10q10k10q10k.net

What changed in HOPE BANCORP INC's 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of HOPE BANCORP INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+448 added−469 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-28)

Top changes in HOPE BANCORP INC's 2023 10-K

448 paragraphs added · 469 removed · 316 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

65 edited+23 added−26 removed90 unchanged
Biggest changeThe 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).
Biggest changeThe 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). 9 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”).
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. The Company was incorporated in Delaware in the year 2000.
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.
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, 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.
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.
California banks are also subject to statutes and regulations including FRB Regulation O and 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.
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.
As required by the Dodd-Frank Act, the CFPB also promulgated TILA-RESPA Integrated Disclosure rules which became effective in 2015 and require new mortgage disclosures. 13 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.
As required by the Dodd-Frank Act, the CFPB also promulgated TILA-RESPA Integrated Disclosure rules which became effective in 2015 and require new mortgage disclosures. 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.
DFPI approvals are also required for bank mergers and acquisitions. 8 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.
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.
FRB policy requires that a bank holding company must notify the FRB if its 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.
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.
While Hope Bancorp and the Bank had no investment positions or relationships at December 31, 2022 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.
While Hope Bancorp and the Bank had no investment positions or relationships at December 31, 2023, 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 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; and are largely reviewed quarterly to address potential borrower covenant defaults/appropriate borrower action plans as well as regulatory loan grading.
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; and are largely reviewed quarterly to address potential borrower covenant defaults/appropriate borrower action plans as well as loan risk grading.
None of the information on or hyperlinked from the Company’s website is incorporated into this Annual Report on Form 10-K. 3 Business Overview Our principal business activities are conducted through the Bank and primarily consist of earning interest on loans and investment securities that are primarily funded by customer deposits and other borrowings.
None of the information on or hyperlinked from the Company’s website is incorporated into this Annual Report on Form 10-K. 3 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.
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. 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.
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.
See “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.
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.
FDIC-insured deposits are our primary source of funds. As part of our asset-liability management, we analyze our retail 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.
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.
In general, the difference between the interest expense on interest bearing liabilities, such as deposits, borrowings, and debt, and the interest income on our interest earning assets, such as loans we extend to our customers and securities held in our investment portfolio, as well as the level of noninterest bearing deposits, has a significant impact on our profitability.
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.
In aggregate, we contributed approximately more than $2.3 million to the Hope Scholarship Foundation since its establishment in 2001. In 2022, we launched and published our initial Environmental, Social and Governance (“ESG”) report and webpage in our investor relation website (www.ir-hopebancorp.com).
In aggregate, we contributed approximately more than $2.8 million to the Hope Scholarship Foundation since its establishment in 2001. In 2022, we launched and published our initial Environmental, Social and Governance (“ESG”) report and webpage in our investor relation website (www.ir-hopebancorp.com).
Management believes that as of December 31, 2022, 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.
Management believes that as of December 31, 2023, 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.
We cannot predict whether any of this 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.” 7 Supervision and Regulation General Hope Bancorp and the Bank are subject to extensive regulation and supervision under state and federal banking laws.
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.
We provide professional development opportunities to team members and seeks 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.
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.
At December 31, 2022, 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.
At December 31, 2023, 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.
Adjustable rate mortgage loans are also offered with flexible initial and periodic adjustments ranging from five to seven years. 5 Investing Activities The main objective of our investment strategy is to provide a source of on-balance sheet liquidity while providing a means to manage our interest rate risk, and to generate an adequate level of interest income without taking undue risks.
Adjustable rate mortgage loans are also offered with flexible initial and periodic adjustments ranging from five to seven years. 5 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.
These commercial loans are provided for various purposes such as for working capital, purchasing inventory, debt refinancing, business acquisitions, and other business-related financing needs. Commercial loans are typically classified as (1) short-term loans (or lines of credit) or (2) long-term loans (or term loans to businesses).
These C&I loans are provided for various purposes such as for working capital, purchasing inventory, debt refinancing, business acquisitions, and other business-related financing needs. C&I loans are typically classified as (1) short-term loans (or lines of credit) or (2) long-term loans (or term loans to businesses).
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 Security Portfolio.” Our securities are classified for accounting purposes as equity investments, investments available for sale or investments held to maturity.
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”).
We offer a competitive salary and a leading benefits package that includes medical, dental and vision healthcare, 401(k) benefits, parental and family leave, holiday and paid time off, and tuition assistance.
We offer a leading compensation and benefits package that includes medical, dental and vision healthcare, 401(k) benefits, parental and family leave, holiday and paid time off, and tuition assistance.
In addition to our retail and business 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, and deposits gathered from outside of the Bank’s normal market area through deposit listing services and our online banking platform.
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.
See “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 Consumer Finance Protection Bureau (“CFPB”) with respect to compliance with federal consumer laws.
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.
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 past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition.
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.
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 available for sale at the time of purchase. Investment securities that the Bank has the positive intent and ability to hold to maturity are designated as investments held to maturity.
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.
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.
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. Retaining a culture of diversity and inclusion requires active engagement and motivation.
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 and 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. 12 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.
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. 12 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.
The initial ESG report contains our ESG progress including the establishment of an ESG framework, ESG policy, and our achievements on the ESG compliance. 14
The ESG report contains our ESG progress including the establishment of an ESG framework, ESG policy, and our achievements on ESG compliance. 15
Small Business Administration Loans We extend loans partially guaranteed by the SBA. We primarily extend SBA loans known as SBA 7(a) loans and SBA 504 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.
