EDGAR 10-K Filing

Company CIK: 1128361
Filing Year: 2025
Filename: 1128361_10-K_2025_0001128361-25-000010.json

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ITEM 1. BUSINESS
Item 1. BUSINESS
General
Hope Bancorp, Inc. (“Hope Bancorp” on a parent-only basis, and the “Company,” “we” or “our” on a consolidated basis with the Bank of Hope) is a bank holding company headquartered in Los Angeles, California. Hope Bancorp was incorporated in Delaware in the year 2000. We offer commercial and retail banking loan and deposit products through our wholly-owned subsidiary, Bank of Hope, a California state-chartered bank (the “Bank” or “Bank of Hope”). From our roots as a Korean-American focused bank, we have grown to be one of the largest independent commercial banks headquartered in California and serve a multi-ethnic population of customers around the United States. Our network of branches and loan production offices includes locations in California, New York, Texas, Washington, Illinois, New Jersey, Georgia, Florida, Alabama, Colorado, and Oregon, and includes a representative office in Seoul, South Korea. Our headquarters are located at 3200 Wilshire Boulevard, Suite 1400, Los Angeles, California 90010, and our telephone number at that address is (213) 639-1700.
Hope Bancorp exists primarily for the purpose of holding the stock of the Bank and other subsidiaries it may acquire or establish. Bank of Hope’s deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”), up to applicable limits.
We file reports with the Securities and Exchange Commission (the “SEC”), which include annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, as well as proxy and information statements in connection with our stockholders’ meetings. The SEC maintains a website that contains the reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of the website is www.sec.gov. Our website address is www.bankofhope.com. Electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other information and reports we file with the SEC and amendments to those reports, are available free of charge by visiting the Investor Relations section of our website. These reports are generally posted as soon as reasonably practicable after they are electronically filed with the SEC. None of the information on or hyperlinked from the Company’s website is incorporated into this Annual Report on Form 10-K.
Business Overview
Our principal business activities are conducted through the Bank and primarily consist of earning interest on loans and investment securities, which are primarily funded by customer deposits and other borrowings. Operating revenues consist of the difference between interest received and interest paid, gains and losses on the sale of financial assets, and fees earned for financial services provided to our customers. Interest rates are highly sensitive to many factors that are beyond our control, such as general economic conditions, new legislation and the policies of various governmental and regulatory authorities. Although our business may vary with local and national economic conditions, such variations are not generally seasonal in nature.
We offer a full suite of commercial, corporate and consumer loans, deposit and fee-based products and services, including commercial and commercial real estate lending, Small Business Administration (“SBA”) lending, residential mortgage and other consumer lending, treasury management services, foreign currency exchange solutions, interest rate risk hedging products, and other and international trade financing, among others. Our website at www.bankofhope.com offers internet banking services and applications in both English and Korean.
On March 28, 2024, the Bank entered into a Purchase and Assumption Agreement with PromiseOne Bank, a Georgia state bank, to sell the deposits, other liabilities, and certain physical assets of the Bank’s two branches located in Virginia (Annandale and Centreville). The transaction was completed on October 1, 2024.
On April 26, 2024, the Company entered into a merger agreement with Territorial Bancorp Inc. (“Territorial”), headquartered in Honolulu, Hawaii. Under the terms of the merger agreement, assuming the transaction is consummated, Territorial will merge with and into the Company, immediately followed by the merger of Territorial’s subsidiary bank, Territorial Savings Bank, with and into the Company’s subsidiary bank, Bank of Hope. Upon completion, Territorial shareholders would receive a fixed exchange ratio of 0.8048 shares of the Company’s common stock in exchange for each share of Territorial common stock they own. Based on the closing price of the Company’s common stock on April 26, 2024, this represented a value of $8.82 per share of Territorial common stock, although the actual value will be determined upon the completion of the merger. Following the completion of the pending transaction, the legacy Territorial franchise in Hawaii would continue to do business under the trade name Territorial Savings, a division of Bank of Hope.
Lending Activities
Commercial and Industrial Loans
We provide commercial and industrial (“C&I”) loans to small business, middle market, corporate and institutional borrowers through the Company’s branch network, loan production offices, and specialized industry lending teams. These C&I loans, at times done through participations in a syndicated facility, are provided for various purposes such as working capital needs, purchasing inventory, debt refinancing, business acquisitions, and other business-related financing needs. C&I loans are typically classified as (1) revolving, or short-term loans, or lines of credit or (2) term loans to businesses. Short-term loans are often used to finance business working capital needs, collateralized with current assets, and typically have terms of one year with interest paid monthly on the outstanding balance with the principal balance due at maturity. Term loans typically have terms of three to five years with principal and interest paid monthly. The credit worthiness of our borrowers is evaluated before a loan is originated through financial spread and collateral analysis and, if large enough, with financial projections to cover both base and downside case cash flow scenarios. Credit worthiness is typically reviewed quarterly to address potential borrower covenant defaults/appropriate borrower action plans as well as loan risk grading. We seek to establish full banking relationships for all our commercial customers that include all of the Bank’s financing, deposit and fee-based products and services. We also offer C&I loans under the SBA 504, SBA 7(a), and SBA Express Loan (“EZ”) programs, which are described in more detail in the following sub-section titled Small Business Administration Loans.
Commercial Real Estate Loans
Commercial real estate (“CRE”) loans cover a broad array of commercial real estate segments including multi-tenant retail, hotels/motels, gas stations & car washes, mixed-use facilities, industrial warehouses, multi-family, single-tenant retail, office and other. CRE loans are extended for the purchase and refinance of real estate and are generally secured by first deeds of trust. The maturities on the majority of such loans are generally five to seven years with a 25-year principal amortization schedule and a balloon payment due at maturity. We offer both fixed and floating rate CRE loans in addition to offering clients interest rate hedging options. It is our general policy to restrict CRE loan amounts to no more than 75% of the appraised value of the underlying collateral property at the date of origination.
We also originate loans to finance CRE construction projects including one-to-four family residences, multifamily residences, senior housing, and commercial projects. As construction loans make up only a small percentage of the total loan portfolio, these loans are not further broken down into classes. For a breakdown of CRE loans by owner occupied and non-owner occupied, as well as by property types, see “Commercial Real Estate Loans” section in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition”.
Small Business Administration Loans
We extend loans partially guaranteed by the SBA. We primarily extend SBA loans known as SBA 7(a) loans, SBA 504 loans, and SBA EZ loans. SBA 7(a) loans are typically extended for working capital needs, purchase of inventory, purchase of machinery and equipment, debt refinance, business acquisitions, start-up financing, or to purchase or construct owner occupied commercial property. SBA 7(a) loans are typically term loans with maturities up to 10 years for loans not secured by real estate, and up to 25 years for real estate secured loans. SBA loans are fully amortizing with monthly payments of principal and interest. SBA 7(a) loans are typically floating rate loans that are secured by business assets and/or real estate. Depending on the loan amount, each loan is typically guaranteed 75% to 85% by the SBA, with a maximum gross loan amount to any one small business borrower of $5.0 million and a maximum SBA guaranteed amount of $3.75 million.
We are generally able to sell the guaranteed portion of the SBA 7(a) loans in the secondary market at a premium and earn servicing fee income on the sold portion over the remaining life of the loan. In addition to the interest income earned on the unguaranteed portion of the SBA 7(a) loans that are not sold, we recognize income from gains on sales and loan servicing income on the SBA 7(a) loans that are sold. From June 30, 2023, through March 31, 2024, we elected to retain our SBA 7(a) loan production on our Consolidated Statements of Financial Condition and did not record any gain on sale of SBA loans. Due to lower premium rates paid in the secondary market, it was more economic to retain the production on our Consolidated Statements of Financial Condition and earn interest income on the full production amount. During the 2024 second quarter, the Company resumed sales of the guaranteed portion of its SBA 7(a) loans as secondary market premium rates increased.
SBA 504 loans are typically extended for the purpose of purchasing owner occupied commercial real estate or long-term capital equipment. SBA 504 loans are typically extended for up to 20 years or the life of the asset being financed. SBA 504 loans are financed as a participation loan between the Bank and the SBA through a Certified Development Company (“CDC”). Generally, the loans are structured to give the Bank a 50% first deed of trust (“TD”), the CDC a 40% second TD, and the remaining 10% is funded by the borrower. Interest rates for the first TD bank loans are subject to normal bank commercial rates and terms, and the second TD CDC loans are fixed for the life of the loans based on certain indices.
SBA EZ loans are C&I loans that are unsecured term loans extended for business purposes. The maximum loan amount is $350 thousand, and loans are processed based on the Company’s credit scoring program.
Our SBA loans are originated through our SBA loan department, our SBA loan production offices, or can be referred through our branch network. The Bank has been designated as an SBA Preferred Lender, which is the highest designation awarded by the SBA. This designation generally facilitates a more efficient marketing and approval process for SBA loans. We have attained SBA Preferred Lender status nationwide.
Consumer and Other Loans
Our consumer loans primarily consist of single-family mortgages; we also offer credit card loans and personal loans, and have historically offered home equity loans through Hope’s predecessor banks. Our single-family mortgages are secured by a first deed of trust on single family residences under a variety of loan products including fixed-rate and adjustable-rate mortgages with either 30-year or 15-year terms. Adjustable-rate mortgage loans are also offered with flexible initial and periodic adjustments ranging from five to seven years.
Investing Activities
The main objective of our investment portfolio is to provide a source of on-balance sheet liquidity while providing a means to manage our interest rate risk, generating an adequate level of interest income without taking undue risks. Subject to various restrictions, our investment policy permits investment in various types of securities, certificates of deposit (“CDs”), and federal funds sold. Our investments include equity investments, and available for sale and held to maturity investment portfolios, which consist of U.S. Treasury securities, government sponsored agency bonds, mortgage-backed securities, collateralized mortgage obligations (“CMOs”), asset-backed securities, corporate securities, and municipal securities. For a detailed breakdown of our investments, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Investment Securities Portfolio.”
Our securities are classified for accounting purposes as equity investments, investments available for sale (“AFS”), or investments held to maturity (“HTM”). Securities purchased to meet investment-related objectives, such as liquidity management or interest rate risk, and which may be sold as necessary to implement management strategies, are designated as AFS at the time of purchase. Investment securities that the Bank has the positive intent and ability to hold to maturity are designated as investments HTM.
Deposit Activities
We attract both short-term and long-term deposits from the general public by offering a wide range of deposit products and services. Through our branch network, we provide our banking customers with personal and business checking accounts, money market accounts, savings accounts, time deposit accounts, individual retirement accounts, 24-hour automated teller machines (“ATM”), internet banking and bill-pay, remote deposit capture, lock boxes, and automated clearing house (“ACH”) origination services. In addition to our consumer and commercial deposits, we obtain both secured and unsecured wholesale deposits, including public deposits such as State of California Treasurer’s time deposits; brokered demand deposits, money market, and time deposits, as well as deposits gathered from outside of the Bank’s normal market area through deposit listing services and our online banking platform.
FDIC-insured deposits are our primary source of funds. As part of our asset-liability management, we analyze our customer and wholesale deposit maturities and interest rates to monitor and manage our cost of funds, to the extent feasible in the context of changing market conditions, as well as to promote stability in our supply of funds. For additional information on deposits, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Deposits”.
Borrowing Activities
When we have more funds than required for our reserve requirements or short-term liquidity needs, we may sell federal funds to other financial institutions. Conversely, when we have less funds than required, we may borrow funds from the Federal Home Loan Bank of San Francisco (the “FHLB”), the Federal Reserve Bank of San Francisco (“the Federal Reserve Bank”), or from our correspondent banking relationships. In addition, we may borrow from the FHLB on a longer term basis to provide funding for certain loan or investment securities strategies, as well as for asset-liability management.
The FHLB functions in a reserve credit capacity for qualifying financial institutions. As a member, we are required to own capital stock in the FHLB and may apply for advances from the FHLB on an unsecured basis or by utilizing qualifying loans and certain securities as collateral. The FHLB offers a full range of borrowing programs on its advances, with terms ranging from one day to thirty years, at competitive market rates. A prepayment penalty is usually imposed for early repayment of these advances. Information concerning FHLB advances and other borrowings is included in Note 9 of our Notes to Consolidated Financial Statements.
We may also borrow from the Federal Reserve Bank’s discount window. The maximum amount that we may borrow from the Federal Reserve Bank’s discount window is up to 99% of the estimated fair value of qualifying loans and securities that we pledge. In 2023, the Federal Reserve Bank, under the Bank Term Funding Program (“BTFP”), previously allowed institutions to pledge certain securities at par value and borrow at a rate no lower than the interest rate on reserve balances in effect on the day the loan was made. The BTFP ceased making new advances in March 2024.
Long-Term Debt
At December 31, 2024, we had nine wholly-owned subsidiary grantor trusts (“Trusts”) that have issued $126.0 million of pooled trust preferred securities (“Trust Preferred Securities”). The Trust Preferred Securities accrue and pay distributions periodically at specified annual rates as provided in the related indentures for the securities. The Trusts used the net proceeds from the offering of the Trust Preferred Securities to purchase a like amount of subordinated debentures of Hope Bancorp (the “Debentures”). The Debentures are the sole assets of the trusts. Our obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by us of the obligations of the Trusts. The Trust Preferred Securities are mandatorily redeemable upon the maturity of the Debentures (which have maturity dates ranging from 2033 to 2037), or upon earlier redemption as provided in the indentures. We have the right to redeem the Debentures in whole (but not in part) on a quarterly basis at a specified redemption price. We also have the right to defer interest on the Debentures for up to five years.
In 2018, we issued $217.5 million aggregate principal amount of 2.00% convertible senior notes maturing on May 15, 2038, in a private offering to investors. The convertible notes were issued as part of our plan to repurchase shares of our common stock. On May 15, 2023, most holders of our convertible notes exercised their right to put their notes and therefore we paid off $197.1 million of convertible note principal in cash. In addition, we repurchased our notes in the aggregate principal amount of $19.9 million in 2023, and the repurchased notes were immediately cancelled subsequent to repurchase. The remaining net carrying balance of convertible notes at December 31, 2024, was $444 thousand.
Market Area and Competition
As of December 31, 2024, we had 46 branches in the United States, predominantly in multi-ethnic communities. Of these, 25 were located in California, nine were located in New York and New Jersey; four were in Washington; three were in Illinois; three were in Texas; one was in Alabama, and one was in Georgia. We also had nine loan production offices located in California, Colorado, Florida, Georgia, Oregon, Texas, and Washington, as well as a representative office in Seoul, South Korea.
The banking and financial services industry generally, and in our market areas specifically, is highly competitive. The competitive environment is primarily a result of strong competition among community, regional and national banks; changes in regulations; changes in technology and product delivery systems, as well as consolidation among financial services companies. In addition, federal legislation may have the effect of further increasing the pace of consolidation within the financial services industry. See “Supervision and Regulation.”
We compete for loans, deposits, and customers with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, marketplace finance platforms, money market funds, credit unions, and other non-bank financial service providers. Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets, are more widely recognized, have broader geographic scope, and offer a broader range of financial services than we do.
Economic Conditions, Government Policies and Legislation
Our profitability, like that of most depository institutions, depends, among other things, on interest rate differentials. In general, the difference between the interest expense on interest bearing liabilities, such as deposits, borrowings, or debt, and the interest income on our interest earning assets, such as loans we extend to our customers, securities held in our investment portfolio, and interest earning cash, as well as the level of noninterest bearing deposits, has a significant impact on our profitability. Interest rates are highly sensitive to many factors that are beyond our control, such as the economy, inflation, unemployment, consumer spending, and political changes and events. The impact that future changes in domestic and foreign economic and political conditions might have on our performance cannot be predicted.
Our business is also influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the Board of Governors of the Federal Reserve System (the “FRB”). The FRB implements national monetary policies (with objectives such as curbing inflation or preventing recession) through its open-market operations in U.S. government securities, by adjusting the required level of reserves for depository institutions subject to its reserve requirements, and by varying the targeted federal funds and discount rates applicable to borrowings by depository institutions. The actions of the FRB in these areas influence the growth of bank loans, investments, and deposits, and affect interest rates earned on interest earning assets and paid on interest bearing liabilities. The nature and impact on Hope Bancorp, and the Bank, of future changes in monetary and fiscal policies cannot be predicted.
From time to time, legislation and regulations are enacted or adopted which have the effect of increasing the cost of doing business, limiting, or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies, financial holding companies, and other financial institutions and financial services providers are frequently made in the U.S. Congress, in state legislatures, and by various regulatory agencies. These proposals may result in changes in banking statutes and regulations and our operating environment in substantial and unpredictable ways. If enacted, such legislation could increase the cost of doing business, limit permissible activities, restrict our growth or expansionary activities, or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether any such potential legislation will be enacted, and if enacted, the effect that it, or any implementing regulations, would have on our financial condition or results of operations. See “Supervision and Regulation.”
Supervision and Regulation
General
Hope Bancorp and the Bank are subject to extensive regulation and supervision under state and federal banking laws. This regulatory framework covers substantially all of the business activities of Hope Bancorp and the Bank. In the exercise of their regulatory and supervisory authority, the bank regulatory agencies have emphasized capital planning and stress testing, liquidity management, enterprise risk management, corporate governance, anti-money laundering compliance, information technology adequacy, cybersecurity preparedness, vendor management, and fair lending and other consumer compliance obligations. The federal and state regulatory systems are intended primarily for the protection of depositors, customers, the FDIC deposit insurance fund (the “DIF”) and the banking system as a whole, rather than for the protection of our stockholders or other investors.
The following summarizes certain banking laws and regulations that apply to Hope Bancorp and the Bank. These descriptions of statutes and regulations and their possible effects do not purport to be complete descriptions of all of the provisions of those statutes and regulations and their possible effects on us, nor do they purport to identify every statute and regulation that may apply to us.
Bank Holding Company Regulation
Hope Bancorp is a registered bank holding company under the Bank Holding Company Act. As a bank holding company, Hope Bancorp is subject to regulation, supervision and regular examination by the FRB and is required to file periodic reports of its operations with the FRB and other such reports as the FRB may require.
Bank holding companies are required to maintain certain levels of capital (See “Capital Adequacy Requirements”) and must serve as a source of financial and managerial strength to subsidiary banks and commit resources as necessary to support each subsidiary bank. FRB regulations and polices limit the dividends a bank holding company may pay to its stockholders and the amount of its shares that it may repurchase (See “Dividends and Stock Repurchases”). FRB rules and policies also regulate provisions of certain bank holding company debt and the FRB may impose interest ceilings and reserve requirements on such debt and require prior approval to purchase or redeem debt securities in certain situations.
The FRB may require a bank holding company to terminate an activity or terminate control of or liquidate or divest certain subsidiaries, affiliates or investments if the FRB believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any bank subsidiary. Under certain circumstances, the FRB could, for example, prohibit Hope Bancorp from paying dividends or repurchasing its common stock on the basis that doing would be an unsafe or unsound banking practice.
The activities in which a bank holding company may engage are limited to those activities determined by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Bank holding companies that elect and retain “financial holding company” status pursuant to the Gramm-Leach-Bliley Act of 1999 (the “GLBA”) may also engage in broader securities, insurance, merchant banking and other activities that are determined to be “financial in nature” or are incidental or complementary to activities that are financial in nature. To elect and retain financial holding company status, a bank holding company and all depository institution subsidiaries of a bank holding company must be considered well capitalized and meet certain other requirements. Hope Bancorp has not elected financial holding company status and neither Hope Bancorp nor the Bank has engaged in any activities determined by the FRB to be financial in nature or incidental or complementary to activities that are financial in nature.
A bank holding company must seek approval from the FRB prior to acquiring all or substantially all of the assets of any bank or bank holding company or the ownership or control of voting shares of any bank or bank holding company if, after giving effect to such acquisition, it would own or control, directly or indirectly, more than 5 percent of a bank. Under the Bank Merger Act, the prior approval of the FDIC is required for the Bank to merge with another bank or purchase all or substantially all of the assets or assume any of the deposits of another FDIC-insured depository institution. Federal banking regulators review competition, management, financial, compliance and other factors when considering applications for these approvals. Similar California or other state banking agency approvals may also be required.
The Company is also a bank holding company within the meaning of Section 3700 of the California Financial Code. Therefore, the Company and its subsidiaries are subject to examination by, and may be required to file reports with, the California Department of Financial Protection and Innovation (the “DFPI”). DFPI approvals are also required for bank mergers and acquisitions.
Bank Regulation
The Bank is a California state-chartered bank whose deposit accounts are insured by the FDIC, up to applicable limits. As such, the Bank is subject to regulation, supervision, and regular examination by the DFPI and the FDIC. The Bank is also subject to regulation, supervision, and examination by the Consumer Finance Protection Bureau (“CFPB”) with respect to federal consumer financial laws. While the Bank is not a member of the FRB, the Bank is also subject to certain regulations of the FRB.
Federal and state laws and regulations applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, lending activities, servicing and foreclosing on loans, borrowings, capital requirements, certain check-clearing activities, dividends, branching, and mergers and acquisitions. California banks are also subject to statutes and regulations including FRB Regulation O, Federal Reserve Act Sections 23A and 23B and Regulation W, which restrict or limit loans or extensions of credit to “insiders”, including officers, directors, and principal stockholders, and loans or extension of credit by banks to affiliates or purchases of assets from affiliates, including parent bank holding companies, except pursuant to certain exceptions and only on terms and conditions at least as favorable to those prevailing for comparable transactions with unaffiliated parties. The Dodd-Frank Wall Street Reform and Consumer Protection Action (the “Dodd-Frank Act”) expanded definitions and restrictions on transactions with affiliates and insiders under Sections 23A and 23B and also lending limits for derivative transactions, repurchase agreements, and securities lending and borrowing transactions.
Under the Federal Deposit Insurance Act (“FDI Act”) and the California Financial Code, California state chartered commercial banks may generally engage in any activity permissible for national banks. Therefore, the Bank may form subsidiaries to engage in the many so-called “closely related to banking” or “nonbanking” activities commonly conducted by national banks in operating subsidiaries or by subsidiaries of bank holding companies. Further, California state-chartered banks may conduct certain financial activities permitted under GLBA in a “financial subsidiary” to the same extent as a national bank, provided the bank is and remains well-capitalized, well-managed and in satisfactory compliance with the Community Reinvestment Act (the “CRA”). The Bank currently conducts no non-banking or financial activities through subsidiaries.
Capital Adequacy Requirements
Hope Bancorp and the Bank are subject to similar regulatory capital requirements administered by its primary federal supervisory banking agencies. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the federal banking agencies have adopted capital rules based on the Basel III Accord (the “Basel III Capital Rules”). The Basel III Capital Rules became effective on January 1, 2015. The Basel III Capital Rules are risk-based, meaning that the levels of capital required vary based on the perceived degree of risk associated with a banking organization’s balance sheet assets, such as loans and investment securities, and those recorded as off-balance sheet items, such as commitments, letters of credit, and recourse arrangements. The risk classifications and, therefore, the required capital amounts may be subject to qualitative judgments by regulators about components, risk-weighting, and other factors.
The Basel III Capital Rules (i) establish a capital measure called “common equity Tier 1” and a related regulatory capital ratio of common equity Tier 1 to risk-weighted assets, (ii) specify that Tier 1 capital consists of common equity Tier 1 and “additional Tier 1 capital” instruments meeting certain requirements, (iii) mandate that most deductions and adjustments to regulatory capital measures be made to common equity Tier 1 and not to the other components of capital, and (iv) specify deductions from and adjustments to capital that are somewhat more expansive than those under prior capital rules. The Basel III Capital Rules differ from earlier capital rules by excluding from Tier 1 capital trust preferred securities (subject to certain grandfathering exceptions for organizations like Hope Bancorp, which had less than $15 billion in assets as of December 31, 2009), mortgage servicing rights and certain deferred tax assets and to include unrealized gains and losses on available for sale debt and equity securities (unless the organization opts out of including such unrealized gains and losses).
Under the Basel III Capital Rules, the minimum capital ratios applicable to Hope Bancorp and the Bank are as follows:
•4.5% common equity Tier 1 to risk-weighted assets;
•6.0% Tier 1 capital (that is, common equity Tier 1 plus additional Tier 1 capital) to risk-weighted assets;
•8.0% total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and
•4.0% Tier 1 capital to average consolidated assets as reported on regulatory financial statements (known as the “leverage ratio”). To be considered well-capitalized under the Prompt Corrective Action framework, the Bank must maintain a minimum Tier 1 leverage ratio of at least 5.0%.
The Basel III Capital Rules include an additional “capital conservation buffer” of 2.5% of risk-weighted assets above the regulatory minimum capital ratios. If Hope Bancorp and the Bank do not maintain capital sufficient to satisfy the capital conservation buffer, we would face restrictions in our ability to pay dividends, repurchase shares, and pay discretionary bonuses.
Including the capital conservation buffer of 2.5%, the minimum ratios for a banking organization are as follows: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5% and (iii) a total capital ratio of 10.5%. Management believes that as of December 31, 2024, Hope Bancorp and the Bank met all requirements under the Basel III Capital Rules applicable to them on a fully phased-in basis, including the capital conservation buffer. At December 31, 2024, the ratios of each of Hope Bancorp and the Bank exceeded the minimum percentage requirements to generally be deemed “well-capitalized” for bank regulatory purposes and satisfied the capital conservation buffer requirement. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
While the Basel III Capital Rules set higher regulatory capital standards for Hope Bancorp and the Bank, bank regulators may also continue their past policies of expecting banks to maintain capital in excess of the minimum requirements. The implementation of the Basel III Capital Rules or more stringent requirements to maintain higher levels of capital or to maintain higher levels of liquid assets could adversely impact the Company’s net income and return on equity, restrict the ability to pay dividends or executive bonuses and require the raising of additional capital.
