provide some color as to what drove that.

Yes. I can add a couple of comments to that. I mean if you think about it when we provided the guidance in April, right, we were looking at a rate curve with the first cut starting in June. So that would have given us 2 full quarters of a rate cut and then a cut in September, which would have given us like a full quarter of another cut, right? And all else equal, as you can see in our 10-Q disclosures, 100 basis points impacts our NII by $20 million. So taking out -- so model to model, if we took out the impact of the curve change from our kind of first quarter forecast, that would have taken out about a net $4 million of income. So we were able to make that up and offset that with the securities portfolio repositioning, right?

And then the change in the forward curve also impacted the pace of recognition of accretion, higher for longer, all else equal, does slow down the prepayment speed. So the upfront accretion in year 1 for us, we're now looking at $12 million versus $14 million. So that kind of gets you to the math of maintaining the NII unchanged. And also, we're continuing to improve the pace of originations, but quarter-to-quarter, the blended loan yield on originations did decrease a little bit. So continued kind of competitive pricing in the market for loan growth is also coming through. But basically, the math on it are really, really the curve driven and accretion driven.

And then you can ask yourself what can we do to kind of change that conversation without just waiting for another rate cut. We've been very proactive in working on our deposit mix and reducing our higher cost deposits as you saw the continued improvement from broker deposit exposure, et cetera.

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

Thank you. Thank you, Drew. Once again, thank you all for joining us today, and we look forward to speaking with you in 3 months. So long, everyone.

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