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.
The increasingly competitive environment is a result primarily of strong competition among the banks servicing the Korean-American community, changes in regulations, changes in technology and product delivery systems, and 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.
The increasingly competitive environment is a result primarily 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.
At each successive lower capital category, an insured bank is subject to more restrictions, including restrictions on the bank’s activities, operational practices or the ability to pay dividends or executive bonuses. 10 The prompt corrective action standards conform with the Basel III Capital Rules.
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.
Consumer Loans Our consumer loans consist of single-family mortgages, home equity, auto loans, credit card loans, and personal loans, with a majority of our consumer loan portfolio currently consisting of single-family mortgages 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.
Consumer and Other Loans Our consumer loans primarily consist of single-family mortgages; we also offer home equity, credit card loans, and personal loans. 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.
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 “Notes to Consolidated Financial Statements.” We may also borrow from the Federal Reserve Bank.
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 and Bank Term Funding Program (“BTFP”).
We have the right to redeem the Debentures in whole (but not in part) on a quarterly basis at a specified redemption price.
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.
The Basel III Capital Rules (i) introduced a new capital measure called “common equity Tier 1 and a related regulatory capital ratio of common equity Tier 1 to risk‑weighted assets, (ii) specified that Tier 1 capital consists of common equity Tier 1 and “additional Tier 1 capital” instruments meeting certain requirements, (iii) mandated 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) expanded the scope of the deductions from and adjustments to capital compared to prior capital rules.
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.
In 2022, we launched a social rewards and recognition platform that allows employees to recognize one another for milestones and achievements, or simply express gratitude to anyone within the Bank for demonstrating Bank of Hope Core Values, which are Integrity, Teamwork, Fairness, Initiative, Transparency and Satisfaction.
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 integrity, teamwork, fairness, initiative, transparency and satisfaction.
Interest rates for 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.
Interest rates for 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 actions of the FRB in these areas influence the growth of bank loans, investments, and deposits and also 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.
The actions of the FRB in these areas influence the growth of bank loans, investments, and deposits and also affect interest rates earned on interest earning assets and paid on interest bearing liabilities.
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; expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting whistleblower incentives and protections. 11 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.
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; expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting whistleblower incentives and protections.
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.
The nature and impact on Hope Bancorp, and the Bank, of future changes in monetary and fiscal policies cannot be predicted. 7 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.
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.
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.
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.
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. 8 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.
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 in order to help detect and prevent money laundering connected with drug trafficking, terrorism and other criminal 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. 11 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 in order to help detect and prevent money laundering connected with drug trafficking, terrorism and other criminal activities.
Our website at www.bankofhope.com offers internet banking services and applications in both English and Korean. Lending Activities Commercial Business Loans We provide commercial loans to businesses through our Consumer and Business Banking and Corporate Banking Group. The Consumer and Business Banking department primarily provides financial products and services to individuals and small businesses through the Company’s branch network.
Our website at www.bankofhope.com offers internet banking services and applications in both English and Korean. 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.
Some of the highlights we have taken to be a socially responsible company are: • One out of two of the Bank’s branches are located in low-to-moderate income areas; • Our employees had nearly 731 hours of CRA-reportable volunteer hours in 2022; • We funded approximately $4.45 billion of loans in 2022; • We have invested in affordable housing partnership investments, CRA investments, and CDFI investments; • We had approximately $315.8 million of CRA-reportable small business lending in 2022; • We had approximately $570 thousand in charitable donations and grants to 122 organizations to support the social, educational and cultural wellness of the communities in which we operate; and • We awarded 60 students grants of $1,500 each in 2022.
As a community-based bank, we are committed to being model corporate citizens and through our communities through various forms of investments, contributions, and volunteer work. 14 Some of the highlights we have taken to be a socially responsible company are: • Approximately 43% of the Bank’s branches are located in low-to-moderate income areas; • Our employees had nearly 1,600 hours of CRA-reportable volunteer hours in 2023; • We funded approximately $1.70 billion of loans in 2023; • We invest in affordable housing partnership investments, CRA investments, and CDFI investments; • We had approximately 616 reportable small business loans totaling to $205.3 million of CRA-reportable small business lending in 2023 with 538 small business loans within the Bank’s assessment areas for $172.6 million; • We had approximately $620 thousand in charitable donations and grants to 160 organizations to support the social, educational and cultural wellness of the communities in which we operate; and • We awarded 60 students grants of $2,500 each in 2023.
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, workplace safety, among others, as well as business code and ethics topics, including confidentiality, whistle blower policy, anti-harassment, and conflict of interest.
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 also have the right to defer interest on the Debentures for up to five years. 6 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.
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.
We also have 10 loan production offices located in Houston, Dallas, Seattle, Atlanta, Denver, Portland, Tampa, Fremont, and Southern California and a representative office in Seoul, South Korea. The banking and financial services industry generally, and in our market areas specifically, is highly competitive.
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.
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. 9 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%.
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%.
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.
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. 10 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.
All of our SBA loans are originated through our SBA Loan Departments and certain loan production offices. The SBA Loan Departments are staffed by loan officers who provide assistance to qualified businesses. The Bank has been designated as an SBA Preferred Lender, which is the highest designation awarded by the SBA.
The SBA loan departments are staffed by loan officers who provide assistance to qualified businesses. 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.
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 real estate loans in addition to offering clients interest rate hedging option.