The Bank is also subject to capital adequacy requirements under the California Financial Code.
See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
Increased Supervision and Regulation for Bank Holding Companies with Consolidated Assets of More than $10 Billion
As a banking organization with consolidated assets exceeding $10 billion, the Company is subject to heightened supervision and regulation imposed by the Dodd-Frank Act, such as the following:
•We are subject to periodic examination by the CFPB with respect to compliance with federal consumer financial laws. Although we were subject to regulations issued by the CFPB when we were less than $10 billion in assets, the Bank’s primary federal regulator, the FDIC, previously had responsibility for our consumer compliance examinations. See “Consumer Finance Protection Bureau.”
•We are subject to the maximum permissible interchange fee for swipe transactions, equal to no more than 21 cents plus 5 basis points of the transaction value for many types of debit interchange transactions.
•We calculate our FDIC deposit assessment base using a performance score and a loss-severity score system described below in “Deposit Insurance.”
•We are subject to the “Volcker Rule,” which generally restricts us from engaging in activities that are considered proprietary trading and from sponsoring or investing in certain entities, including hedge or private equity funds that are considered covered funds. While Hope Bancorp and the Bank had no investment positions or relationships at December 31, 2024, that were subject to the Volcker Rule, we may be subject to the compliance and recording keeping provisions of this rule.
The Dodd-Frank Act requires banking organizations with consolidated assets exceeding $10 billion to establish board-level risk committees and to perform annual stress tests. The Economic Growth, Regulatory Relief, and Consumer Protection Act enacted in 2018 raised the asset thresholds for these requirements to $50 billion and $100 billion, respectively.
Many aspects of the Dodd-Frank Act continue to be subject to rule-making or proposed change, making it difficult to anticipate the overall financial impact on the Company, its customers or the financial industry in general. Provisions in the legislation that affect deposit insurance assessments, payment of interest on demand deposits and interchange fees could increase the costs associated with deposits as well as place limitations on certain revenues those deposits may generate.
Prompt Corrective Action
The FDI Act requires the federal bank regulatory agencies to take “prompt corrective action” with respect to a depository institution that does not meet certain capital adequacy standards, including requiring the prompt submission of an acceptable capital restoration plan. Depending on the bank’s capital ratios, the agencies’ regulations define five categories in which an insured depository institution will be placed: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. At each successive lower capital category, an insured bank is subject to more restrictions, including restrictions on the bank’s activities, operational practices, ability to accept, renew or rollover brokered deposits, and to pay dividends or executive bonuses.
The prompt corrective action standards conform with the Basel III Capital Rules. In order to be generally considered well-capitalized for bank regulatory purposes, the Bank is required maintain the following minimum capital ratios: a common equity Tier 1 ratio of 6.5%, a Tier 1 ratio of 8%, a total capital ratio of 10%, and a leverage ratio of 5%. A bank meeting the minimum capital ratios required to be considered well-capitalized, adequately capitalized, or undercapitalized may, however, may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or practice warrants such treatment.
The federal banking agencies also may require banks and bank holding companies subject to enforcement actions to maintain capital ratios in excess of the minimum ratios otherwise generally required to be deemed well-capitalized for bank regulatory purposes, in which case institutions may no longer be deemed to be well-capitalized and may therefore be subject to certain restrictions such as on taking brokered deposits.
Consumer Compliance Laws
The Bank must comply with numerous federal and state consumer protection statutes and implementing regulations, including, but not limited to, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Truth in Lending Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act, the California Homeowner Bill of Rights, and various federal and state privacy protection laws, including the Telephone Consumer Protection Act, and CAN-SPAM Act. CFPB regulations mandate specific underwriting criteria for home loans requiring lenders to make a reasonable, good faith determination of a consumer’s ability to repay, establish certain protections from liability under the requirements for “qualified mortgages” that meet certain specific standards and implement TILA-RESPA Integrated Disclosure requirements for mortgages. The Bank and Hope Bancorp are also subject to federal and state laws prohibiting unfair or fraudulent business practices, untrue or misleading advertising and unfair competition.
These laws and regulations mandate certain disclosure and reporting requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, servicing, collecting and foreclosure of loans, and providing other services. Failure to comply with these laws and regulations can subject the Bank to various penalties, including but not limited to enforcement actions, injunctions, fines or criminal penalties, punitive damages to consumers, and the loss of certain contractual rights.
Community Reinvestment Act
The Bank is subject to the CRA, which requires federal banking regulators to evaluate the record of a financial institution in meeting the credit needs of its local communities, including in low- and moderate-income neighborhoods. The federal banking agencies consider a financial institution’s compliance with the CRA into account when considering regulatory applications for mergers and other expansionary activities. The Bank received a “Satisfactory” rating in the most recent public disclosure of CRA performance evaluation released by the FDIC in 2024, which states that the Bank’s CRA performance under the lending, investment, and service tests supports the overall rating.
In 2024, the federal banking regulators issued final CRA rules to adapt to changes in the banking industry, including the expanded role of mobile and online banking, and to tailor performance standards to account for differences in bank size and business models. The new rule also includes data collection and reporting requirements, some of which are applicable only to banks with over $10 billion in assets, like the Bank. Most provisions of the final rule will become effective on January 1, 2026, and the data reporting requirements will become effective on January 1, 2027.
USA PATRIOT Act and Anti-Money Laundering Laws
Under the USA PATRIOT Act of 2001, financial institutions are subject to prohibitions against specified financial transactions and account relationships, as well as enhanced due diligence standards that are intended to prevent and detect the use of the United States financial system for money laundering and terrorist financing activities. The act requires financial institutions, including banks, to establish anti-money laundering programs, including employee training and independent audit requirements, meet minimum standards specified by the act, follow minimum standards for customer identification and maintenance of customer identification records, and regularly compare customer lists against lists of suspected terrorists, terrorist organizations, and money launderers.
The Bank Secrecy Act (the “BSA”) establishes requirements for recordkeeping and reporting by banks and other financial institutions that are intended to help identify the source, volume and movement of currency and other monetary instruments into and out of the United States, to help detect and prevent money laundering connected with drug trafficking, terrorism, and other criminal activities. Under the BSA and related regulations, banking institutions must file suspicious activity reports and maintain programs designed to assure and monitor compliance with certain recordkeeping and reporting requirements regarding currency transactions. The programs must include systems and internal controls to assure ongoing compliance, provide for independent testing of such systems and compliance and provide appropriate personnel training.
The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the BSA, was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; and expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting whistleblower incentives and protections.
The federal banking agencies consider a financial institution’s effectiveness in combating money laundering when considering regulatory applications for mergers and other expansionary activities.
Loans to One Borrower
Under California law, the Bank’s ability to make aggregate secured and unsecured loans to borrower is limited to 25% and 15%, respectively, of the Bank’s unimpaired capital and surplus. The Bank has established internal loan limits that are lower than the legal lending limits for a California bank.
Deposit Insurance
The FDIC is an independent federal agency that insures deposits, up to prescribed statutory limits, of federally insured banks and savings institutions, and safeguards the safety and soundness of the depository institutions. The FDIC insures our customer deposits through the DIF up to prescribed limits, currently $250 thousand per customer. The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe or unsound, or that the institution has engaged in unsafe or unsound practices that pose a risk to the DIF or that may prejudice the interest of the bank’s depositors. The termination of the Bank’s deposit insurance would result in the revocation of the Bank’s charter by the DFPI.
We are generally unable to control the amount of assessments that we pay for FDIC insurance, which can be affected by the cost of bank failures to the FDIC, among other factors. The Dodd-Frank Act revised the FDIC’s DIF management authority by setting requirements for the Designated Reserve Ratio (the DIF balance divided by estimated insured deposits) and redefining the assessment base which is used to calculate banks’ quarterly assessments. The amount of FDIC assessments paid by each DIF member institution is based on its asset size and its relative risk of default as measured by regulatory capital ratios and other supervisory factors.
In November 2023, the FDIC approved a special assessment at the rate of approximately 13.4 basis points per year, to be paid in eight quarterly installments beginning in the first quarter of 2024. This rate will be applied to an assessment base of the insured depository institution’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits. In February 2024, the FDIC informed banks of an increase from the original estimate related to this special assessment. This additional amount was paid in two additional quarterly installments, at a rate of approximately 9.4 basis points per year on the same adjusted assessment base. We recorded an expense of $691 thousand and $4.0 million in 2024 and 2023, respectively for the total amount due under this special assessment.
Any future changes in FDIC insurance assessments may have a material and adverse effect on our earnings and could have a material adverse effect on the value of, or market for, our common stock.
Safety and Soundness Standards; Regulatory Enforcement Authority
The federal and California bank regulatory agencies have extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of appropriate loan loss reserves for regulatory purposes. The federal bank regulatory agencies have adopted guidelines to assist in identifying and addressing potential safety and soundness concerns before an institution’s capital becomes impaired. The guidelines establish operational and managerial standards generally relating to: (1) internal controls, information systems, and internal audit systems; (2) loan documentation; (3) credit underwriting; (4) interest-rate exposure; (5) asset growth and asset quality; and (6) compensation, fees, and benefits. Further, the regulatory agencies have adopted safety and soundness guidelines for asset quality and for evaluating and monitoring earnings to ensure that earnings are sufficient for the maintenance of adequate capital and reserves.
If the FRB, the FDIC or the DFPI should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Company’s or the Bank’s operations are unsatisfactory or that the Company or the Bank or management is violating or has violated any law or regulation, these agencies have the authority to:
•Require affirmative action to correct any conditions resulting from any violation or practice;
•Direct an increase in capital and the maintenance of higher specific minimum capital ratios, which could preclude Hope Bancorp or the Bank from being deemed well-capitalized which, in the case of the Bank, would restrict its ability to accept certain brokered deposits, for example;
•Restrict Hope Bancorp’s or the Bank’s growth geographically, by products or services, or by mergers and acquisitions;
•Enter into or issue informal or formal enforcement actions, including required board resolutions, memoranda of understanding, written agreements and consent or cease and desist orders or prompt corrective action orders to take corrective action and cease unsafe and unsound practices;
•Assess civil money penalties;
•Require prior approval of senior executive officer or director changes; remove officers and directors and assess civil monetary penalties; and
•Terminate FDIC insurance, revoke the charter and/or take possession of and close and liquidate the Bank or appoint the FDIC as receiver.
Dividends and Stock Repurchases
Hope Bancorp’s ability to pay dividends or repurchase shares of its common stock is subject to restrictions set forth in the Delaware General Corporation Law. The Delaware General Corporation Law provides that a Delaware corporation may pay dividends or repurchase its shares either (i) out of the corporation’s surplus (as defined by Delaware law), or (ii) if there is no surplus, out of the corporation’s net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. It is the FRB’s policy, however, that bank holding companies should generally pay dividends on common stock only out of income available over the previous four quarters, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. FRB policy requires that a bank holding company must notify the FRB if its dividends or repurchase or redemption of shares would cause a net reduction in the amount of such capital instrument outstanding at the beginning of the quarter in which the redemption or repurchase occurs. It is also the FRB’s policy that bank holding companies should not maintain dividend levels or repurchase shares in amounts that would undermine their ability to be a source of strength to its banking subsidiaries. The FRB also discourages dividend payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong. In addition, if Hope Bancorp does not maintain an adequate capital conservation buffer under the Basel III Capital Rules, its ability to pay dividends to or repurchase shares from stockholders may be restricted.
The Bank is a legal entity that is separate and distinct from Hope Bancorp. Hope Bancorp depends on the Bank’s payment of dividends as its primary source of cash for use in Hope Bancorp’s operations, Hope Bancorp’s payment of dividends to stockholders and Hope Bancorp’s stock repurchases. The Bank’s ability to pay dividends to Hope Bancorp is subject to provisions of the California Financial Code that limit the amount available for cash dividends to the lesser of a bank’s retained earnings or net income for its last three fiscal years (less any distributions to stockholders made during such period). Where the above test is not met, cash dividends may still be paid, with the prior approval of the DFPI, in an amount not exceeding the greatest of (1) retained earnings of the Bank; (2) the net income of the Bank for its last fiscal year; or (3) the net income of the Bank for its current fiscal year. The Bank’s ability to pay cash dividends to Hope Bancorp will also depend upon management’s assessment of future capital requirements, contractual restrictions, and other factors. In addition, if the Bank does not maintain an adequate capital conservation buffer under the Basel III Capital Rules, the Bank may face restrictions on its ability to pay dividends to Hope Bancorp.
Consumer Financial Protection Bureau
The Dodd-Frank Act created the CFPB as an independent entity within the FRB with broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans, and credit cards. The CFPB’s functions include investigating consumer complaints, conducting market research, rulemaking, supervising and examining bank consumer transactions, and enforcing rules related to consumer financial products and services. CFPB regulations and guidance apply to all financial institutions and banks with $10 billion or more in assets are subject to examination by the CFPB. The Bank is subject to examination by the CFPB. The CFPB has the authority to bring formal and informal enforcement actions against the Bank similar to those that may be brought by the federal banking regulators discussed above.
Human Capital Resources
It is our philosophy to attract, develop, and retain a diverse range of qualified bankers who share our values, entrepreneurial spirit and unwavering commitment to service. The Company respects, values, and invites diversity in our team members, customers, suppliers, marketplace, and community. We seek to recognize the unique contribution each individual brings to our Company, and we are fully committed to supporting a rich culture of diversity as a cornerstone to our success.
Through our social rewards and recognition platform, called Bucketlist, employees recognize one another for milestones and achievements, or simply express gratitude to anyone within the Bank for demonstrating Bank of Hope Core Values of trust, excellence, agility, meritocracy, and service.
We provide professional development opportunities to team members and seek to improve retention, development, and job satisfaction of team members from diverse groups by providing career skills training, mentoring, and tuition fee reimbursements to support job-related higher education. All employees of Bank of Hope are required to undergo various training courses on a quarterly basis to promote their ongoing growth and professional development as bankers. Training courses focus on compliance, banking regulations, information security, cybersecurity, and workplace safety, among others, as well as business code and ethics topics, including confidentiality, and our whistle blower, anti-harassment, and conflict of interest policies.
We offer a leading compensation and benefits package that includes medical, dental and vision healthcare, 401(k) benefits, parental and family leave, holiday paid time off, and tuition assistance. We are committed to the long-term health of our employees and provide basic life, basic accidental death, and dismemberment (“AD&D”) and long-term disability insurance, Flexible Spending Accounts (“FSA”), and discounted gym memberships, among others. Our benefits package also features value-added services focused on our employees’ well-being and mental health, including survivor assurance programs, financial wellness counseling, and mental wellness counseling.
As of December 31, 2024 and 2023, the Bank and Hope Bancorp both had 1,244 full-time equivalent employees. None of our employees are represented by a union or covered by a collective bargaining agreement. Management believes that its relations with its employees are good.
Our employees actively share their talents with their communities through volunteer activities in education, economic development, human and health services, and community reinvestment. Our employees are committed to be good neighbors that foster growth for our customers and communities. As a community-based bank, we are committed to being model corporate citizens in our communities through various forms of investments, contributions, and volunteer work.
Some of the highlights we have taken to be a socially responsible company are:
•Approximately 37% of the Bank’s branches are located in low-to-moderate income areas;
•Our employees had nearly 312 hours of CRA-reportable volunteer hours in 2024;
•We funded approximately $2.24 billion of loans in 2024;
•We invest in affordable housing partnerships, CRA investments, CDFI investments and in renewal energy credits;
•We had approximately 528 CRA-reportable small business loans totaling to $196.2 million in 2024, with 439 loans totaling $153.8 million within the Bank’s assessment areas;
•We had approximately over $600 thousand in charitable donations to 158 organizations to support the social, educational, and cultural wellness of the communities in which we operate; and
•We awarded 60 students scholarships of $2,500 each in 2024. In aggregate, we contributed approximately more than $3.0 million to the Hope Scholarship Foundation since its establishment in 2001.
Our Environmental, Social and Governance (“ESG”) report and webpage are available in our investor relation website (www.ir-hopebancorp.com). The ESG report contains our ESG progress including the establishment of an ESG framework, ESG policy, and our achievements on ESG compliance.

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ITEM 1A. RISK FACTORS
Item 1A.RISK FACTORS
In the course of conducting our business operations, we are exposed to a variety of risks, some of which are inherent in the financial services industry and others of which are more specific to our own business. The following discussion addresses the most significant risks that could affect our business, financial condition, liquidity, results of operations, and capital position. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs, our business, financial condition and results of operations may be materially and adversely effected. In that event, the market price for our common stock would likely decline.
Risks Related to our Business
Economic conditions in the markets in which we operate may adversely affect our loan portfolio and reduce the demand for our services. Adverse economic conditions in our market areas could potentially have a material adverse impact on the quality of our business. An economic slowdown in the markets in which we operate, or may do so in the future, may have any or all of the following consequences, any of which may reduce our net income and adversely affect our financial condition:
•loan delinquencies may increase;
•problem assets and foreclosures may increase;
•the level and duration of deposits may decline;
•demand for our products and services may decline; and
•collateral for loans may decline in value below the principal amount owed by the borrower.
We have a high level of loans secured by real estate collateral. A downturn in the real estate market may seriously impair our loan portfolio. As of December 31, 2024, approximately 63% of our loan portfolio consisted of loans secured by various types of commercial real estate (excluding 1-4 family residential mortgage loans). A slowdown in the economy is often accompanied by declines in the value of real estate, which may have a material and adverse effect on our net income and capital levels.
Our commercial loan and commercial real estate loan portfolios expose us to risks. Charge-offs on commercial and commercial real estate loans may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios. The payment experience on commercial real estate loans that are secured by income producing properties are typically dependent on the successful operation of the related property tenants and thus, may subject us to adverse conditions in the real estate market or to the general economy. The collateral securing these loans typically cannot be liquidated as easily as residential real estate. If we foreclose on these loans, our holding period for the collateral typically is longer than for residential properties because there are fewer potential purchasers of the collateral.
Unexpected deterioration in the credit quality of our commercial or commercial real estate loan portfolios would require us to increase our provision for credit losses, which would reduce our profitability and could materially adversely affect our business, financial condition, results of operations and prospects.
In addition, with respect to commercial real estate loans, federal and state banking regulators have expressed concerns about weakness in the commercial real estate market. As a result, banking regulators are examining commercial real estate lending activity with heightened scrutiny and may require banks with higher levels of commercial real estate loan growth or exposure to implement more stringent underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for losses and capital levels. Because a significant portion of our loan portfolio is comprised of commercial real estate loans, the banking regulators may require us to maintain higher levels of capital than we would otherwise be expected to maintain, which could limit our ability to leverage our capital and have a material adverse effect on our business, financial condition, results of operations and prospects.
Our allowance for credit losses may not cover our actual loan losses. As a lender, we are exposed to the risk that the principal of, or interest on, a loan will not be paid timely, or at all, or that the value of any collateral supporting a loan will be insufficient to cover our outstanding exposure. In accordance with generally accepted accounting principles in the United States of America (“GAAP”), we maintain an allowance for credit losses to provide for loan defaults and non-performance. If our actual credit losses exceed the amount we have allocated for estimated current expected credit losses, our business will be adversely affected. We attempt to limit the risk that borrowers will fail to repay loans by carefully underwriting our loans, but losses nevertheless occur in the ordinary course of business operations. We create allowances for estimated credit losses through provisions that are recorded as reductions in income in our accounting records. We base these allowances on estimates of the following:
•historical experience with our loans;
•evaluation of current economic conditions and other factors;
•reviews of the quality, mix and size of the overall loan portfolio;
•reviews of delinquencies; and
•the quality of the collateral underlying our loans.
If our allowance estimates are inadequate, we may incur losses, our financial condition may be materially and adversely affected, and we may be required to try and raise additional capital to enhance our capital position. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the adequacy of our allowance. These agencies may require us to establish additional allowances based on their judgment of the information available at the time of their examinations. No assurance can be given that we will not sustain loan losses in excess of present or future levels of the allowance for credit losses or that regulatory agencies will not require us to increase our allowance thereby, impacting our profitability.
An increase in nonperforming assets would reduce our income and increase our expenses. If the level of nonperforming assets increases in the future, it may adversely affect our operating results and financial condition. Nonperforming assets are mainly loans on which the borrowers are not making their required payments. Nonperforming assets also include loans that have been restructured to permit the borrower to make payments, and real estate that has been acquired through foreclosure or deed in lieu of foreclosure of unpaid loans. To the extent that assets are nonperforming, we would have a lower balance of earning assets generating interest income and an increase in credit related expenses, including provisions for credit losses.
Increases in the level of our problem assets, occurrence of operating losses or a failure to comply with requirements of the agencies that regulate us may result in regulatory actions against us, which may materially and adversely affect our business and the market price of our common stock. The DFPI, the FDIC, and the FRB each have authority to take actions to require that we comply with applicable regulatory capital requirements, cease engaging in what they perceive to be unsafe or unsound practices or make other changes in our business. Among others, the corrective measures that such regulatory authorities may take include requiring us to enter into informal or formal agreements regarding our operations, the issuance of cease and desist orders to refrain from engaging in unsafe and unsound practices, removal of officers and directors, or the assessment of civil monetary penalties. See Item 1 “Business - Supervision and Regulation” for a further description of such regulatory powers.
Our use of appraisals in deciding whether to make loans secured by real property does not ensure that the value of the real property collateral will be sufficient to repay our loans. In considering whether to make a loan secured by real property, we require an appraisal of the property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made and requires the exercise of a considerable degree of judgment. If the appraisal does not accurately reflect the amount that may be obtained upon sale or foreclosure of the property, whether due to a decline in property value after the date of the original appraisal or defective preparation of the appraisal, we may not realize an amount equal to the indebtedness secured by the property and as a result, we may suffer losses.
Changes in interest rates affect our profitability. The interest rate risk inherent in our lending, investing, and deposit taking activities is a significant market risk to us and our business. We derive our income mainly from the difference or “spread” between the interest earned on loans, securities and other interest earning assets, and interest paid on deposits, borrowings and other interest bearing liabilities. In general, the wider the spread, the more net interest income we earn. When market interest rates change, the interest we receive on our assets and the interest we pay on our liabilities will fluctuate. This can cause decreases in our spread and can greatly affect our income. In addition, interest rate fluctuations can affect how much money we may be able to lend. There can be no assurance that we will be successful in minimizing the potentially adverse effects of changes in interest rates.
If we lose key employees, our business may suffer. There is intense competition for experienced and highly qualified personnel in the banking industry. Our future success depends on the continued employment of existing senior management personnel. If we lose key employees temporarily or permanently, it may hurt our business. We may be particularly hurt if our key employees, including any of our executive officers, became employed by our direct competitors.
We are exposed to the risks of natural disasters. A significant portion of our operations are concentrated in Southern California, which is an earthquake and fire prone region. A major earthquake or fire in the Greater Los Angeles Area may result in material loss to us. A significant percentage of our loans are and will be secured by real estate. Our borrowers may suffer uninsured property damage, experience interruption of their businesses or lose their jobs after an earthquake or fire. Those borrowers might not be able to repay their loans, and the collateral for such loans may decline significantly in value. Unlike a bank with operations that are more geographically diversified, we are vulnerable to greater losses if an earthquake, fire, flood, mudslide, or other natural catastrophe occurs in Southern California. The Greater Los Angeles Area fires in early 2025 did not have material impact to the Company or its borrowers.
Changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact our business, financial condition, and results of operations. The current Presidential Administration has signaled that tariffs and retaliatory tariffs, as well as other trade restrictions, may be imposed against U.S. trading partners. In response to tariffs, foreign countries have implemented, or may implement, retaliatory tariffs on U.S. goods. Historically, tariffs have led to increased trade and political tensions. Political tensions as a result of trade policies could reduce trade volume, investment, technological exchange, and other economic activities between major international economies, resulting in a material adverse effect on global economic conditions and the stability of global financial markets. It may also cause the prices of our customers’ products to increase, which could reduce demand for such products, or reduce our customers' margins, and adversely impact their revenues, financial results, and ability to service debt. This in turn could adversely affect our financial condition and results of operations. In addition, to the extent changes in the political environment have a negative impact on us, or on the markets in which we operate our business, our results of operations and financial condition could be materially and adversely impacted in the future. At this time, it remains unclear what the U.S. government or foreign governments will or will not do with respect to additional tariffs that may be imposed or international trade agreements and policies.
We may experience adverse effects from acquisitions. We have acquired other banking companies and bank offices in the past, and will consider additional acquisitions as opportunities arise. For example, on April 26, 2024, we entered into a merger agreement with Territorial Bancorp Inc. See Item 1 “Business-Business Overview” and Note 24 of our Notes to Consolidated Financial Statements for more information about our pending merger with Territorial Bancorp Inc. If we do not adequately address the financial and operational risks associated with acquisitions of other companies, we may incur material unexpected costs and disruption of our business. Future acquisitions may increase the degree of such risks.
Risks involved in acquisitions of other companies include:
•the risk of failure to adequately evaluate the asset quality of the acquired company;
•difficulty in assimilating the operations, technology, and personnel of the acquired company;
•diversion of management’s attention from other important business activities;
•costs and unpredictability of stockholder litigation in connection with acquisitions;
•difficulty in maintaining good relations with the loan and deposit customers of the acquired company;
•inability to maintain uniform and effective operating standards, controls, procedures, and policies;
•potentially dilutive issuances of equity securities or the incurrence of debt and contingent liabilities; and
•amortization of expenses related to acquired intangible assets that have finite lives.
Liquidity risks may impair our ability to fund operations and jeopardize our financial condition. Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans, and other sources may have a material adverse effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities may be impaired by factors that affect us specifically or the financial services industry in general. Factors that may detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to a market downturn or adverse regulatory action against us. Our ability to acquire deposits or borrow may also be impaired by factors that are not specific to us, such as a disruption of the financial markets or negative views and expectations about the prospects for the banking industry or the general financial services industry as a whole.
Fraudulent activity or breaches or failures of our information system controls, including those related to cybersecurity incidents, could have a material adverse effect on our business. As a financial institution, we are susceptible to fraudulent activity and security breaches, including those related to cybersecurity incidents, that may materially and adversely affect us or our clients or our third-party service providers. Fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, social engineering, and other dishonest acts. Information system breaches and other cybersecurity threats may include fraudulent or unauthorized access to systems used by us or our clients, denial or degradation of service attacks, and ransomware or other cyber-attacks. There continues to be a rise in electronic fraudulent activity, security breaches, and cyber-attacks within the financial services industry, especially in the commercial banking sector due to cyber criminals targeting commercial bank accounts. Consistent with industry trends, we have also experienced an increase in attempted electronic fraudulent activity and information system breaches in recent periods.
As a financial institution, we receive and maintain the business and personal information of our customers on a daily basis. Information pertaining to us and our clients is maintained, and transactions are executed, on the networks and information systems owned or used by us, our clients and certain of our third-party service providers, such as our online banking or reporting systems. The secure maintenance and transmission of confidential information, as well as execution of transactions over these information systems, are essential to protect us and our clients against fraud and security breaches and to maintain our clients’ confidence. We face the risk that this information may be fraudulently or otherwise improperly accessed, used, or disclosed in a cyber-attack or other security breach of the information systems we rely upon. Large corporations, including financial institutions and retail companies, have increasingly suffered major cybersecurity incidents relating to information system breaches, in some cases exposing not only confidential and proprietary corporate information, but also sensitive financial and other personal information of their customers and employees and subjecting them to potential fraudulent activity. In the ordinary course of our business, we have experienced and expect to continue to experience cyber-based attacks and other cybersecurity threats that may compromise our information systems, the consequences of which could be material and adverse.
Our inability to anticipate or adequately mitigate against fraudulent activity, cybersecurity incidents and other security breaches may result in financial losses, litigation, increased regulatory scrutiny or supervisory actions and/or damage to our reputation, any of which may be material.
We rely on technology and information systems that may be disrupted, which would pose operational risks. Our business depends on the continuous operation of our information and data processing systems and related operational infrastructure, some of which are provided by third party vendors. We rely on these systems for, among other things, communications, processing customer transactions, recordkeeping, and financial controls. The failure of any of these resources, including but not limited to failures due to cybersecurity incidents, operational or systems failures, interruptions of client service operations or interruptions in third party data processing or other vendor support, may cause material disruptions in our business, impairment of customer relations, exposure to our customers for liability, reputational harm, and action by bank regulatory authorities. Breaches of the information systems owned or used by us also may occur, and on occasion have occurred, through intentional or unintentional acts by those having access to our systems or our clients’ or counterparties’ confidential information, including employees. In addition, increases in criminal activity, and the levels and sophistication of the same, advances in computer capabilities, vulnerabilities in third-party technologies (including browsers and operating systems), and other developments could result in a compromise or breach of the technology, processes and controls that we use in the operation of our business, which could have a material and adverse effect on our business, results of operation and financial condition.
The development and use of artificial intelligence (“AI”) presents risks and challenges that may adversely impact the Company’s business. The Company may develop or incorporate AI technology in certain business processes, services, or products in the future. In addition, the Company’s third-party (or fourth-party) vendors, clients, or counterparties may have developed or in the future may develop AI technology in certain business processes, services, or products. The development and use of AI presents a number of risks and challenges to the Company’s business. The legal and regulatory environment relating to AI is uncertain and rapidly evolving, both in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI. These evolving laws and regulations could require changes in the Company’s implementation of AI technology and increase the Company’s compliance costs and the risk of non-compliance. AI models, particularly generative AI models, may produce output or take action that is incorrect, that reflects biases included in the data on which they are trained, that results in the release of private, confidential, or proprietary information, that infringes on the intellectual property rights of others, or that is otherwise harmful. In addition, the complexity of many AI models makes it difficult to understand why they are generating particular outputs. This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding, and monitoring the capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made. Further, the Company may rely on AI models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which the Company may have limited visibility. Any of these risks could expose the Company to liability or adverse legal or regulatory consequences and harm the Company’s reputation and the public perception of its business or the effectiveness of its security measures.
Diverse views, increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks. Companies are facing increasing scrutiny from customers, regulators, investors, investor advocacy groups, and other stakeholders related to their ESG practices and disclosure, especially as they relate to the environment, health and safety, diversity, labor conditions, and human rights. Increased ESG related compliance costs could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our financial condition and results of operations. In addition, views about ESG are diverse and rapidly changing. In recent years, "anti-ESG" sentiment has gained momentum across the U.S., with several states and Congress having proposed or enacted "anti-ESG" policies, legislation, or initiatives. Recently an executive order was issued that opposes diversity and inclusion ("DEI") initiatives in the private sector. Institutional investors and proxy advisory firms have also updated or are in the process of updating their guidelines and expectations with respect to ESG and DEI initiatives. New and changing state or federal government regulations could result in additional compliance obligations, expand mandatory and voluntary reporting, diligence, and disclosure, and could result in our sustaining reputational harm, which could adversely impact our financial condition and results of operations and could have an adverse effect on the trading price of our common stock. Additionally, concerns over the long-term impacts of climate change have led and could continue to lead to governmental efforts around the world to mitigate those impacts. Consumers and businesses also may change their behavior on their own as a result of these concerns. We, along with our customers, will need to respond to new or changing laws and regulations as well as consumer and business preferences resulting from climate change concerns. We may also face cost increases, asset value reductions, and operating process changes, among other impacts. In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans.
Our business reputation is important and any damage to it may have a material adverse effect on our business. Our reputation is very important for our business, as we rely on our relationships with our current, former, and potential clients and stockholders in the communities we serve. Any damage to our reputation, whether arising from regulatory, supervisory or enforcement actions, matters affecting our financial reporting or compliance with SEC and exchange listing requirements, negative publicity, our conduct of our business or otherwise may have a material adverse effect on our business.
As we expand outside our traditional geographic markets, we may encounter additional risks that may adversely affect us. Currently, the majority of our offices are located in California, but we also have branches or loan production offices in the greater New York City area, Chicago, Houston, Dallas, Tampa, and Seattle metropolitan areas, New Jersey, Colorado, Georgia, and Alabama. Over time, we may seek to establish offices in other parts of the United States as well. We may encounter significant risks, including unfamiliarity with the characteristics and business dynamics of new markets, increased marketing and administrative expenses and operational difficulties arising from our efforts to attract business in new markets, manage operations in noncontiguous geographic markets, comply with local laws and regulations and effectively, and consistently manage our non-California personnel and business. If we are unable to manage these risks, our operations may be materially and adversely affected.
Adverse conditions in South Korea or globally may adversely affect our business. A substantial number of our customers have economic and cultural ties to South Korea and, as a result, we are likely to feel the effects of adverse economic and political conditions there. If economic or political conditions in South Korea deteriorate, we may, among other things, be exposed to economic and transfer risk, and may experience an outflow of deposits by our customers with connections to South Korea. Transfer risk may result when an entity is unable to obtain the foreign exchange needed to meet its obligations or to provide liquidity. This may materially and adversely impact the recoverability of investments in or loans made to such entities. Adverse economic conditions in South Korea may also negatively impact asset values and the profitability and liquidity of our customers who operate in this region. In addition, a general overall decline in global economic conditions may materially and adversely affect our profitability and overall results of operations.
Legal and Regulatory Risks
Governmental regulation and regulatory actions against us may further impair our operations or restrict our growth. We are subject to significant governmental supervision and regulation. These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations, and policies for possible changes. Statutes and regulations affecting our business may be changed at any time and the interpretation of these statutes and regulations by examining authorities may also change. In addition, regulations may be adopted which increase our deposit insurance premiums and enact special assessments which could increase expenses associated with running our business and adversely affect our earnings.
There can be no assurance that such statutes and regulations, any changes thereto or to their interpretation will not adversely affect our business. In particular, these statutes and regulations, and any changes thereto, could subject us to additional costs (including legal and compliance costs), limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. In addition to governmental supervision and regulation, we are subject to changes in other federal and state laws, including changes in tax laws, which could materially affect us and the banking industry generally. We are subject to the rules, regulations of, and examination by the FRB, the FDIC, the DFPI, and the CFPB. In addition, we are subject to the rules and regulation of the Nasdaq Stock Market and the SEC and are subject to enforcement actions and other punitive actions by these agencies. If we fail to comply with federal and state regulations, the regulators may limit our activities or growth, impose fines on us or in the case of our bank regulators, ultimately require our bank to cease its operations. Bank regulations can hinder our ability to compete with financial services companies that are not regulated in the same manner or are less regulated. Federal and state bank regulatory agencies regulate many aspects of our operations. These areas include:
•the capital that must be maintained;
•the kinds of activities that can be engaged in;
•the kinds and amounts of investments that can be made;
•the locations of offices;
•insurance of deposits and the premiums that we must pay for this insurance;
•procedures and policies we must adopt;
•conditions and restrictions on our executive compensation; and
•how much cash we must set aside as reserves for deposits.
In addition, bank regulatory authorities have the authority to bring enforcement actions against banks and bank holding companies, including the Bank and Hope Bancorp, for unsafe or unsound practices in the conduct of their businesses or for violations of any law, rule or regulation, any condition imposed in writing by the appropriate bank regulatory agency or any written agreement with the authority. Enforcement actions against us could include a federal conservatorship or receivership for the bank, the issuance of additional orders that could be judicially enforced, the imposition of civil monetary penalties, the issuance of directives to enter into a strategic transaction, whether by merger or otherwise, with a third party, the termination of insurance of deposits, the issuance of removal and prohibition orders against institution-affiliated parties, and the enforcement of such actions through injunctions or restraining orders. In addition, as we are over $10 billion in assets, we are subject to enhanced CFPB examination and required to perform more comprehensive stress-testing on our business and operations.
We cannot predict whether or in what form any other proposed regulations or statutes will be adopted or the extent to which our business may be affected by any new regulation or statute. These changes become less predictable, yet more likely to occur, following the transition of power from one presidential administration to another. Any such changes could subject our business to additional costs, limit the types of financial services and products we may offer and increase the ability of non-banks to offer competing financial services and products, among other things. Moreover, the turnover of the presidential administration is expected to result in certain changes in the leadership and senior staffs of the federal banking agencies. Such changes are likely to impact the rulemaking, supervision, examination and enforcement priorities and policies of the agencies. In addition, changes in key personnel at the agencies that regulate such banking organizations, including the federal banking agencies, may result in differing interpretations of existing rules and guidelines and potentially different enforcement priorities than previously. The potential impact of any changes in agency personnel, policies, priorities, and interpretations on the financial services sector, including us, cannot be predicted.
We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations. The BSA, the USA PATRIOT Act of 2001, the Anti-Money Laundering Act of 2020, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue Service. We are also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control and compliance with the Foreign Corrupt Practices Act. If our policies, procedures, and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, on our ability to engage in expansionary activities, such as mergers and acquisitions, and restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could materially and adversely affect our business, financial condition, and results of operations.
SBA lending is an important part of our business. Our SBA lending program is dependent upon the federal government, and we face specific risks associated with originating SBA loans. Our SBA lending program is dependent upon the federal government. As an SBA Preferred Lender, we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process required for lenders that are not SBA Preferred Lenders. The SBA periodically reviews the lending operations of participating lenders to assess, among other things, whether the lender exhibits prudent risk management. When weaknesses are identified, the SBA may request corrective actions or impose enforcement actions, including revocation of the lender’s Preferred Lender status. If we lose our status as a Preferred Lender, we may lose some or all of our customers to lenders who are SBA Preferred Lenders, and as a result we could experience a material adverse effect to our financial results. Any changes to the SBA program, including changes to the level of guarantee provided by the federal government on SBA loans, may also have a material adverse effect on our business.
The sales of SBA 7(a) loans result in both premium income at the time of sale and a stream of future servicing income. We may not be able to continue originating these loans or selling them in the secondary market. Furthermore, even if we are able to continue originating and selling SBA 7(a) loans in the secondary market, we might not continue to realize premiums upon the sale of the guaranteed portion of these loans. When we sell the guaranteed portion of our SBA 7(a) loans, we incur credit risk on the non-guaranteed portion of the loans, and if a customer defaults on the non-guaranteed portion of a loan, we share any loss and recovery related to the loan pro-rata with the SBA. If the SBA establishes that a loss on an SBA guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was originated, funded or serviced by us, the SBA may seek recovery of the principal loss related to the deficiency from us, which could materially adversely affect our business, financial condition, results of operations, and prospects.
The laws, regulations and standard operating procedures that are applicable to SBA loan products may change in the future. We cannot predict the effects of these changes on our business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies and especially our organization, changes in the laws, regulations and procedures applicable to SBA loans could adversely affect our ability to operate profitably.
Environmental laws may force us to pay for environmental problems. The cost of cleaning up or paying damages and penalties associated with environmental problems may increase our operating expenses. When a borrower defaults on a loan secured by real property, we often purchase the property in foreclosure or accept a deed to the property surrendered by the borrower. We may also take over the management of commercial properties whose owners have defaulted on loans. We also lease premises where our branches and other facilities are located, all where environmental problems may exist. Although we have lending, foreclosure and facilities guidelines that are intended to exclude properties with an unreasonable risk of contamination, hazardous substances may exist on some of the properties that we own, lease, manage or occupy. We may face the risk that environmental laws may force us to clean up the properties at our expense. The cost of cleaning up a property may exceed the value of the property. We may also be liable for pollution generated by a borrower’s operations if we take a role in managing those operations after a default. We may find it difficult or impossible to sell contaminated properties.
Changes in accounting standards may affect how we record and report our financial condition and results of operations. Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time, the Financial Accounting Standards Board and SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes and their impacts on us can be hard to predict and may result in unexpected and materially adverse impacts on our reported financial condition and results of operations.
Financial and Market Risks
We may reduce or discontinue the payment of dividends on common stock. Our stockholders are only entitled to receive such dividends as our board of directors (the “Board”) may declare out of funds legally available for such payments. Although we have historically declared cash dividends on our common stock, we are not required to do so and may need to reduce or eliminate our common stock dividend in the future. Our ability to pay dividends to our stockholders is subject to the restrictions set forth in Delaware law, by the FRB, and by certain covenants contained in our subordinated debentures. Notification to the FRB is also required prior to our declaring and paying a cash dividend to our stockholders during any period in which our quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. We may not pay a dividend if the FRB objects or until such time as we receive approval from the FRB or we no longer need to provide notice under applicable regulations. In addition, we often rely on cash distributions from the Bank to fund dividends to our stockholders. The Bank’s ability to make cash distributions to Hope Bancorp is subject to the restrictions set forth under the California Financial Code and would also be subject to prior approval or restriction by the DFPI if the distribution by the Bank exceeds the lesser of (a) the retained earnings of the Bank or (b) three fiscal years net income, less distributions made by the Bank during such period. We cannot provide assurance that the Bank will be able to continue making cash distributions to Hope Bancorp, which could in turn, affect our ability to continue paying dividends on our common stock. The Bank may not be able to distribute cash to us if the DFPI objects or until such time as the Bank receives approval from the DFPI or the Bank no longer needs to obtain approval under applicable regulations. Further, the Bank may be restricted by applicable law or regulation or actions taken by its regulators, now or in the future, from making cash distributions to Hope Bancorp, which could, in turn, adversely impact our ability to pay dividends to our stockholders. Likewise, we may be restricted by applicable law or regulation or actions taken by our regulators, now or in the future, from paying dividends to our stockholders. Lastly, we cannot provide assurance that we will continue paying dividends on our common stock at current levels or at all. A reduction or discontinuance of dividends on our common stock could have a material adverse effect on our business, including the market price of our common stock.
The value of our securities in our investment portfolio may decline in the future. The fair value of our investment securities may be adversely affected by market conditions, including changes in interest rates, implied credit spreads, and the occurrence of any events adversely affecting the issuer of particular securities in our investments portfolio or any given market segment or industry in which we are invested. We analyze our securities available for sale on a quarterly basis to determine if there is a requirement to recognize current expected credit losses. The process for determining current expected credit losses usually requires complex, subjective judgments about the future financial performance of the issuer in order to assess the probability of receiving all contractual principal and interest payments sufficient to recover our amortized cost of the security. Because of changing economic and market conditions affecting issuers, we may be required to recognize credit losses in future periods, which could have a material adverse effect on our business, financial condition, or results of operations.
If we fail to maintain an effective system of internal controls and disclosure controls and procedures, we may not be able to accurately report our financial results or prevent fraud. Effective internal control over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial reports, effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and business would be harmed. In addition, failure in our internal control over financial reporting and disclosure controls and procedures could cause us to fail to meet the continued listing requirements of the Nasdaq Global Select Market and, as a result, adversely impact the liquidity and trading price of our securities.
Anti-takeover provisions in our charter documents and applicable federal and state law may limit the ability of another party to acquire us, which could cause our stock price to decline. Various provisions of our charter documents could delay or prevent a third-party from acquiring us, even if doing so might be beneficial to our stockholders. These include, among other things, advance notice requirements to submit stockholder proposals at stockholder meetings and the authorization to issue “blank check” preferred stock by action of the Board acting alone, thus without obtaining stockholder approval. In addition, applicable provisions of federal and state banking law require regulatory approval in connection with certain acquisitions of our common stock and supermajority voting provisions in connection with certain transactions. In particular, both federal and state law limit the acquisition of ownership of, generally, 10% or more of our common stock without providing prior notice to the regulatory agencies and obtaining prior regulatory approval or non-objection or being able to rely on an exemption from such requirement. We are also subject to Section 203 of the Delaware General Corporation Law that, subject to exceptions, prohibits us from engaging in any business combinations with any interested stockholder, as defined in that section, for a period of three years following the date on which that stockholder became an interested stockholder. Collectively, these provisions of our charter documents and applicable federal and state law may prevent a merger or acquisition that would be attractive to stockholders and could limit the price investors would be willing to pay in the future for our common stock.
Our common stock is not insured and you could lose the value of your entire investment. An investment in our common stock is not a deposit and is not insured against loss by any government agency.
General Risk Factors
Our common stock is equity and therefore is subordinate to indebtedness and preferred stock. Our common stock constitutes equity interests and does not constitute indebtedness. As such, common stock will rank junior to all current and future indebtedness and other non-equity claims on us with respect to assets available to satisfy claims against us, including in the event of our liquidation. We may, and the Bank and our other subsidiaries may also, incur additional indebtedness from time to time and may increase our aggregate level of outstanding indebtedness. Additionally, holders of common stock are subject to the prior dividend and liquidation rights of any holders of our preferred stock that may be outstanding from time to time. The Board is authorized to cause us to issue additional classes or series of preferred stock without any action on the part of our stockholders. If we issue preferred shares in the future that have a preference over our common stock with respect to the payment of dividends or upon liquidation, or if we issue preferred shares with voting rights that dilute the voting power of the common stock, then the rights of holders of our common stock or the market price of our common stock could be materially adversely affected.
We may raise additional capital, which could have a dilutive effect on the existing holders of our common stock and adversely affect the market price of our common stock. We periodically evaluate opportunities to access capital markets, taking into account our financial condition, regulatory capital ratios, business strategies, anticipated asset growth and other relevant considerations. It is possible that future acquisitions, organic growth, or changes in regulatory capital requirements could require us to increase the amount or change the composition of our current capital, including our common equity. For all of these reasons and others, and always subject to market conditions, we may issue additional shares of common stock or other capital securities in public or private transactions.
The issuance of additional common stock, debt, or securities convertible into or exchangeable for our common stock or that represent the right to receive common stock, or the exercise of such securities, could be substantially dilutive to holders of our common stock. Holders of our common stock have no preemptive or other rights that would entitle them to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in dilution of the ownership interests of our stockholders.
Climate change concerns could adversely affect our business and our customers. Concerns over the long-term impacts of climate change have led and could continue to lead to governmental efforts around the world to mitigate those impacts. Climate change presents multi-faceted risks, including operational risk from the physical effects of climate events on us; credit risk from borrowers with significant exposure to climate risk; transition risks associated with the transition to a less carbon-dependent economy; and reputational risk from stakeholder concerns about our practices related to climate change. Consumers and businesses are changing their behavior and business preferences as a result of these concerns. New governmental regulations or guidance relating to climate change, as well as changes in consumers’ and businesses’ behaviors and business preferences, may affect whether and on what terms and conditions we will engage in certain activities or offer certain products or services. The governmental and supervisory focus on climate change could also result in our becoming subject to new or heightened regulatory requirements relating to climate change, such as requirements relating to operational resiliency or stress testing for various climate stress scenarios. Any such new or heightened requirements could result in increased regulatory, compliance or other costs or higher capital requirements. In connection with the transition to a low carbon economy, legislative or public policy changes and changes in consumer sentiment could negatively impact the businesses and financial condition of our clients, which may decrease revenues from those clients and increase the credit risk associated with loans and other credit exposures to those clients. Our business, reputation, and ability to attract and retain employees may also be harmed if our response to climate change is perceived to be ineffective or insufficient.
We may be adversely affected by the lack of soundness of other financial institutions. The failures of some depository institutions in 2023 have raised concerns among depositors that their deposits may be at risk. While we believe the Bank is operated in a safe and sound manner, a market-wide loss of depositor confidence caused by the failures, or the perceived unsoundness, of other depository institutions could lead to deposit outflows at the Bank, potentially at levels that could materially and adversely affect our business, financial condition, results of operations and stock price.
Our ability to engage in routine funding transactions could be adversely affected by the actions and lack of soundness of other financial institutions. Financial services companies may be interrelated as a result of trading, clearing, counterparty, and other relationships. We have exposure to different industries and counterparties, and through transactions with counterparties in the financial services industry, including broker-dealers, commercial banks, investment banks, and other financial intermediaries. As a result, defaults by, declines in the financial condition of, or even rumors or questions about, one or more financial services companies, or the financial services industry in general, could lead to market-wide liquidity problems and losses or defaults by financial institutions. These losses could have a material and adverse effect on our business, financial condition, results of operations and stock price.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
Item 2.PROPERTIES
Our principal executive offices are located at 3200 Wilshire Blvd., Suite 1400, Los Angeles, California 90010. As of December 31, 2024, we operated full-service branches at 41 leased and five owned facilities, and we operated loan production offices at 9 leased facilities. Expiration dates of our leases range from 2025 to 2032. We believe our present facilities are suitable and adequate for our current operating needs.

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ITEM 3. LEGAL PROCEEDINGS
Item 3.LEGAL PROCEEDINGS
In the normal course of business, we are involved in various legal claims. We have reviewed all legal claims against us with counsel and have taken into consideration the views of such counsel as to the potential outcome of the claims. Loss contingencies for all legal claims totaled approximately $664 thousand at December 31, 2024. It is reasonably possible we may incur losses in addition to the amounts we have accrued. However, at this time, we are unable to estimate the range of additional losses that are reasonably possible because of a number of factors, including the fact that certain of these litigation matters are still in their early stages and involve claims for which, at this point, we believe have little to no merit. Management has considered these and other possible loss contingencies and does not expect the amounts to be material to any of the Consolidated Financial Statements.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4.MINE SAFETY DISCLOSURES
Not Applicable.
Part II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Global Select Market under the symbol “HOPE.”
The following table sets forth quarterly dividends paid on our common stock for the past two fiscal years:
For the Three Months Ended
March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024 September 30, 2024 December 31, 2024
Dividends Paid $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14
The Board expects to continue to pay quarterly cash dividends, however, no assurance can be given as to whether future dividends will be paid as cash dividend payments are dependent on the Company’s future earnings, capital requirements, and financial condition.
The closing price for our common stock on the NASDAQ Global Select Market on February 19, 2025, was $11.21 per share. As of February 19, 2025, there were 1,098 stockholders of record of our common stock.
Unregistered Sales of Equity Securities
There were no sales of any equity securities by the Company during the period covered this Annual Report on Form 10-K that were not registered under the Securities Act.
Issuer Purchases of Equity Securities
In January 2022, the Board approved a share repurchase program that authorized the Company to repurchase up to $50.0 million of its common stock. The stock repurchase authorization does not have an expiration date and may be modified, amended, suspended, or discontinued at the Company’s discretion at any time without notice. The Company did not repurchase any shares as part of this program during the three months ended December 31, 2024.
The following table summarizes share repurchase activities during the three months ended December 31, 2024:
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
(Dollars in thousands)
October 1, 2024 to October 31, 2024 - $ - - $ 35,333
November 1, 2024 to November 30, 2024 - - - 35,333
December 1, 2024 to December 31, 2024 - - - 35,333
Total - $ - -
Stock Performance Graph
The following graph compares the yearly percentage change in the cumulative total shareholder return (stock price appreciation plus reinvested dividends) on our common stock with (i) the cumulative total return of the NASDAQ Composite Index, and (ii) the cumulative total return of the KBW Nasdaq Regional Banking Index.
The graph assumes an initial investment of $100 and reinvestment of dividends. Points on the graph represent the performance as of the last business day of each of the years indicated. The graph is not indicative of future price performance. The graph does not constitute soliciting material and shall not be deemed filed or incorporated by reference into any filing by Hope Bancorp under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we may specifically incorporate this graph by reference.