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 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”). The Bank primarily focuses its business in ethnic communities in California, the greater New York City, Chicago, Houston, Dallas, and Seattle metropolitan areas, New Jersey, Virginia, Georgia, Alabama and Florida.
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”).
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 other benefits. We also conduct regular wellness programs and incentivize our staff to participate in activities and webinars that promote a healthy lifestyle.
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.
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. Long-Term Debt At December 31, 2022, we had nine wholly-owned subsidiary grantor trusts (“Trusts”) that have issued $126.0 million of pooled trust preferred securities (“Trust Preferred Securities”).
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 2014, the CFPB adopted revisions to Regulation Z, which implements the Truth in Lending Act, pursuant to the Dodd-Frank Act, and apply to consumer mortgages.
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. 13 In 2014, the CFPB adopted revisions to Regulation Z, which implements the Truth in Lending Act, pursuant to the Dodd-Frank Act, and apply to consumer mortgages.
Our employees actively share their talents in 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.
Our employees are committed to be good neighbors that foster growth for our customers and communities.
Although our business may vary with local and national economic conditions, such variations are not generally seasonal in nature. Through our current network of 54 branches and 10 loan production offices, we offer core business banking products for small and medium-sized businesses and individuals.
Although our business may vary with local and national economic conditions, such variations are not generally seasonal in nature.
It is our general policy to restrict real estate loan amounts to no more than 75% of the appraised value of the property at the date of origination. We originate loans to finance commercial real estate construction projects including one-to-four family residences, multifamily residences, senior housing, and commercial projects.
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 property at the date of origination.
As of December 31, 2022, we had 1,549 full-time equivalent employees compared to 1,476 full-time equivalent employees at December 31, 2021. 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.
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. Throughout our history, diversity has been a key competitive advantage for Bank of Hope.
In addition, while the Bank is not a member of the FRB, the Bank is subject to certain regulations of the FRB.
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.
We seek to establish full borrower relationships for all our commercial customers to include all of the Bank’s products such as deposits, treasury management as well as a broad array of risk management products. We also provide warehouse lines of credit to mortgage loan originators.
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.
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.
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.
Removed
We accept deposits and originate a variety of loans, including commercial business loans, real estate loans, trade finance loans, Small Business Administration (“SBA”) loans, auto loans, single-family mortgages, warehouse lines of credit, personal loans, and credit cards. We offer cash management services to our business customers, which include remote deposit capture, lock box, and ACH origination services.
Added
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.
Removed
We offer comprehensive investment and wealth management services to high-net-worth clients. We also offer a mobile banking application for smart devices that extends access to banking services, such as mobile deposits and bill payment for our customers at all times.
Added
Our network of branches and loan production offices includes locations in California, New York, Texas, Washington, Illinois, New Jersey, Virginia, 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.
Removed
In an effort to better meet our customers’ needs, our mini-market branches generally offer hours from 9 a.m. to 6 p.m. Most of our branches offer 24-hour automated teller machines (“ATMs”). We also offer debit card services to all customers. In addition, most of our branches offer foreign exchanges services, safe deposit boxes, and other customary bank services.
Added
We offer a full suite of commercial, corporate and consumer loan, 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.
Removed
The Corporate Banking Group primarily provides commercial loans to middle market and large institutional borrowers. Corporate Banking lending is generally done through various groups, including general industry groups, Sponsor and Specialty Finance, Telecom and Media, Healthcare and Equipment Finance.
Added
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 subsequent paragraph. 4 Commercial Real Estate Loans Commercial real estate (“CRE”) loans cover a broad array of commercial real estate segments including retail, industrial, multi-family, gas stations & car washes, mixed-use facilities, hotels/motels, office and other.
Removed
The lines of credit are used by these originators to fund mortgages which are then pledged to the Bank as collateral until the mortgage loans are sold and the lines of credit are paid down. The typical duration of these lines of credit from the time of funding to pay-down ranges from 10-30 days.
Added
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. Small Business Administration Loans We extend loans partially guaranteed by the SBA.
Removed
Although collateralized by mortgage loans, the structure of warehouse lending agreements results in the commercial business loan treatment for these types of loans. We provide commercial equipment lease financing through a relationship with a third-party leasing company. Equipment leasing loans are generally capital leases with maturities up to five years.
Added
During the second half of 2023, we elected to retain our SBA 7(a) loan production on our balance sheet and did not record any gain on sale of SBA loans. Due lower premium rates paid in the secondary market, it was more economic to retain the production on balance sheet and earn interest income on the full production amount.
Removed
In addition, we have a portfolio of syndicated loans in which we are one in a group of lenders that collectively provide credit to worthy borrowers. 4 Real Estate Loans Real estate loans cover a broad array of commercial real estate segments and are extended for the purchase and refinance of real estate and are generally secured by first deeds of trust.
Added
These loans are below $500 thousand and 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 referred through our branch network. All of our SBA loans are originated through our SBA loan departments and certain loan production offices.
Removed
Residential construction loans are due upon the sale of the completed project and are generally collateralized by first liens on the real estate and have floating interest rates.

… 34 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

49 edited+43 added−34 removed80 unchanged
Biggest changeThese 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.
Biggest changeThese 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. 20 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.
The secure maintenance and transmission of confidential information, as well as execution of transactions over these systems, are essential to protect us and our clients against fraud and security breaches and to maintain our clients’ confidence.