ASSUMES $100 INVESTED ON DECEMBER 31, 2019
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 2024
Period Ending
Stock/Index 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024
Hope Bancorp, Inc. $100.00 $77.98 $109.55 $99.06 $98.96 $105.65
NASDAQ Composite Index $100.00 $144.92 $177.06 $119.45 $172.77 $223.87
KBW Nasdaq Regional Banking Index $100.00 $91.29 $124.74 $116.10 $115.64 $130.90

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ITEM 6. SELECTED FINANCIAL DATA
Item 6.[RESERVED]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our Consolidated Financial Statements and accompanying notes presented elsewhere in this Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under Item 1A “Risk Factors” and elsewhere in this Report. Please see the “Forward Looking Information” immediately preceding Part I of this Report.
Overview
Our principal business involves earning interest on loans and investment securities that are funded primarily by customer deposits, wholesale deposits, and other borrowings. Our operating income and net income are derived primarily from the difference between interest income received from interest earning assets and interest expense paid on interest bearing liabilities and, to a lesser extent, from fees received in connection with servicing loan and deposit accounts and income from the sale of loans. Our major expenses are the interest we pay on deposits and borrowings, provisions for credit losses, and general operating expenses, which primarily consist of salaries and employee benefits, occupancy costs, and other operating expenses. Interest rates are highly sensitive to many factors that are beyond our control, such as changes in the national economy and in the related monetary policies of the FRB, inflation, unemployment, consumer spending, and political changes and events. We cannot predict the impact that these factors and future changes in domestic and foreign economic and political conditions might have on our performance.
Our results are affected by economic conditions in our markets and to a lesser degree in South Korea. A decline in economic and business conditions in our market areas or in South Korea may have a material adverse impact on the quality of our loan portfolio or the demand for our products and services, which in turn may have a material adverse effect on our financial condition and results of operations.
Selected Financial Data
The following table presents selected financial and other data for each of the years in the five-year period ended December 31, 2024. The information below should be read in conjunction with, the more detailed information included elsewhere herein, including our Audited Consolidated Financial Statements and Notes thereto.
As of or For The Year Ended December 31,
2024 2023 2022 2021 2020
(Dollars in thousands, except share and per share data)
Income Statement Data:
Interest income $ 953,980 $ 1,048,878 $ 716,115 $ 566,532 $ 598,878
Interest expense 526,129 523,017 137,694 53,762 131,380
Net interest income 427,851 525,861 578,421 512,770 467,498
Provision (credit) for credit losses 17,280 31,592 9,850 (12,395) 95,660
Net interest income after provision (credit) for credit losses 410,571 494,269 568,571 525,165 371,838
Noninterest income 47,077 45,577 51,397 43,594 53,432
Noninterest expense 324,684 361,959 323,920 293,487 282,979
Income before income tax provision 132,964 177,887 296,048 275,272 142,291
Income tax provision 33,334 44,214 77,771 70,700 30,776
Net income $ 99,630 $ 133,673 $ 218,277 $ 204,572 $ 111,515
Per Common Share Data:
Earnings - basic $ 0.83 $ 1.11 $ 1.82 $ 1.67 $ 0.90
Earnings - diluted $ 0.82 $ 1.11 $ 1.81 $ 1.66 $ 0.90
Cash dividends declared $ 0.56 $ 0.56 $ 0.56 $ 0.56 $ 0.56
Book value (period end) $ 17.68 $ 17.66 $ 16.90 $ 17.44 $ 16.66
Number of common shares outstanding (period end)
120,755,658 120,126,786 119,495,209 120,006,452 123,264,864
Balance Sheet Data-At Period End:
Total assets $ 17,054,008 $ 19,131,522 $ 19,164,491 $ 17,889,061 $ 17,106,664
Interest earning cash and deposits at other banks 235,541 1,756,154 293,002 44,947 94,014
Investment securities AFS and HTM 2,075,628 2,408,971 2,243,195 2,666,275 2,285,611
Loans receivable, net of unearned loan fees and discounts (excludes loans held for sale) 13,618,272 13,853,619 15,403,540 13,952,743 13,563,213
Deposits 14,327,489 14,753,753 15,738,801 15,040,450 14,333,912
FHLB and FRB borrowings 239,000 1,795,726 865,000 300,000 250,000
Convertible notes, net 444 444 217,148 216,209 204,565
Subordinated debentures 109,140 107,825 106,565 105,354 104,178
Stockholders’ equity 2,134,505 2,121,243 2,019,328 2,092,983 2,053,745
Average Balance Sheet Data:
Total assets $ 17,746,408 $ 19,806,163 $ 18,231,609 $ 17,467,665 $ 16,515,102
Interest earning cash and deposits at other banks 856,768 1,685,462 116,689 774,756 921,163
Investment securities AFS and HTM 2,213,068 2,262,840 2,415,621 2,392,589 1,899,948
Loans receivable and loans held for sale 13,634,728 14,732,166 14,634,627 13,343,431 12,698,523
Deposits 14,677,630 15,630,018 15,172,272 14,727,807 13,560,629
FHLB and FRB borrowings 531,869 1,618,292 528,342 208,721 435,836
Stockholders’ equity 2,130,140 2,061,665 2,034,027 2,071,453 2,032,570
As of or For The Year Ended December 31,
2024 2023 2022 2021 2020
(Dollars in thousands)
Selected Performance Ratios:
Return on average assets(1)
0.56 % 0.67 % 1.20 % 1.17 % 0.68 %
Return on average stockholders’ equity(2)
4.68 % 6.48 % 10.73 % 9.88 % 5.49 %
Dividend payout ratio 68.07 % 50.44 % 30.91 % 33.71 % 62.22 %
Net interest margin(3)
2.55 % 2.81 % 3.36 % 3.09 % 3.00 %
Yield on interest earning assets(4)
5.69 % 5.60 % 4.16 % 3.42 % 3.84 %
Cost of interest bearing liabilities(5)
4.52 % 4.00 % 1.32 % 0.56 % 1.26 %
Efficiency ratio(6)
68.36 % 63.34 % 51.43 % 52.75 % 54.32 %
Regulatory Capital Ratios:
Tangible common equity (“TCE”) ratio 10.05 % 8.86 % 8.29 % 9.31 % 9.50 %
Hope Bancorp:
Common equity tier 1 13.06 % 12.28 % 10.55 % 11.03 % 10.94 %
Tier 1 capital 13.79 % 12.96 % 11.15 % 11.70 % 11.64 %
Total capital 14.78 % 13.92 % 11.97 % 12.42 % 12.87 %
Tier 1 leverage 11.83 % 10.11 % 10.15 % 10.11 % 10.22 %
Bank of Hope:
Common equity tier 1 13.61 % 12.75 % 12.03 % 12.96 % 12.90 %
Tier 1 capital 13.61 % 12.75 % 12.03 % 12.96 % 12.90 %
Total capital 14.61 % 13.71 % 12.85 % 13.68 % 14.14 %
Tier 1 leverage 11.68 % 9.94 % 10.94 % 11.20 % 11.33 %
Asset Quality Data:
Nonaccrual loans(7)
$ 90,564 $ 45,204 $ 49,687 $ 54,616 $ 85,238
Accruing delinquent loans past due 90 days or more 229 261 401 2,131 614
Accruing troubled debt restructured loans (8)
- - 16,931 52,418 37,354
Total nonperforming loans
90,793 45,465 67,019 109,165 123,206
Other real estate owned - 63 2,418 2,597 20,121
Total nonperforming assets (9)
$ 90,793 $ 45,528 $ 69,437 $ 111,762 $ 143,327
Asset Quality Ratios:
Nonaccrual loans to loans receivable 0.67 % 0.33 % 0.32 % 0.39 % 0.63 %
Nonperforming assets to total assets (9)
0.53 % 0.24 % 0.36 % 0.62 % 0.84 %
Allowance for credit losses to loans receivable 1.11 % 1.15 % 1.05 % 1.01 % 1.52 %
Allowance for credit losses to nonaccrual loans 166.21 % 351.06 % 326.76 % 257.34 % 242.55 %
Net charge-offs (recoveries) to average loans receivable 0.19 % 0.22 % (0.08) % 0.40 % 0.07 %
____________________________________________________
(1)Net income divided by average assets.
(2)Net income divided by average stockholders’ equity.
(3)Net interest income divided by average interest earning assets.
(4)Interest income divided by average interest earning assets.
(5)Interest expense divided by average interest bearing liabilities.
(6)Noninterest expense divided by the sum of net interest income plus noninterest income.
(7)Excludes delinquent SBA loans that are guaranteed and currently in liquidation.
(8)The Company adopted ASU 2022-02 on January 1, 2023, which eliminated the concept of TDR loans from GAAP. Prior to January 1, 2023,
nonperforming loans included accruing TDR loans.
(9)Nonperforming assets consist of nonperforming loans and OREO. Prior to January 1, 2023, nonperforming loans included accruing TDR loans.
Critical Accounting Policies
Our financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and generally accepted practices within the banking industry. The financial information contained within these statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred. All of our significant accounting policies are described in Note 1 of our Notes to Consolidated Financial Statements presented elsewhere in this Report and are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may materially and adversely differ from these estimates under different assumptions or conditions.
The following is a summary of the more subjective and complex accounting estimates and judgments affecting the financial condition and results reported in our financial statements. In each area, we have identified the variables we believe to be the most important in the estimation process. We use the best information available to us to make the estimations necessary to value the related assets and liabilities in each of these areas. Management has reviewed these critical accounting estimates and related disclosures with our Audit Committee.
Investment Securities
Description - We evaluate investment securities AFS and HTM for impairment related to credit losses on at least a quarterly basis. Based on our evaluation, we do not believe that we had any investment securities AFS or HTM with a credit loss impairment as of December 31, 2024. Investment securities are discussed in more detail under “Financial Condition - Investment Securities Portfolio.”
Subjective Estimates and Judgments - Significant judgment is involved in determining when an investment securities AFS decline in fair value is credit impaired. Investment securities AFS in unrealized loss positions are first assessed as to whether we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If one of the criteria is met, the security’s amortized cost basis is written down to fair value through current earnings. We then apply a zero credit loss assumption to investment securities issued by the U.S. government or government-sponsored enterprises. For other securities that do not meet these criteria, we evaluate whether the decline in fair value resulted from credit losses or other factors. In evaluating whether a credit loss exists, we set up an initial filter for impairment triggers. Once the quantitative filters have been triggered, the securities are placed on a watch list and an additional assessment is performed to identify whether a credit impairment exists. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors.
The investment securities HTM as of December 31, 2024, were all issued by the U.S. government or government-sponsored enterprises and therefore the Company applied a zero credit loss assumption.
Impact if Actual Results Differ From Estimates and Judgments - Changes in management’s assessment of the factors used to determine if an investment security is credit impaired could lead to additional impairment charges. Additionally, a security that had no apparent risk could be affected by a sudden or acute market condition and necessitate an impairment charge.
Allowance for Credit Losses
Description - The allowance for credit losses is maintained at a level believed to be adequate by management to absorb expected lifetime credit losses in the loan portfolio as of the date of the consolidated financial statements. The adequacy of the allowance for credit losses is determined by management based upon an evaluation and review of the credit quality of the loan portfolio, consideration of current and projected economic conditions and variables, historical loss experience, relevant internal and external factors that affect the collection of a loan, and other pertinent factors.
The allowance for credit losses is discussed in more detail under “Financial Condition - Allowance for Credit Losses.”
Subjective Estimates and Judgments - We determine the adequacy of the allowance for credit losses by analyzing and estimating lifetime expected credit losses in the loan portfolio. The allowance for credit losses is determined utilizing quantitative and qualitative loss factors.
Included in the quantitative portion of our analysis of the allowance for credit losses are key inputs including borrowers’ net operating income, debt coverage ratios, and real estate collateral values, as well as key inputs that are more subjective or require management’s judgment including key macroeconomic variables from Moody’s forecast scenarios including GDP, unemployment rates, interest rates, and commercial real estate prices. These key inputs are utilized in our models to develop probability of default (“PD”) and loss given default (“LGD”) assumptions used in the calculation of estimated quantitative losses. The key macroeconomic variables were derived from Moody’s consensus scenario as of December 31, 2024 and 2023.
Certain key macroeconomic variable inputs used in the calculation of our allowance for credit losses experienced a change between projections as of December 31, 2023 versus projections as of December 31, 2024, particularly projected GDP growth which had improved projections and CRE Price Index growth rates, which had declining projections. This contributed to a decrease in our allowance for credit losses estimated loss rates at December 31, 2024, compared with December 31, 2023. Changes in the key macroeconomic variables are presented in the tables below.
Moody's consensus projected key macroeconomic variable inputs as of December 31, 2024:
Year Ending December 31,
2025 2026 2027
GDP Growth* 2.1% 2.0% 2.0%
Unemployment Rate 4.4% 4.2% 4.1%
CRE Price Index Growth* (0.4)% 4.3% 7.7%
10 Year Treasury Rate 4.2% 4.1% 3.8%
__________________________________
* Represents year over year growth rates.
Moody's consensus projected key macroeconomic variable inputs as of December 31, 2023:
Year Ending December 31,
2024 2025 2026
GDP Growth* 0.7% 2.2% 1.9%
Unemployment Rate 4.4% 4.1% 4.0%
CRE Price Index Growth* (6.4)% 6.9% 8.5%
10 Year Treasury Rate 4.2% 4.0% 4.0%
__________________________________
* Represents year over year growth rates.
In addition to an estimate of quantitatively derived losses, our allowance for credit losses also includes an estimate of qualitatively derived losses to account for risks not fully captured by the quantitative calculation of estimated credit losses. At December 31, 2024, the qualitative portion of our allowance for credit losses totaled $50.1 million compared with $35.7 million at December 31, 2023. The qualitative portion of our allowance for credit losses is determined by management and takes into consideration factors related to changes to lending policies, changes in the nature and volume of loans, risks related to lending management, changes to the volume and severity of past due and nonaccrual loans, changes in the quality of loan review, concentrations of credit, and other external factors. Some of these factors are more subjective than others and require significant judgment from management to determine estimated losses.
Impact if Actual Results Differ From Estimates and Judgments - Adverse changes in management’s assessment of the assumptions and key inputs used to determine the allowance for credit losses could lead to increases in the allowance for credit losses through additional provisions for credit losses. If actual losses and conditions differ materially from the assumptions used to determine the allowance for credit losses, our actual credit losses could differ materially from management’s estimates.
Moody’s consensus forecast assumes that the probability that the economy will perform better than the consensus estimates is equal to the probability that it will perform worse. A sensitivity analysis of our allowance for credit losses was performed by estimating credit losses using the Moody’s S2 scenario as of December 31, 2024, which has a more negative outlook on the economy compared with the Moody’s consensus scenario. The S2 scenario includes assumptions including elevated market interest rates, which weakens credit sensitive spending more than anticipated. In addition, the combination of tariffs, rising inflation, deportations, global political unrest and tensions, and reduced credit availability causes the economy to fall into a mild recession in 2025. Incorporating key macroeconomic inputs from Moody’s S2 projected scenario in our calculation of the allowance for credit losses resulted in additional allowance for credit losses of approximately $28.5 million compared with the results using the Moody’s consensus forecast as of December 31, 2024. Management reviews the results using the comparison scenario for sensitivity analysis and considered the results when evaluating the qualitative factor adjustments.
While management believes that it has established adequate allowances for lifetime credit losses on loans, actual results may prove different, and the differences could be material.
Goodwill
Description - Goodwill is generally determined as the excess of the fair value of the consideration paid over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill recorded in a purchase business combination is determined to have an indefinite useful life and is not amortized but tested for impairment at least annually. Goodwill may also be tested for impairment on an interim basis if circumstances change or an event occurs between annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The Company is managed as a single combined operating segment. An impairment loss must be recognized for any excess of carrying value over fair value of the goodwill.
Subjective Estimates and Judgments - Before applying the goodwill impairment test, in accordance with ASC 350 “Intangibles - Goodwill and Other”, we perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, we do not perform Step 1 of the impairment analysis. We assess certain qualitative factors to determine whether impairment is likely including: our market capitalization, capital adequacy, continued performance compared to peers, and continued improvement in asset quality trends, among others. This qualitative assessment can be subjective in nature and includes a certain amount of management judgment in determining whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount.
In the event we perform an impairment test, the determination of fair value is based on a combination of valuation techniques which include the income approach using the discounted cash flow method and market approach using the guideline public company method and guideline transaction method. These valuation approaches incorporate management assumptions and estimates including developing cash flow projections, selecting appropriate discount rates, calculation of a terminal growth rate, minimum target capitalization levels, identifying relevant market comparables, incorporating current and projected economic conditions, and selecting an appropriate control premium.
Impact if Actual Results Differ From Estimates and Judgments - Changes in qualitative factors assessed, changes to assumptions used in the impairment test, selection and weighting of the various fair value techniques, and downturns in economic or business conditions, could have a significant adverse impact on the carrying value of goodwill and could result in impairment losses which could have a material impact in our financial condition and earnings. We performed a goodwill impairment quantitative test as of September 30, 2023, and based on this analysis we concluded the fair value of the Company exceeded the carrying value by 15.4%, using a discount rate of 13.6% for the income approach. Management performed a sensitivity analysis of the discount rate used in the income approach of the goodwill impairment analysis, and a 50 basis point increase to the discount rate would result in the fair value of the Company exceeding the carrying amount by 10.9%. We did not perform a quantitative test for the year ended December 31, 2024, as we performed a qualitative analysis that indicated that goodwill was more than likely not impaired.
Goodwill is discussed in more detail in Note 5 to our Notes to Consolidated Financial Statements presented in this Report.
Income Taxes
Description - We use the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of our asset and liabilities. The realization of the net deferred tax asset generally depends upon future levels of taxable income and the existence of prior years’ taxable income, to which “carry back” refund claims could be made. A valuation allowance is maintained, when necessary, to reduce deferred tax assets that management estimates are more likely than not to be unrealizable based on available evidence at the time the estimate is made. Furthermore, tax positions that could be deemed uncertain are required to be disclosed and reserved for if it is more likely than not that the position would not be sustained upon audit examination. Taxes are discussed in more detail in Note 11 to our Notes to Consolidated Financial Statements presented in this Report.
Subjective Estimates and Judgments - Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities. Some judgments are subjective and involve estimates and assumptions about matters that are inherently uncertain. In determining the valuation allowance, we use historical and forecasted future operating results. In determining the level of reserve needed for uncertain tax positions, we consider relevant current legislation and court rulings, among other authoritative items, to determine the level of exposure inherent in our tax positions. Management believes that the accounting estimate related to the valuation allowance and uncertain tax positions are a critical accounting estimate because the underlying assumptions can change from period to period.
Impact if Actual Results Differ From Estimates and Judgments - Although management believes that the judgments and estimates used are reasonable, should actual factors and conditions differ materially from those considered by management, the actual realization of the net deferred tax asset and tax positions taken could differ materially from the amounts recorded in the financial statements. If we are not able to realize all or part of our net deferred tax asset in the future or if a tax position is overturned by a taxing authority, an adjustment to the deferred tax asset valuation allowance would be charged to income tax expense in the period such determination was made which could have a material impact on our earnings.
Results of Operations
Operations Summary
Our most significant source of income is net interest income, which is the difference between our interest income and our interest expense. Generally, interest income is generated from the loans we extend to our customers, our investments and interest earning cash, and interest expense is generated from interest bearing deposits our customers have with us and from our borrowings or debt. Our ability to generate profitable levels of net interest income is largely dependent on our ability to manage the levels of interest earning assets and interest bearing liabilities, and the rates received or paid on them, as well as our ability to maintain sound asset quality and appropriate levels of capital and liquidity. As mentioned above, interest income and interest expense may fluctuate based on factors beyond our control, such as economic or political conditions and policies.
We attempt to minimize the effect of interest rate fluctuations on net interest margin by monitoring our interest sensitive assets and our interest sensitive liabilities. Net interest income can be affected by a change in the composition of assets and liabilities, such as replacing higher yielding loans with a like amount of lower yielding investment securities. Changes in the level of nonaccrual loans and changes in volume and interest rates can also affect net interest income.
Our other source of income is noninterest income, including service charges and fees on deposit accounts, net gains on sale of loans that were held for sale and investment securities AFS, and other income and fees.
Our expenses consist of interest expense, the provisions for credit losses, and noninterest expenses, which are primarily salaries and benefits and occupancy expense. The following table presents our Condensed Consolidated Statements of Income and the changes year over year.
Year Ended December 31, 2024 Increase
(Decrease) Year Ended December 31, 2023 Increase
(Decrease) Year Ended December 31, 2022
Amount % Amount %
(Dollars in thousands)
Interest income $ 953,980 $ (94,898) (9) % $ 1,048,878 $ 332,763 46 % $ 716,115
Interest expense 526,129 3,112 1 % 523,017 385,323 280 % 137,694
Net interest income 427,851 (98,010) (19) % 525,861 (52,560) (9) % 578,421
Provision for credit losses 17,280 (14,312) (45) % 31,592 21,742 221 % 9,850
Noninterest income 47,077 1,500 3 % 45,577 (5,820) (11) % 51,397
Noninterest expense 324,684 (37,275) (10) % 361,959 38,039 12 % 323,920
Income before income tax provision 132,964 (44,923) (25) % 177,887 (118,161) (40) % 296,048
Income tax provision 33,334 (10,880) (25) % 44,214 (33,557) (43) % 77,771
Net income $ 99,630 $ (34,043) (25) % $ 133,673 $ (84,604) (39) % $ 218,277
Net Income
Our net income was $99.6 million for 2024 compared with $133.7 million for 2023 and $218.3 million for 2022. Our diluted earnings per common share totaled $0.82, $1.11, and $1.81 for the years 2024, 2023, and 2022, respectively. The return on average assets was 0.56%, 0.67%, and 1.20% and the return on average stockholders’ equity was 4.68%, 6.48%, and 10.73% for the years 2024, 2023, and 2022, respectively. The decrease in net income for 2024 compared with 2023 was primarily due to decreases in net interest income, offset partially by decreases in provision for credit losses and noninterest expense. The decrease in net income for 2023 compared with 2022 was primarily due to increases in interest expense, provision for credit losses and noninterest expense.
Net Interest Margin and Net Interest Rate Spread
We analyze our earnings performance using, among other measures, net interest spread and net interest margin. The net interest spread represents the difference between the weighted average yield earned on interest earning assets and the weighted average rate paid on interest bearing liabilities. Net interest income, when expressed as a percentage of average total interest earning assets, is referred to as the net interest margin. Our net interest margin is affected by changes in the yields earned on assets and rates paid on liabilities, as well as the ratio of the amounts of interest earning assets to interest bearing liabilities.
Interest rates charged on our loans are affected principally by the demand for such loans, the supply of money available for lending purposes, the interest rate environment, and other competitive factors. These factors are in turn affected by general economic conditions and other factors beyond our control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and the actions of the FRB.
The following tables present our consolidated daily average balance of major assets and liabilities, together with interest rates earned and paid on the various sources and uses of funds for the periods indicated:
Year Ended December 31,
2024 2023 2022
Average
Balance Interest
Income/
Expense Average
Yield/
Rate Average
Balance Interest
Income/
Expense Average
Yield/
Rate Average
Balance Interest
Income/
Expense Average
Yield/
Rate
(Dollars in thousands)
INTEREST EARNING ASSETS:
Loans (1) (2)
$ 13,634,728 $ 837,159 6.14 % $ 14,732,166 $ 892,563 6.06 % $ 14,634,627 $ 660,732 4.51 %
Investment securities AFS and HTM (3)
2,213,068 68,549 3.10 % 2,262,840 66,063 2.92 % 2,415,621 52,220 2.16 %
Interest earning cash and deposits at other banks 856,768 44,668 5.21 % 1,685,462 87,361 5.18 % 116,689 1,295 1.11 %
FHLB stock and other investments 48,738 3,604 7.39 % 47,249 2,891 6.12 % 59,624 1,868 3.13 %
Total interest earning assets 16,753,302 953,980 5.69 % 18,727,717 1,048,878 5.60 % 17,226,561 716,115 4.16 %
Total noninterest earning assets 993,106 1,078,446 1,005,048
Total assets $ 17,746,408 $ 19,806,163 $ 18,231,609
INTEREST BEARING LIABILITIES:
Deposits:
Money market, interest bearing demand and savings deposits $ 5,043,411 $ 200,070 3.97 % $ 4,858,919 $ 161,751 3.33 % $ 6,517,879 $ 72,763 1.12 %
Time deposits 5,954,272 295,378 4.96 % 6,409,056 279,480 4.36 % 3,084,851 42,076 1.36 %
Total interest bearing deposits 10,997,683 495,448 4.51 % 11,267,975 441,231 3.92 % 9,602,730 114,839 1.20 %
FHLB and FRB borrowings 531,869 19,860 3.73 % 1,618,292 69,365 4.29 % 528,342 11,525 2.18 %
Convertible notes, net 444 9 2.00 % 77,848 1,925 2.47 % 216,654 5,289 2.44 %
Subordinated debentures, net 104,545 10,812 10.17 % 103,277 10,496 10.02 % 102,037 6,041 5.84 %
Total interest bearing liabilities 11,634,541 526,129 4.52 % 13,067,392 523,017 4.00 % 10,449,763 137,694 1.32 %
Noninterest bearing liabilities and equity:
Noninterest bearing demand deposits 3,679,947 4,362,043 5,569,542
Other liabilities 301,780 315,063 178,277
Stockholders’ equity 2,130,140 2,061,665 2,034,027
Total liabilities and stockholders’ equity $ 17,746,408 $ 19,806,163 $ 18,231,609
Net interest income $ 427,851 $ 525,861 $ 578,421
Net interest margin 2.55 % 2.81 % 3.36 %
Net interest spread (4)
1.17 % 1.60 % 2.84 %
Cost of funds (5)
3.44 % 3.00 % 0.86 %
Cost of deposits 3.38 % 2.82 % 0.76 %
(1) Interest income on loans includes accretion of net deferred loan origination fees and costs, prepayment fees received on loan payoffs and accretion of discounts on acquired loans. See the table below for detail.
(2) Average balances of loans are net of deferred loan origination fees and costs and include nonaccrual loans and loans held for sale.
(3) Interest income and yields are not presented on a tax-equivalent basis.
(4) Yield on interest earning assets minus cost of interest bearing liabilities.
(5) Cost on interest bearing liabilities and noninterest bearing deposits.
The following table presents net loan origination fees, loan prepayment fee income, interest reversed for nonaccrual loans, and discount accretion income included as part of loan interest income for the years indicated:
Year Ended December 31, Net Loan Origination Fees (Costs) Loan Prepayment Fee Income Interest Reversed for Nonaccrual Loans, Net of Income Recognized Accretion of Discounts on Acquired Loans
(Dollars in thousands)
2024 $ 6,292 $ 1,539 $ (5,799) $ 2,376
2023 $ 8,657 $ 2,313 $ (2,926) $ 2,789
2022 $ 9,990 $ 5,350 $ (2,523) $ 2,630
Net Interest Income
Net interest income was $427.9 million for 2024, compared with $525.9 million for 2023 and $578.4 million for 2022. Changes in net interest income are a function of changes in interest rates and volumes of interest earning assets and interest bearing liabilities. The table below sets forth information regarding the changes in interest income and interest expense for the periods indicated. The total change for each category of interest earning assets and interest bearing liabilities is segmented into the change attributable to variations in volume (changes in volume multiplied by the old rate) and the change attributable to variations in interest rates (changes in rates multiplied by the old volume). Nonaccrual loans are included in average loans used to compute this table.
Year Ended December 31,
2024 Compared with 2023
2023 Compared with 2022
Net Increase (Decrease) Change due to Net Increase (Decrease) Change due to
Rate Volume Rate Volume
(Dollars in thousands)
INTEREST INCOME:
Loans, including fees $ (55,404) $ 11,841 $ (67,245) $ 231,831 $ 227,398 $ 4,433
Investment securities AFS and HTM 2,486 3,963 (1,477) 13,843 17,323 (3,480)
Interest earning cash and deposits at other banks (42,693) 508 (43,201) 86,066 18,458 67,608
FHLB stock and other investments 713 619 94 1,023 1,477 (454)
TOTAL INTEREST INCOME $ (94,898) $ 16,931 $ (111,829) $ 332,763 $ 264,656 $ 68,107
INTEREST EXPENSE:
Money market, interest bearing demand and savings deposits $ 38,319 $ 31,298 $ 7,021 $ 88,988 $ 111,871 $ (22,883)
Time deposits 15,898 36,658 (20,760) 237,404 159,282 78,122
FHLB and FRB borrowings (49,505) (7,972) (41,533) 57,840 18,433 39,407
Convertible notes, net (1,916) (309) (1,607) (3,364) 67 (3,431)
Subordinated debentures, net 316 173 143 4,455 4,381 74
TOTAL INTEREST EXPENSE $ 3,112 $ 59,848 $ (56,736) $ 385,323 $ 294,034 $ 91,289
NET INTEREST INCOME $ (98,010) $ (42,917) $ (55,093) $ (52,560) $ (29,378) $ (23,182)
Net interest income before provision for credit losses decreased by $98.0 million, or 19%, for 2024 compared with 2023. The decrease in net interest income was driven by a higher cost of funds and a decrease in the average balance of interest earning assets, partially offset by expanding yields on interest earning assets and a decrease in the average balance of interest bearing liabilities. The expanding interest earning asset yields and higher deposit costs reflected changes in market interest rates during the period. The upper range of the target federal funds rate decreased to 4.50% at December 31, 2024, down from 5.50% at December 31, 2023, but the cuts to the federal funds rate did not begin until September 18, 2024. The year-over-year decrease in the balance of average interest earning cash and deposits in other banks between 2024 and 2023 was primarily due to the payoff of BTFP borrowings in 2024.
Net interest income before provision for credit losses decreased by $52.6 million, or 9%, for 2023 compared with 2022. The decrease in net interest income was driven by a higher cost of funds and increases in average balance of interest bearing deposits and short-term borrowings, partially offset by expanding yields on interest earning assets and higher average balances in loans and interest earning cash and deposits in other banks. The expanding interest earning asset yields and higher deposit costs reflected rising market interest rates during the period. The upper range of the target federal funds rate increased to 5.50% at December 31, 2023, up from 4.50% at December 31, 2022. The year-over-year increase in the average balance of interest earning cash and deposits at other banks between 2023 and 2022 was largely funded through FRB’s BTFP borrowings, reflecting our conservative approach to liquidity risk management, given the banking industry volatility caused by multiple bank failures in the first half of 2023.
Interest Income
Interest income was $954.0 million for 2024, compared with $1.05 billion for 2023, and $716.1 million for 2022. The yield on average interest earning assets was 5.69% for 2024, compared with 5.60% for 2023, and 4.16% for 2022.
Comparison of 2024 with 2023
The decrease in interest income of $94.9 million, or 9.0%, for 2024 compared with 2023 was primarily driven by lower average balances of loans and cash and deposits at other banks, offset partially by expanding yields of interest earnings assets.
Comparison of 2023 with 2022
The increase in interest income of $332.8 million, or 46.5%, for 2023 compared with 2022 was primarily driven by higher loan yields, which reflected new loans originated at higher average interest rates and the upward repricing of variable rate loans in a rising interest rate environment, higher volume of average interest earning cash and deposits, and expanding yields on all other interest earning assets.
Interest Expense
Deposits
Interest expense on deposits was $495.4 million for 2024, compared with $441.2 million for 2023, and $114.8 million for 2022. The average cost of deposits was 3.38% for 2024, compared with 2.82% for 2023, and 0.76% for 2022. The average cost of interest bearing deposits was 4.51% for 2024, compared with 3.92% for 2023, and 1.20% for 2022.
Comparison of 2024 with 2023
The increase in interest expense on total deposits of $54.2 million, or 12%, for 2024 compared with 2023 was due to a higher cost of interest bearing deposits. The increase in the cost of deposits was driven by rising interest rates during the period, a remix of deposits into higher-cost categories due to customer preferences for higher rates, and deposit pricing competition.
Comparison of 2023 with 2022
The increase in interest expense on total deposits of $326.4 million, or 284%, for 2023 compared with 2022 was due to a higher cost of interest bearing deposits and growth in average time deposits. The increase in the cost of deposits was driven by rising interest rates during the period, a remix of low-yielding deposits into higher-cost options, and deposit pricing competition.
FHLB and FRB Borrowings
FHLB and FRB borrowings consist of advances from the FHLB and FRB, including the BTFP. As part of our asset-liability management, we utilize FHLB and FRB borrowings to supplement our deposit source of funds. Therefore, there may be fluctuations in these balances depending on the short-term liquidity and longer-term financing needs of the Bank.
Average FHLB and FRB borrowings were $531.9 million for 2024, compared with $1.62 billion in 2023, and $528.3 million in 2022. Interest expense on FHLB and FRB borrowings was $19.9 million for 2024 compared with $69.4 million for 2023, and $11.5 million for 2022. The average cost of FHLB and FRB borrowings was 3.73% for 2024, compared with 4.29% for 2023, and 2.18% for 2022. The year-over-year decrease in the cost of FHLB and FRB borrowings for 2024 compared to 2023 primarily reflected the payoff of $1.70 billion in FRB BTFP borrowings, which had a weighted average rate of 4.47%, and the impact of our cash flow hedges which reduced interest expense on borrowings starting in the second quarter of 2024.
Convertible Notes
In 2018, we issued $217.5 million in senior convertible notes. Interest expense on convertible notes was $9 thousand for 2024 compared with $1.9 million and $5.3 million for 2023 and 2022, respectively. The cost of our convertible notes for 2024 was 2.00% compared with 2.47% for 2023 and 2.44% for 2022. The cost of our convertible notes consisted of the 2.00% coupon rate and non-cash interest expense from the capitalization of issuance cost.
During the year ended December 31, 2023, we repurchased our notes in the aggregate principal amount of $19.9 million and recorded a gain on debt extinguishment of $405 thousand. The repurchased notes were immediately cancelled subsequent to repurchase. On May 15, 2023, most holders of our convertible notes exercised their right to put their notes and therefore we paid off $197.1 million of convertible note principal in cash. There were no repurchases or put options exercised for the years ended December 31, 2024 and 2022.
Subordinated Debentures
The subordinated debentures bear interest at the 3-month Chicago Mercantile Exchange term Secured Financing Overnight Rate (“SOFR”) rate, plus a designated spread. Prior to LIBOR cessation at June 2023, the interest rate was tied to the 3-month LIBOR rate, plus a designated spread. There were no changes in our balance of subordinated debentures during 2024 or 2023 aside from the increases related to the discount accretion on subordinated debentures acquired from previous acquisitions. Interest expense on subordinated debentures was $10.8 million for 2024 compared with $10.5 million for 2023, and $6.0 million for 2022. The average rate on other borrowings increased to 10.17% for 2024, compared with 10.02% for 2023, and 5.84% for 2022. The change in cost of other borrowings for 2023 and 2022 compared with 2024 was due to changes in the 3-month SOFR and 3-month LIBOR rates.
Provision for Credit Losses
The provision for credit losses reflects management’s assessment of the current period cost associated with credit risk inherent in the loan portfolio. The provision for credit losses for each period includes provision for credit losses on loans and provision for unfunded loan commitments. Provision for credit losses on loans is dependent upon many factors, including loan growth, net charge offs, changes in the composition of the loan portfolio, delinquencies, assessments by management, examinations of the loan portfolio, the value of the underlying collateral on problem loans, the general economic conditions in our market areas, and future projections of the economy. Specifically, the provision for credit losses on loans represents the amount charged against current period earnings to achieve an allowance for credit losses that, in management’s judgment, is adequate to absorb probable lifetime losses inherent in the loan portfolio. Provision for unfunded loan commitments is based on the estimated future funding of loan commitments. Periodic fluctuations in the provision for credit losses result from management’s assessment of the adequacy of the allowance for credit losses and allowance for unfunded loan commitments, and actual credit losses may vary in material respects from current estimates. If the allowances for credit losses are inadequate, we may be required to record additional provisions, which may have a material and adverse effect on business, financial condition, and results of operations.
Comparison of 2024 with 2023
The provision for credit losses on loans was $18.4 million for 2024, a decrease of $10.7 million from $29.1 million for 2023. The decrease in provision for credit losses was primarily due to a decrease of $12.3 million in provision for credit loss on loans on residential mortgage loans and a decrease of $2.7 million in provision for credit losses on CRE loans, offset partially by an increase of $4.6 million in provision for credit loss on loans on C&I loans. The decline in provision for credit loss on loans for residential mortgage loans was due to ACL model enhancements made during the second quarter of 2024, which contributed to the reversal of provision for credit loss on loans of $8.4 million for residential mortgage loans for the year ended December 31, 2024. The increase in provision for credit loss on loans for C&I loans was due to an increase in criticized C&I loans as of December 31, 2024, compared with December 31, 2023. The allowance for credit losses coverage ratio was 1.11% of loans receivable at December 31, 2024, compared with 1.15% at December 31, 2023.
Comparison of 2023 with 2022
The provision for credit loss on loans was $29.1 million for 2023, an increase of $19.5 million from $9.6 million for 2022. The increase in provision for credit loss on loans was largely due to increased net charge offs. During 2023, we recorded an idiosyncratic full charge off of $23.4 million related to a borrower that entered into Chapter 7 liquidation in August 2023. In comparison, in 2022, we recorded $17.3 million in recoveries from a previously charged off loan, resulting in total net recoveries in 2022. The increase to the provision for credit loss on loans due to charge offs was partially offset by the year over year decline in loans receivable, which reduced the required ACL balance. The allowance for credit losses coverage ratio was 1.15% of loans receivable at December 31, 2023, compared with 1.05% at December 31, 2022.
Noninterest Income
Noninterest income is primarily comprised of service fees on deposit accounts, international service fees (fees received on trade finance letters of credit), wire transfer fees, swap fee income, net gains on sales of loans, net gain on branch sales, and other income and fees, which included loan servicing fees, earnings on bank owned life insurance, changes in the fair value of our equity investments with readily determinable fair value, and other miscellaneous income. Noninterest income was $47.1 million for 2024 compared with $45.6 million for 2023, and $51.4 million for 2022.
A breakdown of noninterest income by category is shown below:
Year Ended December 31, 2024 Increase (Decrease) Year Ended December 31, 2023 Increase (Decrease) Year Ended December 31, 2022
Amount Percent
(%) Amount Percent
(%)
(Dollars in thousands)
Service fees on deposit accounts $ 10,728 $ 1,262 13 % $ 9,466 $ 528 6 % $ 8,938
International service fees 3,002 (363) (11) % 3,365 231 7 % 3,134
Wire transfer and foreign currency fees 3,788 466 14 % 3,322 (155) (4) % 3,477
Swap fees 1,602 891 125 % 711 (1,894) (73) % 2,605
Net gains on sales of SBA loans 7,765 3,668 90 % 4,097 (12,246) (75) % 16,343
Net gains on sales of investment securities AFS 936 936 100 % - - - % -
Net gain on branch sales 1,006 1,006 100 % - - - % -
Other income and fees 18,250 (6,366) (26) % 24,616 7,716 46 % 16,900
Total noninterest income $ 47,077 $ 1,500 3 % $ 45,577 $ (5,820) (11) % $ 51,397
Comparison of 2024 with 2023
The increase in noninterest income for 2024 compared with 2023 was primarily attributable to higher net gains on sales of SBA loans, net gain on branch sales and gains on sales of securities AFS and service fees on deposit accounts, and partially offset by a decrease in other income and fees.
Service fees on deposit accounts increased for 2024 compared with 2023 due to increases in business analysis fees and non-sufficient funds fees.
During the year ended December 31, 2024, we sold $119.6 million in SBA guaranteed loans and recorded $7.8 million in net gains on sale of SBA loans. During the year ended December 31, 2023, we sold $79.1 million in SBA guaranteed loans and recorded $4.1 million in net gains on sale of SBA loans. The Bank resumed the sales of SBA guaranteed loans in the second quarter of 2024 due to improved premiums in the secondary markets, after retaining loan production on balance sheet starting in the second half of 2023.
During the year ended December 31, 2024, we sold $275.3 million of investment securities AFS and recorded $936 thousand in net gains on sales of investment securities AFS. There were no investment securities AFS sold during 2023.
During the year ended December 31, 2024, we recorded a net gain on branch sales of $1.0 million related to the sale of our two branches in Virginia, which closed on October 1, 2024. There were no gains on branch sales during 2023.
Other income and fees decreased for 2024 compared with 2023, primarily due to a $5.8 million gain from a cash distribution from an investment in an affordable housing partnership, which was recorded in 2023. There were no gains from cash distributions for investments in affordable housing partnerships in 2024.
Comparison of 2023 with 2022
The decrease in noninterest income for 2023 compared with 2022 was primarily attributable to lower net gains on sales of SBA loans and swap fee income, and partially offset by an increase in other income and fees.
Swap fees represent income earned from the execution of customer level back-to-back swap transactions. Swap fees for 2023 declined by $1.9 million compared with 2022 due to an overall decline in swap transactions in 2023 compared with 2022.
During the year ended December 31, 2023, we sold $79.1 million in SBA guaranteed loans and recorded $4.1 million in net gains on sale of SBA loans. During the year ended December 31, 2022, we sold $227.3 million in SBA guaranteed loans and recorded $16.3 million in net gains on sale of SBA loans. We elected to not sell any SBA 7(a) loans during the second half of 2023, retaining loan production on our balance sheet instead.
Other income and fees increased for 2023 compared with 2022, primarily due to a $5.8 million gain from a cash distribution from an investment in an affordable housing partnership, which was received in 2023, and a year-over-year increase in the fair value of equity investments.
Noninterest Expense
Noninterest expense was $324.7 million for 2024, compared with $362.0 million for 2023, and $323.9 million for 2022. The decrease in noninterest expense was $37.3 million, or 10%, for 2024 compared with 2023, and an increase of $38.0 million, or 12%, for 2023 compared with 2022. Noninterest expense as a percentage of average assets for 2024 was 1.83%, compared with 1.83% for 2023 and 1.78% for 2022.
A breakdown of noninterest expense by category is provided below:
Year Ended December 31, 2024 Increase (Decrease) Year Ended December 31, 2023 Increase (Decrease) Year Ended December 31, 2022
Amount Percent
(%) Amount Percent
(%)
(Dollars in thousands)
Salaries and employee benefits $ 177,860 $ (30,011) (14) % $ 207,871 $ 3,152 2 % $ 204,719
Occupancy 27,469 (1,399) (5) % 28,868 601 2 % 28,267
Furniture and equipment 21,592 214 1 % 21,378 1,944 10 % 19,434
Data processing and communications 12,060 454 4 % 11,606 923 9 % 10,683
Professional fees 8,967 2,503 39 % 6,464 150 2 % 6,314
Amortization of investments in affordable housing partnerships 9,051 856 10 % 8,195 (547) (6) % 8,742
FDIC assessments 10,813 (2,483) (19) % 13,296 7,048 113 % 6,248
FDIC special assessment 691 (3,280) (83) % 3,971 3,971 100 % -
Earned interest credit 23,447 1,048 5 % 22,399 11,401 104 % 10,998
Restructuring-related costs 1,023 (10,553) (91) % 11,576 11,576 100 % -
Merger-related costs 4,604 4,604 100 % - - - % -
Other noninterest expense 27,107 772 3 % 26,335 (2,180) (8) % 28,515
Total noninterest expense $ 324,684 $ (37,275) (10) % $ 361,959 $ 38,039 12 % $ 323,920
Comparison of 2024 with 2023
The decrease in noninterest expense for 2024 compared with 2023 was primarily driven by decreases in salaries and employee benefits, restructuring costs, and lower FDIC assessments, partially offset by increases in merger-related expenses, professional fees, and earned interest credit expense.
Salaries and employee benefits expense decreased by $30.0 million, or 14.4%, for 2024 compared with 2023. The year-over-year decrease in salaries and employee was due to lower average number of employees for the years ended 2024 compared to 2023. The number of full-time equivalent employees was 1,244 at both December 31, 2024 and December 31, 2023, compared to 1,549 at December 31, 2022. During the fourth quarter of 2023, we had a headcount reduction related to our restructuring in which we reduced our workforce by 13%. In the first quarter of 2023, a staffing rationalization reduced our headcount by 5%.
Professional fees increased by $2.5 million, or 39%, for 2024 compared with 2023. The year-over-year increase in professional fees was due overall increase in legal fees and other professional services.
FDIC assessments expense decreased by $2.5 million, or 18.7%, for 2024 compared with 2023. The FDIC assessment expense utilizes an initial base assessment rate, which is calculated as a percentage of the Bank’s average consolidated total assets less average tangible equity. In addition to the initial assessment base, adjustments are added based upon the Bank’s regulatory rating and on other financial measures. In 2023, the FDIC annual base assessment rate increased by two basis points industry-wide. In addition, in November 2023, the FDIC approved a special assessment at the rate of approximately 13.4 basis points per year, paid in eight quarterly installments beginning in the first quarter of 2024. This rate was applied to an assessment base of the insured depository institution’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits. In February 2024, the FDIC informed banks of an increase from the original estimate related to this special assessment. This additional amount was paid in two additional quarterly installments, at a rate of approximately 9.4 basis points per year on the same adjusted assessment base. The decrease in FDIC assessments expense for the year ended December 31, 2024, compared with the same period in 2023, was due primarily to lower average consolidated total assets and a lower assessment base.
Earned interest credits are provided to certain commercial depositors in the residential mortgage industry to help offset deposit service charges incurred. The earned interest credits are tied to short-term interest rates and have increased with the increases in the federal funds rates since mid-2022. Earned interest credit expense increased $1.0 million for 2024 compared with 2023, reflecting the changes in the federal funds rates as well as changes in the average balances of the underlying deposits.
Restructuring-related costs totaled $1.0 million in 2024, and were related to the Company’s strategic reorganization announced in October 2023. Restructuring-related costs for the year ended December 31, 2023, totaled $11.6 million. Restructuring costs primarily comprised severance costs, planned branch closure charges and professional fees. As part of the restructuring, the Company reduced its workforce by 13% in October 2023, and consolidated certain branches in the first half of 2024.
Merger-related costs of $4.6 million for the year ended December 31, 2024, were primarily professional fees related to the pending merger with Territorial Bancorp Inc. announced in April 2024. See Note 1 “Hope Bancorp, Inc.” to the Notes to Consolidated Financial Statements for additional information regarding the merger. There were no merger-related costs for the years ended December 31, 2023 and 2022.
Comparison of 2023 with 2022
The increase in noninterest expense for 2023 compared with 2022 was primarily driven by restructuring costs, higher earned interest credit expense, and higher FDIC assessments expense.
Salaries and employee benefits expense increased by $3.2 million, or 1.5%, for 2023 compared with 2022. The increase in salaries and employee benefits was primarily due to inflation and higher rates of compensation in a competitive staffing market. Also included in the 2023 salaries and employee benefits expense was $1.7 million of severance costs incurred in the first quarter related to a staffing rationalization, which reduced the Bank’s workforce by 5%. The number of full-time equivalent employees decreased to 1,244 at December 31, 2023, down from 1,549 at December 31, 2022. Severance costs related to the Company’s restructuring in the fourth quarter of 2023 were accounted for in restructuring-related expenses.
FDIC assessments expense increased by $7.0 million, or 112.8%, for 2023 compared with 2022. The FDIC assessment expense utilizes an initial base assessment rate, which is calculated as a percentage of the Bank’s average consolidated total assets less average tangible equity. In addition to the initial assessment base, adjustments are added based upon the Bank’s regulatory rating and on other financial measures. In 2023, the FDIC annual base assessment rate increased by two basis points industry-wide. In addition, in November 2023, the FDIC approved a special assessment at the rate of approximately 13.4 basis points per year, paid in eight quarterly installments beginning in the first quarter of 2024. This rate was applied to an assessment base of the insured depository institution’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits. The increase in FDIC assessments expense for 2023 compared with 2022 was due primarily to the aforementioned increased annual base assessment rate.
Earned interest credits are provided to certain commercial depositors in the residential mortgage industry to help offset deposit service charges incurred. The earned interest credits are tied to short-term interest rates and have increased with the increases in the federal funds rate since mid-2022. Earned interest credit expenses increased $11.4 million for 2023 compared with 2022, reflecting the changes in the federal funds rate.
Restructuring costs totaled $11.6 million in 2023 and related to the Company’s strategic reorganization announced in October 2023. Restructuring costs primarily comprised severance costs, planned branch closure charges and professional fees. As part of the restructuring, the Company reduced its workforce by 13% in October 2023, and consolidated certain branches in the first half of 2024. There were no restructuring costs incurred in 2022.
Income Tax Provision
The provision for income taxes for 2024 was $33.3 million, compared with $44.2 million in 2023 and $77.8 million in 2022. The effective income tax rate was 25.07% for 2024 compared with 24.86% for 2023 and 26.27% for 2022. The increase in effective tax rate for 2024 compared with 2023 was primarily due to adjustments made with the filings of the tax returns.
We invest in affordable housing partnerships and receive CRA credits and tax credits that reduce the overall effective tax rate. Amortization of investments in affordable housing partnerships is recorded in noninterest expense based on benefit schedules of individual investment projects under the equity method of accounting. The benefit schedules show tax deductions investors can take each year. We amortize the initial cost of the investments in affordable housing partnerships. This amortization expense is more than offset by both tax credits received, which reduce our tax provision expense dollar for dollar, and the tax benefits related to any tax losses generated through the affordable housing project’s expenditures. Total tax credits related to our investment in affordable housing partnership investment was approximately $8.5 million and $8.6 million for the year ended December 31, 2024 and 2023, respectively. The balance of investments in affordable housing partnerships decreased from $54.5 million at December 31, 2023, to $32.4 million at December 31, 2024.
In addition to affordable housing projects, during the fourth quarter of 2024, we also invested in projects that qualify for renewable energy tax credits. Amortization of investments in renewable energy projects is recorded as a part of the tax expense under the proportional amortization method of accounting and offsets some of the income tax benefits of the renewable energy tax credits. The amortization on the investment was approximately $16.6 million and the total generated renewable energy tax credits and benefits was approximately $18.2 million for the year ended December 31, 2024. There was no amortization on investments in renewable energy projects or tax credits for the years ended December 31, 2023 and 2022.
Financial Condition
Our total assets were $17.05 billion at December 31, 2024, compared with $19.13 billion at December 31, 2023, a decrease of $2.08 billion, or 10.9% year over year.
Cash and Cash Equivalents
Cash and cash equivalents decreased to $458.2 million at December 31, 2024, down from $1.93 billion at December 31, 2023, primarily reflecting the full payoff of $1.70 billion of FRB BTFP borrowings with interest earning cash in 2024.
Investment Securities Portfolio
The main objectives of our investment strategy are to provide sources of liquidity while managing our interest rate risk and generating an adequate level of interest income. Our investment policy permits investments in various types of securities, certificates of deposits, and federal funds sold in compliance with various restrictions in the policy.
Our investment securities AFS totaled $1.82 billion at December 31, 2024, compared with $2.15 billion at December 31, 2023. At December 31, 2024, we had $252.4 million in investment securities HTM compared with $263.9 million at December 31, 2023. We have the ability and intent to hold investment securities classified as HTM to maturity. $275.0 million in investment securities were purchased and $167.7 million in investment securities were paid down in 2024. There were $275.3 million sales of investment securities AFS in 2024. At December 31, 2024, $219.4 million in HTM securities were pledged to secure public deposits, or for other purposes required or permitted by law, of which $219.3 million in securities were pledged in the State of California time deposit program, and $129 thousand in AFS securities was pledged for other public deposits.