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, along with our customers, will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. We may also face cost increases, asset value reductions, operating process changes, among other impacts.
We, along with our customers, will need to respond to new 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.
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.
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. 23 Climate change concerns could adversely affect our business and our customers.
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 .
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 . 21 Environmental laws may force us to pay for environmental problems .
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 of Directors acting alone, thus without obtaining stockholder approval.
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.
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. 15 Our allowance for credit losses may not cover our actual loan losses .
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. 16 Our allowance for credit losses may not cover our actual loan losses .
If we are unable to manage these risks, our operations may be materially and adversely affected. 19 Adverse conditions in South Korea or globally may adversely affect our 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 .
The Board of Directors is authorized to cause us to issue additional classes or series of preferred stock without any action on the part of our stockholders.
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.
Additionally, concerns over the long-term impacts of climate change have led and will 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.
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.
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 and the assessment of civil monetary penalties. See “Item 1.
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 and the assessment of civil monetary penalties.
In addition, as we have grown beyond $10 billion in assets, we are subject to enhanced CFPB examination and required to perform more comprehensive stress-testing on our business and operations. 20 We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
In addition, as we have grown 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 face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
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 results in both premium income for us at the time of sale, and creates a stream of future servicing income.
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 results in both premium income at the time of sale and a stream of future servicing income.
In the course of these expansion activities, 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.
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.
Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts.
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.
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, 2022, approximately 61% of our loan portfolio consisted of loans secured by various types of commercial real estate (excluding 1-4 family residential mortgage loans).
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, 2023, approximately 64% of our loan portfolio consisted of loans secured by various types of commercial real estate (excluding 1-4 family residential mortgage loans).
In addition, with respect to commercial real estate loans, federal and state banking regulators are examining commercial real estate lending activity with heightened scrutiny and may require banks with higher levels of commercial real estate loans 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 as a result of commercial real estate lending growth and exposures.
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 loans 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 as a result of commercial real estate lending growth and exposures.
A renewed economic slowdown in the markets in which we operate currently and 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.
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.
Companies are facing increasing scrutiny from customers, regulators, investors, investor advocacy groups, and other stakeholders related to their environmental, social, and governance (“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 will result in increases to our overall operational costs.
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.
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 .
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 .
Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering, and other dishonest acts. Information security breaches and cybersecurity-related incidents may include fraudulent or unauthorized access to systems used by us or our clients, denial or degradation of service attacks, and malware, or other cyber-attacks.
Fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, 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.
To the extent that assets are nonperforming, we have less earning assets generating interest income and an increase in credit related expenses, including provisions for credit losses.
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.
Moreover, in recent periods, several large corporations, including financial institutions and retail companies, have suffered major data 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.
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.
If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan.
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.
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 residential properties because there are fewer potential purchasers of the collateral.
If we foreclose on these loans, our holding period for the collateral typically is longer than residential properties because there are fewer potential purchasers of the collateral.
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 real estate project and thus, may subject us to adverse conditions in the real estate market or to the general economy.
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.
Breaches of information security also may occur, and in infrequent cases have occurred, through intentional or unintentional acts by those having access to our systems or our clients’ or counterparties’ confidential information, including employees.
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.
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.
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. 19 As we expand outside our traditional geographic markets, we may encounter additional risks that may adversely affect us .
We have acquired other banking companies and bank offices in the past, and will consider additional acquisitions as opportunities arise. 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.
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.
Accordingly, 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. In addition, these loans expose a lender to greater credit risk than loans secured by residential real estate.
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.
In recent periods, 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, security breaches and cybersecurity-related incidents in recent periods.
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.
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 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.
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.
Failure of any of these resources, including but not limited to operational or systems failures, interruptions of client service operations and ineffectiveness of or interruption in third party data processing or other vendor support, may cause material disruptions in our business, impairment of customer relations and exposure to liability for our customers, as well as action by bank regulatory authorities. 18 Information pertaining to us and our clients is maintained, and transactions are executed, on the networks and systems of us, our clients and certain of our third party partners, such as our online banking or reporting systems.
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.
Our stockholders are only entitled to receive such dividends as our 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 reduce or eliminate our common stock dividend in the future.
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.
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 offices in the greater New York City, Chicago, Houston, Dallas, Tampa, and Seattle metropolitan areas, New Jersey, Virginia, Colorado, Georgia, and Alabama.
Currently, the majority of our offices are located in California, but we also have offices in the greater New York City, Chicago, Houston, Dallas, Tampa, and Seattle metropolitan areas, New Jersey, Virginia, Colorado, Georgia, and Alabama. Over time, we may seek to establish offices in other parts of the United States as well.
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. 23 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.
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.
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. 17 We may experience adverse effects from acquisitions .
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. 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.
In addition, increases in criminal activity, levels and sophistication, advances in computer capabilities, new discoveries, vulnerabilities in third-party technologies (including browsers and operating systems) or other developments could result in a compromise or breach of the technology, processes and controls that we use to prevent fraudulent transactions and to protect data about us, our clients and underlying transactions, as well as the technology used by our clients to access our systems.
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.
A major earthquake or fire may result in material loss to us. A significant percentage of our loans are and will be secured by real estate. Many of our borrowers may suffer uninsured property damage, experience interruption of their businesses or lose their jobs after an earthquake or fire.
A significant portion of our operations are concentrated in Southern California, which is an earthquake and fire prone region. A major earthquake or fire may result in material loss to us. A significant percentage of our loans are and will be secured by real estate.