Our investment portfolio consists of treasury bonds, government sponsored enterprise (“GSE”) bonds, mortgage-backed securities (“MBS”), collateralized mortgage obligations (“CMOs”), asset-backed securities, corporate securities, and municipal securities.
Our investment securities portfolio is primarily invested in residential CMOs and residential and commercial MBS, which combined to represent 85% and 76% of our total investment securities portfolio at December 31, 2024 and 2023, respectively. At December 31, 2024 and 2023, all of our CMOs and MBS were issued by the Government National Mortgage Association (“GNMA”), Fannie Mae (“FNMA”), or Freddie Mac (“FHLMC”), which guarantee the contractual cash flows of these investments. All of our corporate, asset-backed, and municipal securities at December 31, 2024, were rated as investment grade.
The following table presents the amortized cost, estimated fair value, and net unrealized gain and losses on our investment securities as of the dates indicated:
December 31, 2024 December 31, 2023
Amortized
Cost Estimated
Fair
Value Net
Unrealized Gain (Loss) Amortized
Cost Estimated
Fair
Value Net Unrealized
Gain (Loss)
(Dollars in thousands)
Debt securities AFS:
U.S. Treasury securities $ - $ - $ - $ 103,691 $ 103,677 $ (14)
U.S. Government agency and U.S. Government sponsored enterprises:
Agency securities 4,000 3,957 (43) 4,000 3,900 (100)
CMOs 861,179 721,906 (139,273) 888,631 747,719 (140,912)
MBS:
Residential 473,099 387,060 (86,039) 499,431 420,298 (79,133)
Commercial 466,929 410,851 (56,078) 445,207 391,888 (53,319)
Asset-backed securities 103,081 103,224 143 150,992 149,670 (1,322)
Corporate securities 23,254 20,694 (2,560) 23,302 19,434 (3,868)
Municipal securities 191,138 175,551 (15,587) 314,554 308,473 (6,081)
Total investment securities AFS $ 2,122,680 $ 1,823,243 $ (299,437) $ 2,429,808 $ 2,145,059 $ (284,749)
Debt securities HTM:
U.S. Government agency and U.S. Government sponsored enterprises:
MBS:
Residential $ 142,059 $ 129,430 $ (12,629) $ 150,369 $ 143,706 $ (6,663)
Commercial 110,326 101,694 (8,632) 113,543 106,812 (6,731)
Total investment securities HTM $ 252,385 $ 231,124 $ (21,261) $ 263,912 $ 250,518 $ (13,394)
The following table summarizes the maturity of securities based on carrying value and their related weighted average yield (non-tax equivalent) at December 31, 2024:
Within One Year After One But
Within Five Years After Five But
Within Ten Years After Ten Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in thousands)
Debt securities AFS:
U.S. Government agency and U.S. Government sponsored enterprises:
Agency securities $ - - % $ 3,957 4.07 % $ - - % $ - - % $ 3,957 4.07 %
CMOs - - % - - % 2,336 2.35 % 719,570 2.36 % 721,906 2.36 %
MBS:
Residential - - % - - % 18,037 2.60 % 369,023 1.94 % 387,060 1.97 %
Commercial - - % 115,564 3.08 % - - % 295,287 3.40 % 410,851 3.31 %
Asset-backed securities - - % - - % 53,694 6.66 % 49,530 6.40 % 103,224 6.54 %
Corporate securities - - % - - % 16,044 2.71 % 4,650 5.78 % 20,694 3.40 %
Municipal securities - - % 15,378 1.65 % 32,977 2.86 % 127,196 4.05 % 175,551 3.62 %
Total securities AFS $ - - % $ 134,899 2.94 % $ 123,088 4.45 % $ 1,565,256 2.73 % $ 1,823,243 2.87 %
Debt securities HTM:
U.S. Government agency and U.S. Government sponsored enterprises:
MBS:
Residential $ - - % $ - - % $ - - % $ 142,059 3.83 % $ 142,059 3.83 %
Commercial - - % 23,785 4.12 % 8,815 3.79 % 77,726 3.70 % 110,326 3.80 %
Total securities HTM $ - - % $ 23,785 4.12 % $ 8,815 3.79 % $ 219,785 3.78 % $ 252,385 3.82 %
The following table shows the Company’s AFS investments’ gross unrealized losses and estimated fair values, aggregated by investment category and the length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2024. The length of time that the individual investment securities AFS have been in a continuous unrealized loss position is not a factor in determining credit impairment with the adoption of CECL.
December 31, 2024
Less than 12 months 12 months or longer Total
Description of
Securities AFS Number
of
Securities Fair
Value Gross
Unrealized
Losses Number
of
Securities Fair
Value Gross
Unrealized
Losses Number
of
Securities Fair
Value Gross
Unrealized
Losses
(Dollars in thousands)
U.S. Government agency and U.S. Government sponsored enterprises:
Agency securities - $ - $ - 1 $ 3,957 $ (43) 1 $ 3,957 $ (43)
CMOs 7 59,661 (527) 95 636,472 (138,898) 102 696,133 (139,425)
MBS:
Residential 2 19,183 (1,029) 63 367,877 (85,010) 65 387,060 (86,039)
Commercial 10 70,728 (2,406) 57 340,123 (53,672) 67 410,851 (56,078)
Asset-backed securities 1 5,007 (14) - - - 1 5,007 (14)
Corporate securities - - - 6 20,694 (2,560) 6 20,694 (2,560)
Municipal securities 18 77,119 (3,348) 39 83,515 (12,267) 57 160,634 (15,615)
Total 38 $ 231,698 $ (7,324) 261 $ 1,452,638 $ (292,450) 299 $ 1,684,336 $ (299,774)
We performed an analysis on our investment securities portfolio at December 31, 2024 and 2023, and determined that an allowance for credit losses was not required for investment securities AFS or HTM. The majority of our investment portfolio consisted of securities issued by U.S. Government agencies or U.S. Government sponsored enterprises, which were determined to have a zero loss expectation. At December 31, 2024, we also had one asset-backed security, six corporate securities, and 57 municipal bonds not issued by U.S. Government agencies or U.S. Government sponsored enterprises that were in unrealized loss positions. Based on our analysis of these investment securities, we concluded a credit loss did not exist due to the strength of the issuers, high bond ratings, and because we expect full payment of principal and interest.
Equity Investments
At December 31, 2024, equity investments totaled $39.9 million compared with $43.8 million at December 31, 2023. For the year ended December 31, 2024, we recorded a decrease in equity investments due to $4.8 million in adjustments to CRA unfunded commitments resulting from implementation of ASU 2023-02, capital redemption of $539 thousand, and change in fair value of $42 thousand, partially offset by reinvestments of $1.6 million. Equity investments at December 31, 2024 included $4.3 million in equity investments with readily determinable fair values and $35.6 million in equity investments without readily determinable fair values.
Equity investments with readily determinable fair values at December 31, 2024, consisted of mutual funds totaling $4.3 million. Changes to the fair value of equity investments with readily determinable fair values are recorded in other noninterest income. Equity investments without readily determinable fair values at December 31, 2024, included $34.2 million in CRA investments, $1.0 million in Community Development Financial Institutions investments, and $370 thousand in correspondent bank stock. Equity investments without readily determinable fair values are carried at cost, less impairment, and adjustments are made to the carrying balance based on observable price changes. There were no impairments or observable price changes for these investments during the year ended December 31, 2024.
Deferred Tax Assets, Net
At December 31, 2024, we had $140.0 million in net deferred tax assets compared with $135.2 million at December 31, 2023. The increase in net deferred tax assets was primarily due to an increase in unrealized losses on our investments securities AFS, partially offset by deferred tax expense during the year ended December 31, 2024.
Investments in Tax Credit Structures
At December 31, 2024, we had $32.4 million in investments in affordable housing partnerships compared with $54.5 million at December 31, 2023. The decrease in investments in affordable housing partnerships was due to $13.1 million derecognition of delayed contributions, $1.6 million in impairment resulting from implementation of ASU 2023-02, and $7.4 million in amortization recorded during the year ended December 31, 2024. Commitments to fund investments in affordable housing partnerships totaled $0 at December 31, 2024, compared with $21.0 million at December 31, 2023. The decrease in commitments to fund investments in affordable housing partnerships during the year ended December 31, 2024, was due to $13.1 million derecognition of delayed contribution, $4.8 million in adjustments to CRA unfunded commitments and $3.1 million in cash contributions.
In 2024, we invested in renewal energy tax credit with an initial investment of $20.0 million. At December 31, 2024, we had $3.4 million in investments in renewable energy tax credits, which was recorded in other assets and $2.8 million in unfunded commitments, which was recorded in other liabilities. The decrease in investments in renewable energy tax credits from initial investment in 2024 was due to amortization of $16.6 million recorded in the same year. In 2024, we also recorded $18.2 million in tax credits and benefits. There were no investments in renewable energy tax credits prior to 2024.
Loans Held For Sale
Loans held for sale at December 31, 2024, totaled $14.5 million compared with $3.4 million at December 31, 2023, representing an increase of $11.1 million, or 325.2%. Loans held for sale at December 31, 2024, comprised $13.8 million in C&I loans and $646 thousand in residential mortgage loans. At December 31, 2023, loans held for sale consisted of $2.3 million in CRE loans, and $1.1 million in residential mortgage loans.
Loan Portfolio
We offer a variety of products designed to meet the credit needs of our borrowers. Our lending activities primarily consist of CRE loans, C&I loans, residential mortgage, and consumer and other loans. CRE loans as a percentage to total loans were 63% at December 31, 2024, compared with 64% at December 31, 2023. Gross loans receivable decreased by $235.3 million to $13.62 billion at December 31, 2024, from $13.85 billion at December 31, 2023.
The year-over-year decrease in our total loans receivable was primarily due to declines in CRE and C&I loans, partially offset by the growth in residential mortgage loans. During the year, loan payoffs, paydowns and sales exceeded new origination volume, reflecting, in part, an elevated pace of payoffs in a higher interest rate environment.
Approximately 46% of our total loans were variable rate loans at December 31, 2024, compared with 45% at December 31, 2023. The rates of interest charged on variable rate loans are set at specified spreads based on the prime lending rate, SOFR rates and other indices, and vary as the rate indices reprice.
With certain exceptions, we are permitted under applicable law to make unsecured loans to single borrowers (including certain related persons and entities) in aggregate amounts of up to 15% of the sum of our total capital, our allowance for credit losses (as defined for regulatory purposes) at the Bank level, and certain capital notes and debentures issued by us. At December 31, 2024, our lending limit was approximately $354.5 million per borrower for unsecured loans. For lending limit purposes, a secured loan is defined as a loan secured by collateral having a current fair value of at least 100% of the amount of the loan or extension of credit at all times and satisfying certain other requirements. In addition to unsecured loans, we are permitted to make such collateral-secured loans in an additional amount up to 10% (for a total of 25%) of our total capital and the allowance for credit losses for a total limit of approximately $590.8 million to one borrower at December 31, 2024. The largest aggregate amount of loans that the Bank had outstanding to any one borrower and related entities was $107.0 million, of which the entire amount was performing and in good standing at December 31, 2024.
The following table shows the composition of our loan portfolio by type of loan on the dates indicated:
December 31,
2024 2023 2022 2021 2020
Amount % Amount % Amount % Amount % Amount %
(Dollars in thousands)
Loan portfolio composition:
CRE loans $ 8,527,008 63 % $ 8,797,884 64 % $ 9,414,580 61 % $ 9,105,931 65 % $ 8,772,134 65 %
C&I loans 3,967,596 29 % 4,135,044 30 % 5,109,532 33 % 4,208,674 30 % 4,157,787 31 %
Residential mortgage loans 1,082,459 8 % 883,687 6 % 846,080 6 % 579,626 5 % 582,232 4 %
Consumer and other loans 41,209 - % 37,004 - % 33,348 - % 58,512 - % 51,060 - %
Total loans outstanding 13,618,272 100 % 13,853,619 100 % 15,403,540 100 % 13,952,743 100 % 13,563,213 100 %
Less: allowance for credit losses (150,527) (158,694) (162,359) (140,550) (206,741)
Loans receivable, net $ 13,467,745 $ 13,694,925 $ 15,241,181 $ 13,812,193 $ 13,356,472
Commercial Real Estate Loans
Our CRE loans consist primarily of loans secured by deeds of trust on commercial real estate, including SBA loans secured by commercial real estate. It is our general policy to restrict commercial real estate loan amounts to 75% of the appraised value of the property at the time of loan funding. We offer both fixed and floating interest rate loans. The maturities on such loans are generally up to seven years (with payments determined on the basis of principal amortization schedules of up to 25 years and a balloon payment due at maturity). CRE loans secured by non-consumer residential real estate comprise less than 1% of the total loan portfolio (consumer residential mortgage loans are classified separately and included in residential mortgage loans). Construction loans are also a small portion of the total real estate portfolio, totaling $191.2 million and comprising 1% of total loans outstanding as of December 31, 2024. CRE loans totaled $8.53 billion at December 31, 2024, a decrease of $270.9 million, or 3%, from $8.80 billion at December 31, 2023.
We also have a granular and geographically diverse set of lending relationships. In the tables below, we show the segmentation and geographic dispersion of our largest loan segment, CRE loans, as of December 31, 2024 and 2023.
December 31,
2024 2023
Amount % Average Loan Size Weighted Average LTV* Amount % Average Loan Size Weighted Average LTV*
(Dollars in thousands)
Multi-tenant retail $ 1,619,505 19 % $ 2,375 42 % $ 1,704,337 19 % $2,291 43 %
Hotels/motels 769,635 9 % 2,150 42 % 796,267 9 % 2,058 45 %
Gas stations and car washes 1,027,502 12 % 1,784 47 % 1,030,888 12 % 1,765 48 %
Mixed-use facilities 771,695 9 % 1,910 48 % 870,664 10 % 1,948 42 %
Industrial warehouses 1,264,703 15 % 2,514 42 % 1,226,780 14 % 2,247 39 %
Multifamily 1,208,494 14 % 2,324 60 % 1,226,384 14 % 2,275 56 %
Single-tenant retail 659,993 7 % 1,413 46 % 662,705 7 % 1,364 46 %
Office 394,431 5 % 2,191 54 % 401,821 5 % 2,172 52 %
All other 811,050 10 % 1,530 43 % 878,038 10 % 1,491 39 %
Total CRE loans $ 8,527,008 100 % $ 2,021 47 % $ 8,797,884 100 % $1,952 45 %
CRE loans owner occupied $ 2,717,326 32 % $ 2,235 45 % $ 2,895,628 33 % $ 2,202 43 %
CRE loans non-owner occupied $ 5,809,682 68 % $ 1,934 48 % $ 5,902,256 67 % $ 1,849 46 %
* Weighted average loan-to-value (“LTV”): LTVs are based on collateral value which utilizes the most recent available appraisal and property-specific data, including submarket appreciation or depreciation, and changes to vacancy, debt service coverage or rent per square foot
December 31,
2024 2023
Amount % Amount %
(Dollars in thousands)
CRE loans by geography
Southern California $ 4,748,695 56 % $ 5,008,137 57 %
Northern California 638,085 8 % 651,636 7 %
California 5,386,780 64 % 5,659,773 64 %
New York 1,053,457 12 % 1,063,564 12 %
Texas 529,121 6 % 520,945 6 %
New Jersey 379,035 4 % 377,766 4 %
Washington 170,511 2 % 228,318 3 %
Illinois 135,043 2 % 152,923 2 %
Other states 873,061 10 % 794,595 9 %
Total $ 8,527,008 100 % $ 8,797,884 100 %
Commercial and Industrial Loans
C&I loans include term loans to businesses, lines of credit, trade finance facilities, asset-based lending, and commercial SBA loans. C&I loans also include loans, mostly leveraged and non-leveraged loans, which represent revolving or term loans that are mostly member deals for middle market companies. Business term loans are generally provided to finance business acquisitions, working capital, and/or equipment purchases and are times done through participating in syndicated facilities. Lines of credit are generally provided to finance short-term working capital needs. Trade finance facilities are generally provided to finance import and export activities. SBA loans are provided to small businesses under the U.S. SBA guarantee program. Short-term credit facilities (payable within one year) typically provide for periodic interest payments, with principal payable at maturity. Term loans (usually 5 to 7 years) normally provide for monthly payments of both principal and interest. SBA commercial loans usually have a longer maturity (7 to 10 years). These credits are reviewed on a periodic basis, and most loans are secured by business assets and/or real estate. C&I loans totaled $3.97 billion at December 31, 2024, a decrease of $167.4 million, or 4%, from $4.14 billion at December 31, 2023. In 2023, we completely exited our residential mortgage warehouse line of credit business. Within our C&I loan portfolio, the largest industry concentrations are finance and insurance (20%), manufacturing (14%), retail trade (14%), and information technology (12%).
Residential Mortgage Loans
The residential mortgage portfolio totaled $1.08 billion at December 31, 2024, an increase of $198.8 million, or 22%, from $883.7 million at December 31, 2023.
Consumer and Other Loans
Consumer loans comprise less than 1% of the total loan portfolio, and include automobile loans, home equity lines and loans, signature term loans and lines of credit, and credit card loans. Consumer loans totaled $41.2 million at December 31, 2024, an increase of $4.2 million, or 11%, from $37.0 million at December 31, 2023.
Loan Commitments
We provide lines of credit to business customers usually on an annual renewal basis.
The following table shows our loan commitments and letters of credit outstanding at the dates indicated:
December 31,
2024 2023 2022 2021 2020
(Dollars in thousands)
Unfunded commitments to extend credit $ 2,255,785 $ 2,274,239 $ 2,856,263 $ 2,329,421 $ 2,137,178
Standby letters of credit 134,548 132,132 132,538 126,137 108,834
Other letters of credit 22,874 51,983 22,376 56,333 40,508
Total $ 2,413,207 $ 2,458,354 $ 3,011,177 $ 2,511,891 $ 2,286,520
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans, accruing loans that are 90 days or more past due, accruing restructured loans, and OREO.
Loans are placed on nonaccrual status when they become 90 days or more past due, unless the loan is both well-secured and in the process of collection. Loans may be placed on nonaccrual status earlier if the full and timely collection of principal or interest becomes uncertain. When a loan is placed on nonaccrual status, unpaid accrued interest is charged against interest income. Loans are charged off when collection of the loan is determined to be unlikely. Loans are restructured when, for economic or legal reasons related to the borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. OREO consists of real estate acquired by the Bank through foreclosure or similar means, including by deed from the owner in lieu of foreclosure, and is held for future sale.
Nonperforming assets were $90.8 million at December 31, 2024, compared with $45.5 million at December 31, 2023. The increase in non-performing assets was due to an increase in C&I non-performing loans as of December 31, 2024, compared with December 31, 2023. The following table illustrates the composition of nonperforming assets and nonperforming loans at the dates indicated:
December 31,
2024 2023 2022 2021 2020
(Dollars in thousands)
Nonaccrual loans (1)
$ 90,564 $ 45,204 $ 49,687 $ 54,616 $ 85,238
Accruing delinquent loans past due 90 days or more 229 261 401 2,131 614
Accruing troubled debt restructured loans (2)
- - 16,931 52,418 37,354
Total nonperforming loans 90,793 45,465 67,019 109,165 123,206
OREO - 63 2,418 2,597 20,121
Total nonperforming assets $ 90,793 $ 45,528 $ 69,437 $ 111,762 $ 143,327
_________________________
(1) Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation.
(2) The Company adopted ASU 2022-02 on January 1, 2023, which eliminated the concept of TDR loans from GAAP. Prior to January 1, 2023, nonperforming loans included accruing TDR loans.
Maturity of Loans
The following table illustrates the maturity distribution intervals of loans outstanding at December 31, 2024.
December 31, 2024
Loans Maturing
One Year or Less After One to
Five Years After Five to Fifteen Years After Fifteen Years Total Loans
Outstanding
(Dollars in thousands)
CRE loans $ 1,289,547 $ 4,930,912 $ 1,763,089 $ 543,460 $ 8,527,008
C&I loans 1,024,955 2,512,697 429,944 - 3,967,596
Residential mortgage loans - 91 7,955 1,074,413 1,082,459
Consumer and other loans 27,615 13,323 269 2 41,209
Total loans outstanding $ 2,342,117 $ 7,457,023 $ 2,201,257 $ 1,617,875 $ 13,618,272
Fixed interest rate (1)
$ 619,908 $ 4,046,524 $ 1,367,016 $ 1,327,136 $ 7,360,584
Variable interest rate 1,722,209 3,410,499 834,241 290,739 6,257,688
Total loans outstanding $ 2,342,117 $ 7,457,023 $ 2,201,257 $ 1,617,875 $ 13,618,272
_________________________
(1) Includes hybrid loans (loans with fixed interest rates for a specified period and then convert to variable interest rates) in fixed interest rate periods at December 31, 2024.
The following table presents the loans outstanding due after one year at December 31, 2024.
December 31, 2024
Fixed Interest Rate (1)
Variable Interest Rate Total Loans Due After One Year
(Dollars in thousands)
CRE loans $ 5,529,582 $ 1,707,879 $ 7,237,461
C&I loans 173,651 2,768,990 2,942,641
Residential mortgage loans 1,036,634 45,825 1,082,459
Consumer and other loans 809 12,785 13,594
Total loans outstanding $ 6,740,676 $ 4,535,479 $ 11,276,155
_________________________
(1) Includes hybrid loans (loans with fixed interest rates for a specified period and then convert to variable interest rates) in fixed interest rate periods at December 31, 2024.
At December 31, 2024, we had $43.0 million in loan accrued interest receivable compared with $49.3 million at December 31, 2023.
Allowance for Credit Losses
The Bank has implemented a multi-faceted process to identify, manage, and mitigate the credit risks that are inherent in the loan portfolio. For new loans, each loan application package is fully analyzed by experienced reviewers and approvers. In accordance with current lending approval authority guidelines, a majority of loans are approved by the Management Loan Committee (“MLC”), and the largest loans are subject to additional review and approval by the Directors Loan Committee (“DLC”). For existing loans, the Bank maintains a systematic loan review program, which includes internally conducted reviews and periodic reviews by external loan review consultants. Based on these reviews, loans are graded as to their overall credit quality, which is measured based on: payment capacity and collateral documentation; proper lien perfection; proper approval by loan committee(s); adherence to any loan agreement covenants; compliance with internal policies and procedures, and with laws and regulations; adequacy and strength of repayment sources including borrower or collateral generated cash flow; payment performance; and liquidation value of the collateral. We closely monitor loans that management has determined require further supervision because of the loan size, loan structure, and/or specific circumstances of the borrower.
When principal or interest on a loan is 90 days or more past due, a loan is generally placed on nonaccrual status unless it is considered to be both well-secured and in the process of collection. Further, a loan is considered a loss in whole or in part when (1) it appears that loss exposure on the loan exceeds the collateral value for the loan, (2) servicing of the unsecured portion has been discontinued, or (3) collection is not anticipated due to the borrower’s financial condition and general economic conditions in the borrower’s industry. Any loan or portion of a loan judged by management to be uncollectible is charged against the allowance for credit losses, while any recoveries are credited to the allowance.
The allowance for credit losses (“ACL”) was $150.5 million at December 31, 2024, compared with allowance for credit losses of $158.7 million at December 31, 2023. The year-over-year decline in ACL was primarily due to a year-over-year decrease in ACL related to residential mortgage loans and to CRE loans, offset partially by an increase in ACL for C&I loans at December 31, 2024 compared with December 31, 2023. The ACL was 1.11% of loans receivable at December 31, 2024, and 1.15% of loans receivable at December 31, 2023. ACL on individually evaluated loans increased to $6.1 million at December 31, 2024, from $2.7 million at December 31, 2023. In addition to allowance for credit losses, we had $2.7 million in allowance for unfunded loan commitments at December 31, 2024, compared with $3.8 million at December 31, 2023.
We recorded a provision for credit loss on loans receivable of $18.4 million in 2024 compared with $29.1 million in 2023 and $9.6 million in 2022. During 2024, we charged off $31.1 million in loans outstanding and recovered $4.5 million in loans previously charged off compared with $37.5 million in charge offs and $5.2 million in recoveries for 2023. The decrease in net charge offs for 2024 was due to a large idiosyncratic full charge off of $23.4 million in 2023, related to a borrower that entered into Chapter 7 liquidation. The net charge offs for 2024 consisted of smaller loan charge offs from downgraded loans combined with charge offs related to the sale of problem loans.
The following table presents total nonaccrual and delinquent loans (loans past due 30+ days) at the dates indicated:
December 31,
2024 2023 2022 2021 2020
(Dollars in thousands)
CRE loans $ 26,601 $ 36,092 $ 38,030 $ 60,203 $ 83,617
C&I loans 62,224 6,640 9,146 15,576 17,304
Residential mortgage loans 15,186 6,173 11,101 20,188 11,690
Consumer and other loans 627 682 1,103 848 1,414
Total nonaccrual and delinquent loans $ 104,638 $ 49,587 $ 59,380 $ 96,815 $ 114,025
Nonaccrual loans included above $ 90,564 $ 45,204 $ 49,687 $ 54,616 $ 85,238
We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt including but not limited to current financial information, historical payment experience, credit documentation, public information, and current economic trends. We analyze loans individually by classifying the loans as to credit risk. This analysis includes all non-homogeneous loans. Homogeneous loans are not risk rated and credit risk is analyzed largely by the number of days past due.
This analysis is performed on at least a quarterly basis. We use the following definitions for risk ratings:
•Pass: Loans that meet a preponderance or more of our underwriting criteria and evidence an acceptable level of risk.
•Special Mention: Loans that have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
•Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
•Doubtful/Loss: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Total criticized loans, or loans rated special mention, substandard, doubtful, or loss, at December 31, 2024, totaled $450.0 million, compared with $322.4 million at December 31, 2023. Loans assigned a risk rating of Special Mention, Substandard, Doubtful, or Loss are referred to as Criticized Loans and loans assigned a risk rating of Substandard, Doubtful, or Loss are separately referred to as Classified Loans. The following table provides the detail of Criticized Loans by risk rating at the dates indicated:
December 31,
2024 2023 2022 2021 2020
(Dollars in thousands)
Special Mention $ 179,073 $ 178,992 $ 157,263 $ 257,194 $ 184,941
Classified 270,896 143,449 104,073 242,397 366,557
Total Criticized Loans $ 449,969 $ 322,441 $ 261,336 $ 499,591 $ 551,498
In 2024, we sold $102.3 million in loans with elevated credit risk comprising mostly $99.3 million in classified loans. In 2023, we sold $172.1 million in loans with elevated credit risk comprising $147.5 million in classified loans and $24.6 million in special mention loans. In 2022, we sold $77.0 million in loans with elevated credit risk comprising $76.6 million in classified loans and $400 thousand in special mention loans.
The following table shows the provision for credit losses, the amount of loans charged off, and recoveries on loans previously charged off together with the balance in the allowance for credit losses at the beginning and end of each year, the amount of average and total loans outstanding, as well as other pertinent ratios at the dates and for the years indicated:
At or For The Year Ended December 31,
2024 2023 2022 2021 2020
(Dollars in thousands)
LOANS:
Average loans:
CRE loans $ 8,672,549 $ 9,172,818 $ 9,371,641 $ 8,877,324 $ 8,693,105
C&I loans 3,919,592 4,636,083 4,468,498 3,871,726 3,226,423
Residential mortgage loans 1,005,803 889,488 752,020 552,999 729,432
Consumer and other loans 36,784 33,777 42,468 41,382 49,563
Average loans, including loans held for sale $ 13,634,728 $ 14,732,166 $ 14,634,627 $ 13,343,431 $ 12,698,523
Total loans, excluding loans held for sale $ 13,618,272 $ 13,853,619 $ 15,403,540 $ 13,952,743 $ 13,563,213
ALLOWANCE:
Balance - beginning of year 158,694 162,359 140,550 206,741 94,144
Loans charged off:
CRE loans (1,108) (2,947) (6,803) (57,427) (8,658)
C&I loans (29,662) (34,203) (5,160) (3,558) (6,157)
Residential mortgage loans - - (22) (923) -
Consumer and other loans (318) (370) (404) (328) (1,211)
Total loans charged off (31,088) (37,520) (12,389) (62,236) (16,026)
Less recoveries:
CRE loans 563 3,285 21,698 5,722 1,851
C&I loans 3,796 1,815 2,861 2,196 5,526
Residential mortgage loans - - - - -
Consumer and other loans 162 62 39 327 46
Total loan recoveries 4,521 5,162 24,598 8,245 7,423
Net loan (charge offs) recoveries (26,567) (32,358) 12,209 (53,991) (8,603)
Adoption of CECL - - - - 26,200
Adoption of ASU 2022-02 - (407) - - -
Provision (credit) for credit losses 18,400 29,100 9,600 (12,200) 95,000
Balance - end of year $ 150,527 $ 158,694 $ 162,359 $ 140,550 $ 206,741
RATIOS:
Net loan charge offs (recoveries) to average loans 0.19 % 0.22 % (0.08) % 0.40 % 0.07 %
Allowance for credit losses to total loans receivable 1.11 % 1.15 % 1.05 % 1.01 % 1.52 %
Net loan charge offs (recoveries) to average loans 0.19 % 0.22 % (0.08) % 0.40 % 0.07 %
Allowance for credit losses to nonperforming loans 165.79 % 349.05 % 242.26 % 128.75 % 167.80 %
ALLOWANCE FOR UNFUNDED COMMITMENTS:
Allowance for unfunded commitments $ 2,723 $ 3,843 $ 1,351 $ 1,101 $ 1,296
Provision (credit) for unfunded commitments (1,120) 2,492 250 (195) 660
The following table presents net loan charge offs (recoveries) to average loans by loan category for the years indicated:
Year Ended December 31,
2024 2023 2022 2021 2020
(Dollars in thousands)
Loan Type
CRE loans 0.01 % - % (0.16) % 0.58 % 0.08 %
C&I loans 0.66 % 0.70 % 0.05 % 0.04 % 0.02 %
Residential mortgage loans - % - % - % 0.17 % - %
Consumer and other loans 0.42 % 0.91 % 0.86 % - % 2.35 %
Net loan charge offs (recoveries) to average loans 0.19 % 0.22 % (0.08) % 0.40 % 0.07 %
The following table reflects our allocation of the allowance for credit losses by loan category and the ratio of each loan category to total loans at the dates indicated:
December 31,
2024 2023 2022 2021 2020
Amount of allowance for credit losses ACL Coverage Ratio Amount of allowance for credit losses ACL Coverage Ratio Amount of allowance for credit losses ACL Coverage Ratio Amount of allowance for loan losses ACL Coverage Ratio Amount of allowance for loan losses ALLL Coverage Ratio
(Dollars in thousands)
Loan Type
CRE loans $ 88,374 1.04 % $ 93,940 1.07 % $ 95,884 1.02 % $ 108,440 1.19 % $ 162,196 1.85 %
C&I loans 57,243 1.44 % 51,291 1.24 % 56,872 1.11 % 27,811 0.66 % 39,155 0.94 %
Residential mortgage loans 4,438 0.41 % 12,838 1.45 % 8,920 1.05 % 3,316 0.57 % 4,227 0.73 %
Consumer and other loans 472 1.15 % 625 1.69 % 683 2.05 % 983 1.68 % 1,163 2.28 %
Total $ 150,527 1.11 % $ 158,694 1.15 % $ 162,359 1.05 % $ 140,550 1.01 % $ 206,741 1.52 %
The adequacy of the allowance for credit losses is determined upon an evaluation and review of the credit quality of the loan portfolio, taking into consideration economic forecasts, historical loan loss experience, relevant internal and external factors that affect the collection of a loan, and other pertinent factors. We use a combination of a modeled and non-modeled approach that incorporates current and future economic conditions to estimate lifetime expected losses on a collective basis. We incorporate in our modeled approach, Probability of Default (“PD”), Loss Given Default (“LGD”), and Exposure at Default (“EAD”) methodologies. For non-modeled loans, the allowance for credit losses is largely based on historical loss experience. Both approaches are combined with other quantitative factors and qualitative considerations in calculation of the allowance for credit losses for collectively assessed loans with similar risk characteristics.
For loans that do not share similar risk characteristics such as nonaccrual loans above $1.0 million, we evaluate these loans on an individual basis in accordance with ASC 326. These nonaccrual loans are considered to have different risk profiles than performing loans and therefore are evaluated separately. We collectively assess nonaccrual loans with balances below $1.0 million along with the performing and accrual loans in order to reduce the operational burden of individually assessing small nonaccrual loans with immaterial balances. For individually assessed loans, the ACL is measured using either (1) the present value of future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral, if the loan is collateral dependent. For the collateral dependent loans, we obtain new appraisals to determine the fair value of collateral. The appraisals are based on an “as-is” valuation. To ensure that appraised values remain current, we either obtain updated appraisals every twelve months from a qualified independent appraiser or an internal evaluation of the collateral is performed by qualified personnel. If the third-party market data indicates that the value of the collateral property has declined since the most recent valuation date, management adjusts the value of the property downward to reflect current market conditions. If the fair value of the collateral is less than the amortized balance of the loan, we recognize an ACL with a corresponding charge to the provision for credit losses.
Individually evaluated loans at December 31, 2024, were $90.4 million, a net increase of $45.2 million from $45.2 million at December 31, 2023. The net increase in individually evaluated loans was due to the increase in nonaccrual loans and loans downgraded to substandard risk rating in 2024.
We maintain a separate ACL for our off-balance sheet unfunded loan commitments. We utilize a funding rate to allocate the allowance to undrawn exposures. This funding rate is used as a credit conversion factor to capture how much undrawn can potentially become drawn at any point. The funding rate is determined based on a lookback period of eight quarters. Credit loss is not estimated for off-balance sheet credit exposures that are unconditionally cancellable by us at the time of measurement.
OREO
OREO consists of real estate properties acquired through foreclosure or similar means. OREO is recorded at fair value, less estimated selling costs. At December 31, 2024 and 2023, OREO, net, totaled $0 and $63 thousand, respectively. The number of OREO properties held at December 31, 2024 and 2023, was zero and one, respectively.
The changes in OREO for the years ended December 31, 2024 and 2023, were as follows:
Year Ended December 31,
2024 2023
(Dollars in thousands)
Balance at beginning of period $ 63 $ 2,418
Additions to OREO - 105
OREO sales (63) (2,418)
Valuation adjustments, net - (42)
Balance at end of period $ - $ 63
Deposits
Deposits are our primary source of funds for loans and investments. We offer a wide variety of deposit account products to commercial and consumer customers. Total deposits decreased to $14.33 billion at December 31, 2024, from $14.75 billion at December 31, 2023. At December 31, 2024, we had $1.06 billion in brokered deposits and $300.0 million in California State Treasurer deposits compared with $1.54 billion in brokered deposits and $300.0 million in California State Treasurer deposits at December 31, 2023. The brokered deposits represented approximately 7% of our total deposits at December 31, 2024, compared with 10% at December 31, 2023. The year-over-year decrease in brokered deposits reflects the intentional reduction of brokered time deposits in 2024. The California State Treasurer deposits had remaining maturities of three to six months and a weighted average interest rate of 4.46% and 5.41% at December 31, 2024 and 2023, respectively.
The decrease in deposits during 2024 was primarily due to decreases in demand deposits, time deposits, and savings deposits, partially offset by increases in money market and NOW deposits. Noninterest bearing demand deposits decreased $537.0 million during 2024, due primarily to a decline in business noninterest bearing deposits during the year, consistent with customer preferences in a high interest rate environment. Time deposits decreased $193.0 million from December 31, 2023, to December 31, 2024, due to a decrease in brokered time deposits of $838.4 million, partially offset by an increase in customer deposits of $645.4 million.
The following table sets forth the balances of our deposits by category for the periods indicated:
December 31,
2024 2023 2022
Amount Percent Amount Percent Amount Percent
(Dollars in thousands)
Demand, noninterest bearing $ 3,377,950 24 % $ 3,914,967 27 % $ 4,849,493 31 %
Money market, interest bearing demand and savings 5,175,735 36 % 4,872,029 33 % 5,899,248 38 %
Time deposit of more than $250,000 2,706,348 19 % 2,240,547 15 % 2,385,573 15 %
Other time deposits 3,067,456 21 % 3,726,210 25 % 2,604,487 16 %
Total deposits $ 14,327,489 100 % $ 14,753,753 100 % $ 15,738,801 100 %
The following table presents the maturity schedules of our time deposits, at dates indicated:
December 31,
2024 2023 2022
Amount Percentage Amount Percentage Amount Percentage
(Dollars in thousands)
Three months or less $ 2,115,210 37 % $ 2,111,444 35 % $ 1,166,952 23 %
Over three months through six months 1,774,064 31 % 1,592,668 27 % 1,003,444 21 %
Over six months through twelve months 1,713,203 29 % 2,206,373 37 % 2,802,627 56 %
Over twelve months 171,327 3 % 56,272 1 % 17,037 - %
Total time deposits $ 5,773,804 100 % $ 5,966,757 100 % $ 4,990,060 100 %
The following table indicates the maturity schedules of our time deposits in amounts of more than $250,000 at December 31, 2024:
Amount Percentage
(Dollars in thousands)
Three months or less $ 1,059,687 39 %
Over three months through six months 815,568 30 %
Over six months through twelve months 811,526 30 %
Over twelve months 19,567 1 %
Total $ 2,706,348 100 %
There is no assurance that we will be able to continue to replace maturing time deposits at competitive rates. However, if we are unable to replace these maturing time deposits with new deposits, we believe that we have adequate liquidity resources to fund these obligations through secured credit lines with the FHLB and FRB, as well as with liquid assets.
At December 31, 2024, total uninsured deposits of the Bank reported by the Bank was approximately $5.56 billion, or 39% of the Bank’s deposits, which represents the estimated portion of deposit accounts that exceed the FDIC insurance limit. This estimate was determined based on the same methodologies and assumptions used for regulatory reporting requirements.
FHLB and FRB Borrowings and Fed Funds Purchased
We utilize a combination of short-term and long-term borrowings from the FHLB and FRB as well as other sources to help manage our liquidity position. However, borrowings are used as a secondary source of funds and deposits are our main source of funding and liquidity.
Federal Funds Purchased
Federal funds purchased generally mature within one to three business days from the transaction date. We did not have any federal funds purchased at December 31, 2024 and 2023.
FHLB and FRB Borrowings
We may borrow from the FHLB and FRB on a short-term or long-term basis to provide funding for certain loans or investment securities strategies, as well as for asset liability management strategies. At December 31, 2024, borrowings totaled $239.0 million consisting of $100.0 million in FHLB borrowings and $139.0 million in FRB borrowings compared with $1.80 billion in total FHLB and FRB borrowings at December 31, 2023 consisting of $100.0 million in FHLB borrowings and $1.70 billion in FRB borrowings. At December 31, 2024 and 2023, the average weighted remaining maturity of FHLB and FRB borrowings was approximately two months and three months, respectively. The weighted average rates for FHLB advances and FRB borrowings were 4.88% and 4.50%, respectively, at December 31, 2024, compared with 5.73% and 4.47% for FHLB advances and FRB borrowings, respectively, at December 31, 2023. FRB BFTP borrowings were fully paid off in the first half of 2024.
Convertible Notes
In 2018, we issued $217.5 million aggregate principal amount of 2.00% convertible senior notes maturing on May 15, 2038, in a private offering to qualified institutional buyers under Rule 144A of the Securities Act of 1933. The convertible notes were issued as part of our plan to repurchase common stock. The convertible notes pay interest on a semi-annual basis to holders of the notes. The convertible notes can be called by us, in whole or in part, at any time after five years for the original issued amount in cash. Holders of the notes can put the notes for cash on the fifth, tenth, and fifteenth year of the notes.
The net carrying balance of convertible notes at December 31, 2024 and 2023 was $444 thousand. During the year ended December 31, 2023, we repurchased notes in the aggregate principal amount of $19.9 million and recorded a gain on debt extinguishment of $405 thousand. The repurchased notes were immediately cancelled subsequent to repurchase. On May 15, 2023, most holders of our convertible notes exercised their right to put their notes and therefore we paid off $197.1 million of convertible note principal in cash.
Subordinated Debentures
At December 31, 2024, our nine wholly-owned subsidiary grantor trusts (“Trusts”) had issued $126.0 million of pooled trust preferred securities (“Trust Preferred Securities”). The Trust Preferred Securities accrue and pay distributions periodically at specified annual rates as provided in the related indentures for the securities. The Trusts used the net proceeds from the offering of the Trust Preferred Securities to purchase a like amount of Hope Bancorp’s subordinated debentures (the “Debentures”). The Debentures are the sole assets of the trusts. Our obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by us of the obligations of the trusts. The Trust Preferred Securities are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the indentures. We have the right to redeem the Debentures in whole (but not in part) on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date. Debentures totaled $109.1 million at December 31, 2024, and $107.8 million at December 31, 2023.
At December 31, 2024 and 2023, the Trusts are not reported on a consolidated basis pursuant to ASC 810, Consolidation. Therefore, the capital securities of $126.0 million are not presented on the Consolidated Statements of Financial Condition. Instead, at December 31, 2024, the long-term subordinated debentures of $109.1 million, net of $20.8 million in discounts, issued by us to the Trusts and the investment in Trusts’ common stock of $3.9 million (included in other assets) are separately reported.
The following table summarizes our outstanding Debentures related to the Trust Preferred Securities at December 31, 2024:
Trust Name Issuance Date Amount Carry Value of Subordinated Debentures Maturity
Date Coupon Rate Current Rate Interest Distribution
and Callable Date
(Dollars in thousands)
Nara Capital Trust III 06/05/2003 $ 5,000 $ 5,155 06/15/2033 3M SOFR + 3.41% 7.77% Every 15th of
Mar, Jun, Sep, and Dec
Nara Statutory Trust IV 12/22/2003 5,000 5,155 01/07/2034 3M SOFR + 3.11% 7.77% Every 7th of
Jan, Apr, Jul, and Oct
Nara Statutory Trust V 12/17/2003 10,000 10,310 12/17/2033 3M SOFR + 3.21% 7.56% Every 17th of
Mar, Jun, Sep, and Dec
Nara Statutory Trust VI 03/22/2007 8,000 8,248 06/15/2037 3M SOFR +1.91% 6.27% Every 15th of
Mar, Jun, Sep, and Dec
Center Capital Trust I 12/30/2003 18,000 15,473 01/07/2034 3M SOFR + 3.11% 7.77% Every 7th of
Jan, Apr, Jul, and Oct
Wilshire Statutory Trust II 03/17/2005 20,000 16,937 03/17/2035 3M SOFR + 2.05% 6.40% Every 17th of
Mar, Jun, Sep, and Dec
Wilshire Statutory Trust III 09/15/2005 15,000 12,148 09/15/2035 3M SOFR + 1.66% 6.02% Every 15th of
Mar, Jun, Sep, and Dec
Wilshire Statutory Trust IV 07/10/2007 25,000 19,570 09/15/2037 3M SOFR + 1.64% 6.00% Every 15th of
Mar, Jun, Sep, and Dec
Saehan Capital Trust I 03/30/2007 20,000 16,144 06/30/2037 3M SOFR + 1.88% 6.21% Every 30th of
Mar, Jun, Sep, and Dec
Total Trusts $ 126,000 $ 109,140
Capital Resources
Historically, our primary source of capital has been the retention of earnings, net of interest payments on debentures and convertible notes and dividend payments to stockholders and share repurchases. We seek to maintain capital at a level sufficient to assure our stockholders, customers, and regulators that Hope Bancorp and the Bank are financially sound. For this purpose, we perform ongoing assessments of capital related risks, components of capital, as well as projected sources and uses of capital in conjunction with projected increases in assets and levels of risk.
Our total stockholders’ equity increased $13.3 million, or 0.6%, to $2.13 billion at December 31, 2024, from $2.12 billion at December 31, 2023. The increase in our stockholders’ equity at December 31, 2024, compared with December 31, 2023, was largely due to net income earned of $99.6 million, an increase in additional paid-in capital consisting of $5.4 million in stock-based compensation, offset partially by dividends paid of $67.5 million, a decrease in AOCI of $23.1 million, and a decrease to beginning retained earnings of $1.1 million, net of tax, resulting from our adjustments related to adoption of ASU 2023-02. The decrease in AOCI from December 31, 2023, to December 31, 2024, was due to the increase in unrealized losses on our investment securities AFS as a result of changes to market interest rates.
At December 31, 2024, our ratio of common equity to total assets was 12.52% compared with 11.09% at December 31, 2023, and our tangible common equity represented 10.05% of tangible assets at December 31, 2024, compared with 8.86% of tangible assets at December 31, 2023. Tangible common equity per share was $13.81 at December 31, 2024, compared with $13.76 at December 31, 2023. Tangible common equity to tangible assets and tangible common equity per share are non-GAAP financial measures that we believe provide investors with information that is useful in understanding our financial performance and position.
We provide certain non-GAAP financial measures that we believe provide investors with meaningful supplemental information that is useful in understanding our financial performance and position. The methodologies for determining non-GAAP measures may differ among companies. The following table reconciles non-GAAP financial measures used to the most comparable GAAP performance measures:
December 31,
2024 2023
(Dollars in thousands, except share and per share data)
Total stockholders’ equity $ 2,134,505 $ 2,121,243
Less: Goodwill and core deposit intangible assets, net (466,781) (468,385)
Tangible common equity (“TCE”) $ 1,667,724 $ 1,652,858
Total assets $ 17,054,008 $ 19,131,522
Less: Goodwill and core deposit intangible assets, net (466,781) (468,385)
Tangible assets $ 16,587,227 $ 18,663,137
Common shares outstanding 120,755,658 120,126,786
TCE per share (TCE / common shares outstanding) $ 13.81 $ 13.76
TCE ratio (TCE / tangible assets) 10.05 % 8.86 %
The following table compares Hope Bancorp’s and the Bank’s capital ratios at December 31, 2024, to those required by our regulatory agencies to generally be deemed “adequately capitalized” for capital adequacy classification purposes:
December 31, 2024
Actual Ratio Required To Be Well-Capitalized Excess Over Well-Capitalized
Amount Ratio
(Dollars in thousands)
Hope Bancorp
Common equity tier 1 capital
(to risk-weighted assets): $ 1,900,601 13.06 % N/A N/A
Tier 1 capital
(to risk-weighted assets) $ 2,005,840 13.79 % N/A N/A
Total capital
(to risk-weighted assets) $ 2,150,810 14.78 % N/A N/A
Leverage capital
(to average assets) $ 2,005,840 11.83 % N/A N/A
Bank of Hope
Common equity tier 1 capital
(to risk-weighted assets): $ 1,978,969 13.61 % 6.50 % 7.11 %
Tier 1 capital
(to risk-weighted assets) $ 1,978,969 13.61 % 8.00 % 5.61 %
Total capital
(to risk-weighted assets) $ 2,123,939 14.61 % 10.00 % 4.61 %
Leverage capital
(to average assets) $ 1,978,969 11.68 % 5.00 % 6.68 %
Capital rules require a capital conservation buffer of 2.50% above the three minimum risked-weighted capital ratios to avoid constraints on dividend payments, stock repurchases, and discretionary bonus payments to executives. Our capital ratios at December 31, 2024 and 2023, exceeded all of the regulatory minimums including the fully-phased in capital conservation buffer.
Liquidity Management
Liquidity risk is the risk of reduction in our earnings or capital that could result if we were not able to meet our obligations when they come due without incurring unacceptable losses. Liquidity risk includes the risk of unplanned decreases or changes in funding sources and changes in market conditions that affect our ability to liquidate assets quickly and with minimum loss of value. Factors considered in liquidity risk management are the stability of the deposit base; the marketability, maturity, and pledging of our investments; the availability of alternative sources of funds; and our demand for credit.
The objective of our liquidity management is to have funds available to meet cash flow requirements arising from fluctuations in deposit levels and the demands of daily operations, which include funding of securities purchases, providing for customers’ credit needs, and ongoing repayment of borrowings.
We manage our liquidity actively on a daily basis and it is reviewed periodically by our management-level Asset/Liability Management Committee (“ALM”) and the Board Risk Committee (“BRC”). This process is intended to ensure the maintenance of sufficient funds to meet our liquidity needs, including adequate cash flow for off-balance-sheet commitments. In general, our liquidity is managed daily by controlling the level of federal funds and the funds provided by cash flow from operations. To meet unexpected demands, lines of credit are maintained with the FHLB, the Federal Reserve Bank, and other correspondent banks. These lines of credit are tested at least annually for funds availability. The sale of investment securities and loans held for sale also serves as a source of funds.
Our primary sources of liquidity are derived from financing activities, which include deposits, federal funds facilities, and borrowings from the FHLB and the FRB’s Discount Window. These funding sources are augmented by payments of principal and interest on loans, proceeds from sale of loans, pay down of investment securities, and the liquidation or sale of securities from our AFS portfolio. Primary uses of funds include withdrawal of and interest payments on deposits, originations of loans, purchases of investment securities, payment of operating expenses, share repurchases, and payment of dividends.
Net cash inflows from operating activities totaled $116.7 million, $473.8 million, and $485.5 million during 2024, 2023, and 2022, respectively. Net cash inflows from operating activities for 2024 were primarily attributable to net income earned, discount accretion, net of depreciation and amortization, and provision for credit losses, partially offset by changes in accrued interest payable and originations of loans held for sale.
Net cash inflows from investing activities totaled $466.5 million during 2024, and $1.29 billion during 2023 and net cash outflows from investing activities totaled $1.47 billion during 2022. Net cash inflows from investing activities during 2024 were primarily from proceeds from investment securities AFS and investment securities HTM that were paid down during the year, and proceeds received from sales of investment securities AFS and loans held for sale. These inflows were partially offset by purchases of investment securities.
Net cash outflows from financing activities totaled $2.05 billion during 2024 and $341.5 million during 2023 and net cash inflows from financing activities totaled $1.18 billion during 2022. Net cash outflows from financing activities for 2024 was primarily attributable to the repayment of FRB borrowings, a decrease in deposits, and dividends paid on common stock. These outflows were partially offset by proceeds from FRB borrowings and FHLB advances.
When we have more funds than required for our reserve requirements or short-term liquidity needs, we sell federal funds to other financial institutions. Conversely, when we have less funds than required, we may purchase federal funds or borrow funds from the FHLB or the FRB’s Discount Window. At December 31, 2024, the maximum amount that we were able to borrow on an overnight basis from the FHLB and the FRB was an aggregate of $5.88 billion, and we had $100.0 million in borrowings from the FHLB and $139.00 million in borrowings outstanding from the FRB. The FHLB system functions as a line of credit facility for qualifying financial institutions. As a member, we are required to own capital stock in the FHLB and may apply for advances from the FHLB by pledging qualifying loans and certain securities as collateral for these advances.