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 competitors in the Korean-American banking industry.
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 .
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. 21 Financial and Market Risks We may reduce or discontinue the payment of dividends on common stock.
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.
Adverse economic conditions in our market areas could potentially have a material adverse impact on the quality of our business.
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.
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.
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.
Such developments may result in additional loan charge-offs and provisions for credit losses, 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 that may be greater than the risks related to our other 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.
Fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business.
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.
However, the discontinuation of existing benchmark rates could have a material adverse effect on our business, financial condition, results of operations, prospects and customers. If we lose key employees, our business may suffer. There is intense competition for experienced and highly qualified personnel in the Korean-American banking industry and the banking industry more broadly.
There can be no assurance that we will be successful in minimizing the potentially adverse effects of changes in interest rates. 17 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.
As a financial institution, we are susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that may be committed against us or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation, or damage to our reputation.
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.
In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans. In 2022, we launched and published our initial ESG report and webpage in our investor relations website (www.ir-hopebancorp.com).
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 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. 24 Item 1B. UNRESOLVED STAFF COMMENTS None.
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 recent failures of some depository institutions have raised concerns among depositors that their deposits may be at risk.
Removed
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 . We focus our business primarily in Korean-American communities in California, the greater New York City, Chicago, Houston, Dallas, Tampa, and Seattle metropolitan areas, New Jersey, Virginia, Georgia and Alabama.
Added
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.
Removed
A slowdown in the economy is often accompanied by declines in the value of real estate. In the height of the COVID-19 pandemic, the impact of the virus resulted in renewed deterioration in the real estate market generally and in commercial real estate values in particular.
Added
Many of 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.
Removed
Our loan portfolio includes commercial loans and commercial real estate loans, which are secured by hotels and motels, shopping/retail centers, service station and car wash, industrial and warehouse properties, and other types of commercial properties.
Added
Consistent with industry trends, we have also experienced an increase in attempted electronic fraudulent activity and information system breaches in recent periods. 18 As a financial institution, we receive and maintain the business and personal information of our customers on a daily basis.
Removed
Commercial and commercial real estate loans carry more risk as compared to other types of lending, because they typically involve larger loan balances often concentrated with a single borrower or groups of related borrowers.
Added
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.
Removed
There can be no assurance that we will be successful in minimizing the potentially adverse effects of changes in interest rates. 16 We face risks associated with the replacement of LIBOR.
Added
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.
Removed
The London Interbank Offered Rate, or LIBOR, was largely phased out at the end of 2021 with the exception of certain U.S. dollar-based benchmarks that will be phased out in 2023. The U.S. federal banking agencies have issued guidance strongly encouraging banking organizations to cease using the U.S. Dollar LIBOR as a reference rate in new agreements.
Added
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.
Removed
LIBOR has served as the benchmark rate worldwide for many financial assets, such as loans, bonds and other securities. While a working group comprised of the Federal Reserve and other market participants proposed an alternative, the Secured Overnight Financing Rate (“SOFR”), there is no consensus on what rate or rates may become accepted alternatives to LIBOR.
Added
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.
Removed
The market transition away from LIBOR to an alternative reference rate, such as SOFR, is complex and could have a range of adverse effects on our business, financial condition and results of operations.
Added
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.
Removed
The transition could, for example: • Adversely affect the interest rates we pay or receive on, the revenue and expenses associated with or the value of our LIBOR-based assets and liabilities, which include our subordinated debentures, certain variable rate loans and certain other securities and financial arrangements; • Adversely affect the interest rates paid or received on, the revenue and expenses associated with or the value of other securities or financial arrangements, given LIBOR’s role in determining market interest rates globally; • Prompt inquiries or other actions from banking regulators regarding our preparation and readiness for the replacement of LIBOR with an alternative reference rate; and • Result in disputes, litigation or other actions with counterparties, including disputes regarding the interpretation and enforceability of fallback language in LIBOR-based contracts and securities.
Added
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.
Removed
The manner and impact of the transition from LIBOR to an alternative reference rate and the effect of these developments on our funding costs, loan and investment and trading securities portfolios, asset-liability management, and business, is uncertain. Accordingly, it is not currently possible for us to determine whether, or to what extent, any such changes would affect us.
Added
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.
Removed
We face continuing risks related to the COVID-19 pandemic . Beginning in 2020, the overall economic climate in the U.S., generally, and in our market areas specifically, experienced material disruption due to the COVID-19 pandemic.
Added
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.
Removed
The extent to which the COVID-19 pandemic will continue to negatively affect our business, financial condition and results of operations will depend on future developments, including the emergence and spread of new strains of COVID-19, which are highly uncertain and cannot be predicted.
Added
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.
Removed
Additionally, the responses of various governmental and nongovernmental authorities and consumers to the pandemic may have material long term effects on us and our customers, which are difficult to quantify.
Added
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.
Removed
We could be subject to a number of risks as the result of the COVID-19 pandemic, any of which could have a material, adverse effect on our business, financial condition and results of operations.
Added
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.
Removed
These risks include but are not limited to increased credit losses or other impairments in our loan portfolios and increases in our allowance for credit losses; changes in demand for our products and services; a decline in the collateral value for our loans, especially real estate; unavailability of employees; increased cyber security risks as employees work remotely; a prolonged weakness in economic conditions resulting in a reduction of future projected earnings; a triggering event leading to impairment testing on our goodwill and other assets, which could result in impairment charges; and increased costs as we and our regulators, customers and vendors adapt to evolving pandemic conditions.
Added
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.
Removed
Our inability to successfully manage the increased credit and other risks caused by the COVID-19 pandemic could have a material adverse effect on our business, financial condition and results of operations. We are exposed to the risks of natural disasters . A significant portion of our operations is concentrated in Southern California, which is an earthquake and fire prone region.

… 46 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed1 unchanged
Biggest changeItem 2. PROPERTIES Our principal executive offices are located at 3200 Wilshire Blvd., Suite 1400, Los Angeles, California 90010. As of December 31, 2022, we operated full-service branches at 47 leased and seven owned facilities, and we operated loan production offices at 10 leased facilities. Expiration dates of our leases range from 2023 to 2032.
Biggest changeItem 2. PROPERTIES Our principal executive offices are located at 3200 Wilshire Blvd., Suite 1400, Los Angeles, California 90010. As of December 31, 2023, we operated full-service branches at 47 leased and seven owned facilities, and we operated loan production offices at 9 leased facilities. Expiration dates of our leases range from 2024 to 2032.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed3 unchanged
Biggest changeItem 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 $229 thousand at December 31, 2022.
Biggest changeItem 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 $535 thousand at December 31, 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+0 added−4 removed2 unchanged
Biggest changeASSUMES $100 INVESTED ON DECEMBER 31, 2017 ASSUMES DIVIDENDS REINVESTED FISCAL YEAR ENDING DECEMBER 31, 2022 Period Ending Stock/Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Hope Bancorp, Inc. $100.00 $67.17 $87.51 $68.24 $95.86 $86.69 NASDAQ Composite Index $100.00 $97.16 $132.81 $192.47 $235.15 $158.65 KBW Regional Banking Index $100.00 $82.50 $102.15 $93.25 $127.42 $118.59 S&P 600 Index* $100.00 $91.52 $112.37 $125.05 $158.59 $133.06 S&P U.S.
Biggest changeASSUMES $100 INVESTED ON DECEMBER 31, 2018 ASSUMES DIVIDENDS REINVESTED FISCAL YEAR ENDING DECEMBER 31, 2023 Period Ending Stock/Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Hope Bancorp, Inc. $100.00 $130.29 $101.59 $142.72 $129.07 $128.94 NASDAQ Composite Index $100.00 $136.69 $198.10 $242.03 $163.28 $236.17 KBW Regional Banking Index $100.00 $123.81 $113.03 $154.45 $143.75 $143.17
Issuer Purchases of Equity Securities In January 2022, the Company’s Board of Directors 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.
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 following table summarizes share repurchase activities during the three months ended December 31, 2022: 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, 2022 to October 31, 2022 — $ — — $ 35,333 November 1, 2022 to November 30, 2022 — — — 35,333 December 1, 2022 to December 31, 2022 — — — 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 Regional Banking Index.
The following table summarizes share repurchase activities during the three months ended December 31, 2023: 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, 2023 to October 31, 2023 — $ — — $ 35,333 November 1, 2023 to November 30, 2023 — — — 35,333 December 1, 2023 to December 31, 2023 — — — 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 Regional Banking Index.
The Company did not repurchase any shares as part of this program during the three months ended December 31, 2022.
The Company did not repurchase any shares as part of this program during the three months ended December 31, 2023.
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, 2021 June 30, 2021 September 30, 2021 December 31, 2021 March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 Dividends Paid $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14 The Company’s Board of Directors currently intends to continue its policy of paying 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.
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, 2022 June 30, 2022 September 30, 2022 December 31, 2022 March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 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.
BMI Banks Index, and (v) the S&P 500 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 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 closing price for our common stock on the NASDAQ Global Select Market on February 21, 2023 was $12.96 per share. As of February 21, 2023, there were 1,119 stockholders of record of our common stock.
The closing price for our common stock on the NASDAQ Global Select Market on February 20, 2024 was $11.20 per share. As of February 20, 2024, there were 1,112 stockholders of record of our common stock.
Removed
This year the stock performance graph reflects changes made by the Company to the broad equity market indices presented by removing the S&P 500 Index and the S&P 600 Index, and to the published industry index presented by replacing the S&P U.S. BMI Banks Index with the KBW Regional Banking Index.
Removed
Management believes that the KBW Regional Banking Index provides a better peer group comparison of financial institutions more comparable to the Company in asset size and other factors. The Company is not a company within the S&P 500 Index.
Removed
In accordance with Item 201(e) of the Regulation S-K of the Securities and Exchange Commission, which requires the inclusion of all new indexes and all indexes used in the immediately preceding year, this year the performance graph also includes a comparison of the cumulative total return for (iii) the S&P 600 Index, (iv) the S&P U.S.