At times we maintain a portion of our liquid assets in interest earning cash deposits with other banks, overnight federal funds sold to other banks, and in investment securities AFS that are not pledged. Our liquid assets consist of cash and cash equivalents, interest earning cash deposits with other banks, liquid investment securities AFS, and loan repayments within 30 days. Liquid assets totaled $2.06 billion and $2.47 billion at December 31, 2024 and 2023, respectively. Cash and cash equivalents totaled $458.2 million at December 31, 2024, compared with $1.93 billion at December 31, 2023. The year-over-year decrease in cash and cash equivalents was primarily due to the payoff of our FRB BTFP borrowings in 2024.
Because our primary sources and uses of funds are deposits and loans, the relationship between gross loans and total deposits provides one measure of our liquidity. Typically, the closer the ratio of loans to deposits is to, or the more it exceeds, 100%, the more we rely on borrowings and other sources to provide liquidity. Alternative sources of funds such as FHLB advances and FRB borrowings, brokered deposits, and other collateralized borrowings that provide liquidity as needed from diverse liability sources are an important part of our asset/liability management strategy. Our average gross loans to average deposits ratio was 93%, 94% and 96% for years ended 2024, 2023, and 2022, respectively.
We believe our liquidity sources are stable and adequate to meet our day-to-day cash flow requirements. At December 31, 2024, management is not aware of any demands, commitments, trends, events, or uncertainties that will or are reasonably likely to have a material or adverse effect on our liquidity position. At December 31, 2024, we are not aware of any material commitments for capital expenditures in the foreseeable future.
Off-Balance-Sheet Activities and Contractual Obligations
The Bank routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected, in whole or in part, in the Consolidated Financial Statements. These activities are part of our normal course of business and include traditional off-balance-sheet credit-related financial instruments, interest rate swap contracts, operating leases, and interest commitments on our liabilities.
Traditional off-balance-sheet credit-related financial instruments are primarily commitments to extend credit and standby letters of credit. These activities may require us to make cash payments to third parties in the event specified future events occur. The contractual amounts represent the extent of our exposure in these off-balance-sheet activities. However, since certain off-balance-sheet commitments, particularly standby letters of credit, are expected to expire or be only partially used, the total amount of commitments does not necessarily represent future cash requirements. These activities are necessary to meet the financing needs of our customers.
We do not anticipate that our current off-balance-sheet activities will have a material impact on our future results of operations or financial condition. Further information regarding risks from our off-balance-sheet financial instruments can be found in Note 14 of the Notes to Consolidated Financial Statements and in Item 7A. - “Quantitative and Qualitative Disclosures about Market Risk.”
We also commit to fund certain affordable housing partnership investments in the future. Funded commitments are presented as investments in affordable housing partnerships in the Consolidated Financial Statements while unfunded commitments are presented as commitments to fund investment in affordable housing partnerships.
The following table summarizes our contractual obligations and commitments to make future payments at December 31, 2024. Payments shown for time deposits, FHLB advances, convertible notes, and subordinated debenture include interest obligations to their respective repricing or next call dates:
Payments Due By Period
Less than 1 year 1-3 years 3-5 years Over 5 years Total
(Dollars in thousands)
Contractual Obligations and Commitments
Time deposits $ 5,833,429 $ 135,786 $ 3,044 $ - $ 5,972,259
FHLB and FRB borrowings 240,726 - - - 240,726
Convertible notes 446 - - - 446
Subordinated debentures (1)
128,162 - - - 128,162
Operating leases 15,093 23,460 6,231 2,002 46,786
Commitments to fund CRA and tax credit investments 12,869 4,195 499 1,282 18,845
Unfunded commitments to extend credit 1,203,785 839,158 177,057 35,785 2,255,785
Standby letters of credit 120,754 13,466 328 - 134,548
Other letters of credit 22,455 419 - - 22,874
Total $ 7,577,719 $ 1,016,484 $ 187,159 $ 39,069 $ 8,820,431
___________________
(1) Interest for variable rate subordinated debentures were calculated using interest rates at December 31, 2024.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The objective of the Company’s asset and liability management activities is to optimize earnings while maintaining adequate liquidity and maintaining exposure to interest rate risk deemed to be acceptable by management, by adjusting the type and mix of assets and liabilities to effectively address changing conditions and risks. Primary operating strategies for attaining this objective include managing the net interest margin through appropriate risk/return pricing of assets and liabilities, and emphasizing growth of low-cost, stable customer deposits. Various methods are used to protect against exposure to interest rate fluctuations, reducing the effects of fluctuations on associated cash flows or values. Internal analyses are performed to measure, evaluate, and monitor liquidity and interest rate risk.
Interest Rate Risk
Interest rate risk is the most significant market risk impacting the Company. Interest rate risk, which is inherent in the banking industry, is measured by potential changes in net interest income (“NII”) and the economic value of equity (“EVE”). The primary forms of interest rate risk consist of repricing risk, basis risk, yield curve risk, and options risk.
•Repricing Risk: The risk that interest rate sensitive assets and liabilities do not reprice simultaneously and/or in equal volumes.
•Basis Risk: The risk that different indices with the same repricing frequency do not move in unison due to asymmetrical changes in interest rate indices.
•Yield Curve Risk: The risk from non-parallel changes in the slope of the yield curve.
•Options Risk: The risk that cash flows change due to embedded options (e.g., prepayment / extension, call options, deposit runoff, time deposit early withdrawal).
The Company’s interest rate risk management is governed by policies reviewed and approved annually by the Board of Directors. The Board delegates responsibility for interest rate risk management to the Board Risk Committee and to the Asset and Liability Management Committee (“ALM”), which is composed of the Bank’s senior executives and other designated officers.
The fundamental objective of the ALM is to manage exposure to interest rate fluctuations while maintaining adequate levels of liquidity and capital. ALM meets regularly to monitor the Company’s interest rate risk, balance sheet activities, on- and off-balance sheet composition, earnings, capital, and market trends. Overall, the Company aims to reduce the sensitivity of earnings to interest rate fluctuations. Certain assets and liabilities, however, may react in different degrees to changes in market interest rates. Furthermore, interest rates on certain types of assets and liabilities may fluctuate prior to changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. The expected maturities of various assets or liabilities may shorten or lengthen as interest rates change. Management considers the anticipated effects of these factors when implementing interest rate risk management objectives.
The Company’s interest rate risk sensitivity simulations apply various behavior models and assumptions to account for customer tendencies stemming from interest rate risk changes. The key behavior models and assumptions incorporated in the EVE and NII simulations impact deposit pricing, deposit runoff, time deposit early withdrawal, and prepayments on loans and investments. The deposit pricing model is one of the most significant of these assumptions and determines to what degree our deposit rates change when benchmark interest rates change. The deposit runoff model reflects the increased attrition rate observed in noninterest bearing deposits in higher rate scenarios as customers migrate to interest bearing deposits and/or alternative investments. The time deposit early withdrawal model incorporates the customer’s ability to early terminate time deposits and reprice higher. The prepayment models applied to loans and investments reflects the incentive borrowers have to refinance when market rates are low while conversely slowing down their payments in higher rate environments. Each of the models and assumptions are tailored to the specific interest rate environment and validated on a regular basis. However, assumptions and models are inherently uncertain and actual results may differ from those derived in simulation analysis for multiple reasons, which may include actual balance sheet composition differences, timing, magnitude and frequency of interest rate changes, deviations from projected customer behavioral assumptions, and changes in market conditions or management strategies.
Net Interest Income Sensitivity Simulation
Net interest income sensitivity simulations are used by management to measure the risk and impact to earnings over various time horizons, using a variety of interest rate scenarios. The following table presents the Company’s net interest income sensitivity profile over a gradual 12-month “ramp” scenario applied to the base implied forward curve. The “ramp” scenario is a parallel shift applied gradually over the 12 months of the forecast on a pro rata basis. The scenarios are applied to an adjusted balance sheet that incorporates assumptions related to asset prepayments, time deposit withdrawal speeds, noninterest bearing deposit migration, and estimated deposit betas; these assumptions differ in rising or falling interest rate scenarios and are anchored in historical performance. Deposit betas represent the change in the rates paid on deposits against a change in benchmark interest indices. The net interest income simulation model does not represent a forecast of the Company’s net interest income but is a tool utilized to assess the impact of changing market interest rates across a range of market interest rate environments.
The following table presents the Company’s net interest income sensitivity related to a 12-month parallel ramp of 100, 200 and 300 bps applied in year 1 on implied forward market interest rates as of December 31, 2024, and December 31, 2023, on a balance sheet assuming static balances on assets and liabilities with deposit balances modeled to migrate from noninterest bearing deposits to interest bearing deposits as rates move.
Net Interest Income Sensitivity Interest Rate Change (basis points)
- 300 .
- 200 .
- 100 .
+ 100 .
+ 200 .
+ 300 .
December 31, 2024 (4.82)% (3.41)% (1.69)% 1.65% 3.22% 3.76%
December 31, 2023 (8.04)% (5.49)% (2.82)% 2.20% 3.30% 3.65%
The year-over-year changes in earnings sensitivity is primarily due to the decrease in cash balances, offset by reduction in FHLB balances and termination of $400.0 million of receive-fixed swaps in 2024 compared to no terminations in 2023.
Interest Rate Sensitivity
Our monitoring activities related to managing interest rate risk include both interest rate sensitivity “gap” analysis and the use of a simulation model. While traditional gap analysis provides a simple picture of the interest rate risk embedded in the Consolidated Statements of Financial Condition, it provides only a static view of interest rate sensitivity at a specific point in time and does not measure the potential volatility in forecasted results relating to changes in market interest rates over time. Accordingly, we combine the use of gap analysis with the use of a simulation model, which provides a dynamic assessment of interest rate sensitivity.
The interest rate sensitivity gap is defined as the difference between the amount of interest earning assets anticipated to reprice within a specific time period and the amount of interest bearing liabilities anticipated to reprice within that same time period. A gap is considered positive when the amount of interest rate sensitive assets repricing within a specific time period exceeds the amount of interest bearing liabilities repricing within that same time period. A positive cumulative gap suggests that earnings will increase when interest rates rise and decrease when interest rates fall. A negative cumulative gap suggests that earnings will increase when interest rates fall and decrease when interest rates rise. However, actual earnings may not increase or decrease as expected based on the cumulative gap as there are other factors that impact earnings.
The following table illustrates our combined asset and liability contractual repricing as of December 31, 2024:
0 - 3 Months Over 3 Months to
1 Year Over 1 Year
to 5 Years Over 5
Years Total
(Dollars in thousands)
Rate Sensitive Assets:
Interest earning cash $ 235,541 $ - $ - $ - $ 235,541
Investment securities AFS 360 20,779 586,344 1,215,760 1,823,243
Investment securities HTM - 2,191 69,341 180,853 252,385
Equity investments 39,946 - - - 39,946
Loans outstanding(1)
5,891,667 1,482,023 5,734,471 524,602 13,632,763
Total rate sensitive assets $ 6,167,514 $ 1,504,993 $ 6,390,156 $ 1,921,215 $ 15,983,878
Rate Sensitive Liabilities:
Money market and NOW $ 4,515,251 $ - $ - $ - 4,515,251
Savings deposits 590,801 41,315 28,368 - 660,484
Time deposits 2,149,977 3,487,267 136,560 - 5,773,804
FHLB and FRB borrowings 239,000 - - - 239,000
Convertible notes 444 - - - 444
Subordinated debentures 109,140 - - - 109,140
Total rate sensitive liabilities $ 7,604,613 $ 3,528,582 $ 164,928 $ - $ 11,298,123
Net Gap Position $ (1,437,099) $ (2,023,589) $ 6,225,228 $ 1,921,215
Cumulative Gap Position $ (1,437,099) $ (3,460,688) $ 2,764,540 $ 4,685,755
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(1)Includes nonaccrual loans of $90.6 million and loans held for sale of $14.5 million.
Economic Value of Equity Sensitivity
EVE is used by management to measure the impact of interest rate changes on the net present value of assets and liabilities, including off-balance sheet instruments. EVE complements net interest income sensitivity simulations whereas it estimates the risk exposure for a longer time horizon, or more specifically, the expected life of the current balance sheet. EVE does not incorporate any assumptions related to new originations or renewal activities used in the net interest income sensitivity analysis. The following table presents the Company’s EVE profile applied to immediate parallel shock scenarios.
Economic Value of Equity Sensitivity Interest Rate Change (basis points)
- 300 .
- 200 .
- 100 .
+ 100 .
+ 200 .
+ 300 .
December 31, 2024 7.72% 6.87% 4.12% (4.88)% (10.59)% (16.87)%
December 31, 2023 1.29% 3.29% 2.47% (5.45)% (11.94)% (18.96)%
The year-over-year changes in EVE sensitivity was primarily driven by an update to the Company’s deposit pricing model. The improved model incorporates the non-linear observations the Company experienced during the recent rapid increase in federal policy rate and subsequent rate decrease.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of Hope Bancorp, together with the report of Crowe LLP begin on page of this Report and are incorporated herein by reference:
Report of Independent Registered Public Accounting Firm (PCAOB ID 173)
Consolidated Statements of Financial Condition as of December 31, 2024 and 2023
Consolidated Statements of Income for the Years Ended December 31, 2024, 2023, and 2022
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2024, 2023, and 2022
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2024, 2023, and 2022
Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023, and 2022
Notes to Consolidated Financial Statements for the Years Ended December 31, 2024, 2023, and 2022
See “Item 15. Exhibits and Financial Statement Schedules” for exhibits filed as a part of this Report.
The supplementary data required by this Item (selected quarterly financial data) is provided in Note 26 “Quarterly Financial Data (unaudited)” in the Notes to the Consolidated Financial Statements.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A.CONTROLS AND PROCEDURES
a. Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chairman, President, and Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
We conducted an evaluation under the supervision and with the participation of our management, including our Chairman, President, and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2024. Based upon that evaluation, our Chairman, President, and Chief Executive Officer and our Chief Financial Officer determined that our disclosure controls and procedures were effective as of December 31, 2024.
b. Management’s Annual Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rule 13a-15(f) under the Exchange Act. This system, which our management has chosen to base on the framework set forth in the 2013 Internal Control-Integrated Framework, published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), is supervised by our Chairman, President, and Chief Executive Officer and Chief Financial Officer, is effected by the Board, management and other personnel, and is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time.
With the participation of our Chairman, President, and Chief Executive Officer and our Chief Financial Officer, and under the direction of our audit committee, our management has conducted an assessment of the effectiveness of the Company’s system of internal control over financial reporting as of December 31, 2024, using the criteria set forth by COSO. Based on this assessment, our management believes that the Company’s system of internal control over financial reporting was effective as of December 31, 2024.
c. Changes in Internal Control Over Financial Reporting
Management has determined that there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
Our independent registered public accounting firm has issued an audit report on our internal control over financial reporting which is included on page of this report.

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ITEM 9B. OTHER INFORMATION
Item 9B.OTHER INFORMATION
During the three months ended December 31, 2024, no director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as defined in Item 408 of Regulation S-K.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item with respect to the Company’s directors and executive officers, Delinquent Section 16(a) Reports, the Company’s Code of Ethics and Business Conduct, director nomination procedures, the Audit Committee and the audit committee financial expert will be filed in Hope Bancorp’s definitive Proxy Statement for its 2025 Annual Meeting of Stockholders (the “2025 Proxy Statement”), which will be filed with the SEC not later than 120 days after December 31, 2024.
The Company has adopted a code of ethics that applies to all employees, including its principal executive officer, principal financial officer, and principal accounting officer. The employee code of ethics is accessible on the “Governance Documents” page of the “Corporate Governance” tab of our investor relations website at www.ir-hopebancorp.com.
The Company has adopted an insider trading policy (included as Exhibit 19.1 of this report) that governs the purchase, sale, and/or other dispositions of the Company’s securities by our officers, directors, and employees that is designed to comply with insider trading laws, rules, and regulations, as well as any applicable listing standards.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11.EXECUTIVE COMPENSATION
The information required by this Item with respect to director and executive compensation, “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” will be filed in Hope Bancorp’s 2025 Proxy Statement which will be filed with the SEC not later than 120 days after December 31, 2024.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by this Item with respect to security ownership of certain beneficial owners and management will be filed in Hope Bancorp’s 2025 Proxy Statement which will be filed with the SEC not later than 120 days after December 31, 2024.
The following table summarizes our equity compensation plans as of December 31, 2024:
Securities Authorized for Issuance Under Equity Compensation Plans
Plan Category Number of securities to be issued upon exercise
of outstanding options,
warrants and rights
(a) Weighted average
exercise price of
outstanding options,
warrants and rights
(b) Number of securities
remaining available for
future issuance under
equity compensation
plans excluding
securities reflected in
Column (a)
(c)
Equity compensation plans approved by security holders 421,231 $ 17.04 3,348,065
Equity compensation plans not approved by security holders - - -
Total 421,231 $ 17.04 3,348,065

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item with respect to certain relationships and related transactions and director independence will be filed in Hope Bancorp’s 2025 Proxy Statement which will be filed with the SEC not later than 120 days after December 31, 2024.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item with respect to principal accountant fees and services will be filed in Hope Bancorp’s 2025 Proxy Statement which will be filed with the SEC not later than 120 days after December 31, 2024.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements: The financial statements listed under Part II-Item 8. “Financial Statements and Supplementary Data” are filed as part of this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedules: All financial statement schedules have been omitted since the required information is either not applicable or not required, or has been included in the Financial Statements and related notes.
(a)(3) List of Exhibits
Number Description
3.1 Second Amended and Restated Certificate of Incorporation of Hope Bancorp, Inc. (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 3.1, filed with the SEC on May 29, 2024)
3.2 Amended and Restated Bylaws of Hope Bancorp, Inc. (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 3.2, filed with the SEC on May 29, 2024)
4.1 Junior Subordinated Indenture, dated June 5, 2003, by and between the Nara Bancorp, Inc. as Issuer and The Bank of New York as Trustee (incorporated herein by reference to the Current Report on Form 8-K/A, Exhibit 99.2, filed with the SEC on May 2, 2008)
4.2 Indenture, dated December 17, 2003, by and between Nara Bancorp, Inc. as Issuer and U.S. Bank National Association as Trustee (incorporated herein by reference to the Current Report on Form 8-K/A, Exhibit 99.5, filed with the SEC on May 2, 2008)
4.3 Indenture, dated December 22, 2003, between Nara Bancorp, Inc. as Issuer and Wells Fargo Bank, National Association as Trustee (incorporated herein by reference to the Current Report on Form 8-K/A, Exhibit 99.8, filed with the SEC on May 2, 2008)
4.4 Indenture, dated March 22, 2007, by and between Nara Bancorp, Inc. and Wilmington Trust Company (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 4.2, filed with the SEC on March 29, 2007)
4.5 Indenture, dated as of December 30, 2003, between Center Financial Corporation and Wells Fargo Bank, National Association (incorporated herein by reference to Center Financial’s Annual Report on Form 10-K, Exhibit 10.4, for the year ended December 31, 2003, filed with the SEC on March 30, 2004)
4.6 Indenture, dated as of March 17, 2005, between Wilshire Bancorp, Inc. and Wilmington Trust Company (incorporated herein by reference to Wilshire Bancorp’s Annual Report on Form 10-K, Exhibit 4.6, for the year ended December 31, 2006, filed with the SEC on March 16, 2007)
4.7 Indenture, dated as of September 15, 2005, between Wilshire Bancorp, Inc. and Wilmington Trust Company (incorporated herein by reference to Wilshire Bancorp’s Annual Report on Form 10-K, Exhibit 4.9, for the year ended December 31, 2006, filed with the SEC on March 16, 2007)
4.8 Indenture, dated as of July 10, 2007, between Wilshire Bancorp, Inc. and LaSalle Bank National Association (incorporated herein by reference to Wilshire Bancorp’s Quarterly Report on Form 10-Q, Exhibit 4.12, for the quarter ended September 30, 2007, filed with the SEC on November 9, 2007)
4.9 Indenture, dated as of March 30, 2007 between Saehan Bancorp, Inc. and Wilmington Trust Company (incorporated herein by reference to Wilshire Bancorp’s Annual Report on Form 10-K, Exhibit 4.11, for the year ended December 31, 2013, filed with the SEC on March 14, 2014)
4.10 Indenture dated May 11, 2018, by and between Hope Bancorp, Inc. and U.S. Bank National Association (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 4.1, filed with the SEC on May 11, 2018)
Number Description
4.11 Description of Securities Registered Under Section 12 of the Exchange Act+
10.1 Wilshire State Bank Directors' Survivor Income Plan, dated July 30, 2003, as amended on September 26, 2012 (incorporated herein by reference to Wilshire Bancorp’s Annual Report on Form 10-K, Exhibit 10.13, for the year ended December 31, 2012, filed with the SEC on March 14, 2013)*
10.2 Wilshire State Bank Executive Survivor Income Plan, dated July 30, 2003, as amended on September 26, 2012 (incorporated herein by reference to Wilshire Bancorp’s Annual Report on Form 10-K, Exhibit 10.14, for the year ended December 31, 2012, filed with the SEC on March 14, 2013)*
10.3 Wilshire State Bank Directors' Survivor Income Plan, dated July 1, 2005, as amended on September 26, 2012 (incorporated herein by reference to Wilshire Bancorp’s Annual Report on Form 10-K, Exhibit 10.15, for the year ended December 31, 2012, filed with the SEC on March 14, 2013)*
10.4 Wilshire State Bank Executive Survivor Income Plan, dated July 1, 2005, as amended on September 26, 2012 (incorporated herein by reference to Wilshire Bancorp’s Annual Report on Form 10-K, Exhibit 10.16, for the year ended December 31, 2012, filed with the SEC on March 14, 2013)*
10.5 BBCN Bancorp, Inc. 2016 Incentive Compensation Plan (incorporated herein by reference to the Registration Statement on Form S-8, Exhibit 4.1, filed with the SEC on May 7, 2021)*
10.6 Form of Incentive Stock Option Agreement under the 2016 Incentive Compensation Plan (incorporated herein by reference to the Registration Statement on Form S-8, Exhibit 10.1, filed with the SEC on May 7, 2021)*
10.7 Form of Non-qualified Stock Option Agreement under the 2016 Incentive Compensation Plan (incorporated herein by reference to the Registration Statement on Form S-8, Exhibit 10.2, filed with the SEC on May 7, 2021)*
10.8 Form of Restricted Stock Unit Agreement under the 2016 Incentive Compensation Plan (incorporated herein by reference to the Registration Statement on Form S-8, Exhibit 10.3, filed with the SEC on May 7, 2021)*
10.9 Form of Performance-Based Restricted Stock Unit Agreement under the 2016 Incentive Compensation Plan (incorporated herein by reference to the Registration Statement on Form S-8, Exhibit 10.4, filed with the SEC on May 7, 2021)*
10.10 Hope Bancorp, Inc. 2019 Incentive Compensation Plan (incorporated herein by reference to the Definitive Proxy Statement on Schedule 14A, Annex A, filed with the SEC on April 30, 2019)*
10.11 Form of Restricted Stock Unit Agreement under the 2019 Incentive Compensation Plan (incorporated herein by reference to the Registration Statement on Form S-8, Exhibit 10.5, filed with the SEC on May 7, 2021)*
10.12 Form of Performance-Based Restricted Stock Unit Agreement under the 2019 Incentive Compensation Plan (incorporated herein by reference to the Registration Statement on Form S-8, Exhibit 10.6, filed with the SEC on May 7, 2021)*
10.13 Affiliate Agreement between Hope Bancorp, Inc. and Bank of Hope (incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 10.10, for the year ended December 31, 2019, filed with the SEC on February 26, 2020)*
10.14 Tax Sharing Agreement among Hope Bancorp, Inc and Bank of Hope (incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 10.11, for the year ended December 31, 2019, filed with the SEC on February 26, 2020)*
10.15 Fourth Amended and Restated Employment Agreement, dated April 22, 2022, by and between Hope Bancorp, Inc., Bank of Hope and Kevin S. Kim (incorporated herein by reference to the Quarterly Report on Form 10-Q, Exhibit 10.1, for the quarter ended March 31, 2022, filed with the SEC on May 9, 2022)*
10.16 Hope Bancorp, Inc. 2024 Equity Incentive Plan (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 10.1, filed with the SEC on May 29, 2024)
Number Description
10.17 Form of Restricted Stock Unit Agreement under the Hope Bancorp, Inc. 2024 Equity Incentive Plan (incorporated herein by reference to the Registration Statement on Form S-8, Exhibit 10.1, filed with the SEC on June 21, 2024)
10.18 Form of Performance-Based Restricted Stock Unit Agreement under the Hope Bancorp, Inc. 2024 Equity Incentive Plan (incorporated herein by reference to the Registration Statement on Form S-8, Exhibit 10.2, filed with the SEC on June 21, 2024)
10.19 Form of Option Agreement under the Hope Bancorp, Inc. 2024 Equity Incentive Plan (incorporated herein by reference to the Registration Statement on Form S-8, Exhibit 10.3, filed with the SEC on June 21, 2024)
19.1 Insider Trading Policy+
21.1 Subsidiaries of the Registrant (incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 21.1, for the year ended December 31, 2023, filed with the SEC on February 28, 2024)
23.1 Consent of Crowe LLP+
31.1 Certification of Chief Executive Officer pursuant to section 302 of Sarbanes-Oxley of 2002+
31.2 Certification of Chief Financial Officer pursuant to section 302 of Sarbanes-Oxley of 2002+
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002++
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002++
97.1 Clawback Policy (incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 97, for the year ended December 31, 2023, filed with the SEC on February 28, 2024)
101.INS Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document+
101.SCH Inline XBRL Taxonomy Extension Schema Document+
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document+
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document+
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document+
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document+
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
_______________________
* Management contract, compensatory plan, or arrangement
+ Filed herewith
++ Furnished herewith