Removed
BMI Banks Index* $100.00 $83.54 $114.74 $100.10 $136.10 $112.89 S&P 500 Index* $100.00 $95.62 $125.72 $148.85 $191.58 $156.88 ____________________________________________________ * Indices previously used in the immediately preceding year. 26

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

180 edited+54 added−81 removed86 unchanged
Biggest changeAs of or For The Year Ended December 31, 2022 2021 2020 2019 2018 (Dollars in thousands, except share and per share data) Income Statement Data: Interest income $ 716,115 $ 566,532 $ 598,878 $ 684,786 $ 650,172 Interest expense 137,694 53,762 131,380 218,191 162,245 Net interest income 578,421 512,770 467,498 466,595 487,927 Provision (credit) for credit losses 9,600 (12,200) 95,000 7,300 14,900 Net interest income after provision (credit) for credit losses 568,821 524,970 372,498 459,295 473,027 Noninterest income 51,397 43,594 53,432 49,683 60,180 Noninterest expense 324,170 293,292 283,639 282,628 277,726 Income before income tax provision 296,048 275,272 142,291 226,350 255,481 Income tax provision 77,771 70,700 30,776 55,310 65,892 Net income $ 218,277 $ 204,572 $ 111,515 $ 171,040 $ 189,589 Per Common Share Data: Earnings - basic $ 1.82 $ 1.67 $ 0.90 $ 1.35 $ 1.44 Earnings - diluted $ 1.81 $ 1.66 $ 0.90 $ 1.35 $ 1.44 Book value (period end) $ 16.90 $ 17.44 $ 16.66 $ 16.19 $ 15.03 Cash dividends declared per common share $ 0.56 $ 0.56 $ 0.56 $ 0.56 $ 0.54 Number of common shares outstanding (period end) 119,495,209 120,006,452 123,264,864 125,756,543 126,639,912 Balance Sheet Data—At Period End: Assets $ 19,164,491 $ 17,889,061 $ 17,106,664 $ 15,667,440 $ 15,305,952 Investment securities AFS and HTM 2,243,195 2,666,275 2,285,611 1,715,987 1,846,265 Loans receivable, net of unearned loan fees and discounts (excludes loans held for sale) 15,403,540 13,952,743 13,563,213 12,276,007 12,098,115 Deposits 15,738,801 15,040,450 14,333,912 12,527,364 12,155,656 FHLB and FRB borrowings 865,000 300,000 250,000 625,000 821,280 Subordinated debentures 106.565 105.354 104,178 103,035 101,929 Convertible notes, net 217,148 216,209 204,565 199,458 194,543 Stockholders’ equity 2,019,328 2,092,983 2,053,745 2,036,011 1,903,211 Average Balance Sheet Data: Assets $ 18,231,609 $ 17,467,665 $ 16,515,102 $ 15,214,412 $ 14,749,166 Investment securities AFS and HTM 2,415,621 2,392,589 1,899,948 1,796,412 1,772,080 Loans receivable and loans held for sale 14,634,627 13,343,431 12,698,523 11,998,675 11,547,022 Deposits 15,172,264 14,727,778 13,560,531 12,066,719 11,628,177 Stockholders’ equity 2,034,027 2,071,453 2,032,570 1,981,811 1,910,224 29 As of or For The Year Ended December 31, 2022 2021 2020 2019 2018 (Dollars in thousands) Selected Performance Ratios: Return on average assets (1) 1.20 % 1.17 % 0.68 % 1.12 % 1.29 % Return on average stockholders’ equity (2) 10.73 % 9.88 % 5.49 % 8.63 % 9.92 % Average stockholders’ equity to average assets 11.16 % 11.86 % 12.31 % 13.03 % 12.95 % Dividend payout ratio (dividends per share/earnings per share) 30.91 % 33.71 % 62.22 % 41.54 % 37.58 % Net interest spread (3) 2.84 % 2.86 % 2.58 % 2.65 % 3.04 % Net interest margin (4) 3.36 % 3.09 % 3.00 % 3.27 % 3.53 % Yield on interest earning assets (5) 4.16 % 3.42 % 3.84 % 4.81 % 4.71 % Cost of interest bearing liabilities (6) 1.32 % 0.56 % 1.26 % 2.16 % 1.67 % Efficiency ratio (7) 51.47 % 52.72 % 54.45 % 54.74 % 50.67 % Regulatory Capital Ratios: Hope Bancorp: Common equity tier 1 10.55 % 11.03 % 10.94 % 11.76 % 11.44 % Tier 1 leverage 10.15 % 10.11 % 10.22 % 11.22 % 10.55 % Tier 1 risk-based 11.15 % 11.70 % 11.64 % 12.51 % 12.21 % Total risk-based 11.97 % 12.42 % 12.87 % 13.23 % 12.94 % Bank of Hope: Common equity tier 1 12.03 % 12.96 % 12.90 % 13.72 % 13.63 % Tier 1 leverage 10.94 % 11.20 % 11.33 % 12.29 % 11.76 % Tier 1 risk-based 12.03 % 12.96 % 12.90 % 13.72 % 13.63 % Total risk-based 12.85 % 13.68 % 14.14 % 14.44 % 14.36 % Asset Quality Data: Nonaccrual loans (8) $ 49,687 $ 54,616 $ 85,238 $ 54,785 $ 53,286 Loans 90 days or more past due and still accruing (9) 401 2,131 614 7,547 1,529 Accruing restructured loans 16,931 52,418 37,354 35,709 50,410 Total nonperforming loans 67,019 109,165 123,206 98,041 105,225 Other real estate owned 2,418 2,597 20,121 24,091 7,754 Total nonperforming assets $ 69,437 $ 111,762 $ 143,327 $ 122,132 $ 112,979 Asset Quality Ratios: Nonaccrual loans to loans receivable 0.32 % 0.39 % 0.63 % 0.45 % 0.44 % Nonperforming loans to loans receivable 0.44 % 0.78 % 0.91 % 0.80 % 0.87 % Nonperforming assets to total assets 0.36 % 0.62 % 0.84 % 0.78 % 0.74 % Nonperforming assets to loans receivable and other real estate owned 0.45 % 0.80 % 1.06 % 0.99 % 0.93 % Allowance for credit losses to loans receivable 1.05 % 1.01 % 1.52 % 0.77 % 0.77 % Allowance for credit losses to nonaccrual loans 326.76 % 257.34 % 242.55 % 171.84 % 173.70 % Allowance for credit losses to nonperforming loans 242.26 % 128.75 % 167.80 % 96.03 % 87.96 % Allowance for credit losses to nonperforming assets 233.82 % 125.76 % 144.24 % 77.08 % 81.92 % Net (recoveries) charge-offs to average loans receivable (0.08) % 0.40 % 0.07 % 0.04 % 0.06 % ____________________________________________________ (1) Net income divided by average assets.
Biggest changeAs of or For The Year Ended December 31, 2023 2022 2021 2020 2019 (Dollars in thousands, except share and per share data) Income Statement Data: Interest income $ 1,048,878 $ 716,115 $ 566,532 $ 598,878 $ 684,786 Interest expense 523,017 137,694 53,762 131,380 218,191 Net interest income 525,861 578,421 512,770 467,498 466,595 Provision (credit) for credit losses 29,100 9,600 (12,200) 95,000 7,300 Net interest income after provision (credit) for credit losses 496,761 568,821 524,970 372,498 459,295 Noninterest income 45,577 51,397 43,594 53,432 49,683 Noninterest expense 364,451 324,170 293,292 283,639 282,628 Income before income tax provision 177,887 296,048 275,272 142,291 226,350 Income tax provision 44,214 77,771 70,700 30,776 55,310 Net income $ 133,673 $ 218,277 $ 204,572 $ 111,515 $ 171,040 Per Common Share Data: Earnings - basic $ 1.11 $ 1.82 $ 1.67 $ 0.90 $ 1.35 Earnings - diluted $ 1.11 $ 1.81 $ 1.66 $ 0.90 $ 1.35 Cash dividends declared $ 0.56 $ 0.56 $ 0.56 $ 0.56 $ 0.56 Book value (period end) $ 17.66 $ 16.90 $ 17.44 $ 16.66 $ 16.19 Number of common shares outstanding (period end) 120,126,786 119,495,209 120,006,452 123,264,864 125,756,543 Balance Sheet Data—At Period End: Assets $ 19,131,522 $ 19,164,491 $ 17,889,061 $ 17,106,664 $ 15,667,440 Interest earning cash and deposits at other banks 1,756,154 293,002 44,947 94,014 415,437 Investment securities AFS and HTM 2,408,971 2,243,195 2,666,275 2,285,611 1,715,987 Loans receivable, net of unearned loan fees and discounts (excludes loans held for sale) 13,853,619 15,403,540 13,952,743 13,563,213 12,276,007 Deposits 14,753,753 15,738,801 15,040,450 14,333,912 12,527,364 FHLB and FRB borrowings 1,795,726 865,000 300,000 250,000 625,000 Convertible notes, net 444 217,148 216,209 204,565 199,458 Subordinated debentures 107,825 106,565 105,354 104,178 103,035 Stockholders’ equity 2,121,243 2,019,328 2,092,983 2,053,745 2,036,011 Average Balance Sheet Data: Assets $ 19,806,163 $ 18,231,609 $ 17,467,665 $ 16,515,102 $ 15,214,412 Interest earning cash and deposits at other banks 1,685,462 116,689 774,756 921,163 390,755 Investment securities AFS and HTM 2,262,840 2,415,621 2,392,589 1,899,948 1,796,412 Loans receivable and loans held for sale 14,732,166 14,634,627 13,343,431 12,698,523 11,998,675 Deposits 15,630,018 15,172,272 14,727,807 13,560,629 12,066,844 FHLB and FRB borrowings 1,618,292 528,342 208,721 435,836 688,652 Stockholders’ equity 2,061,665 2,034,027 2,071,453 2,032,570 1,981,811 29 As of or For The Year Ended December 31, 2023 2022 2021 2020 2019 (Dollars in thousands) Selected Performance Ratios: Return on average assets (1) 0.67 % 1.20 % 1.17 % 0.68 % 1.12 % Return on average stockholders’ equity (2) 6.48 % 10.73 % 9.88 % 5.49 % 8.63 % Dividend payout ratio 50.44 % 30.91 % 33.71 % 62.22 % 41.54 % Net interest margin (3) 2.81 % 3.36 % 3.09 % 3.00 % 3.27 % Yield on interest earning assets (4) 5.60 % 4.16 % 3.42 % 3.84 % 4.81 % Cost of interest bearing liabilities (5) 4.00 % 1.32 % 0.56 % 1.26 % 2.16 % Efficiency ratio (6) 63.78 % 51.47 % 52.72 % 54.45 % 54.74 % Regulatory Capital Ratios: Tangible common equity (“TCE”) ratio 8.86 % 8.29 % 9.31 % 9.50 % 10.27 % Hope Bancorp: Common equity tier 1 12.28 % 10.55 % 11.03 % 10.94 % 11.76 % Tier 1 capital 12.96 % 11.15 % 11.70 % 11.64 % 12.51 % Total capital 13.92 % 11.97 % 12.42 % 12.87 % 13.23 % Tier 1 leverage 10.11 % 10.15 % 10.11 % 10.22 % 11.22 % Bank of Hope: Common equity tier 1 12.75 % 12.03 % 12.96 % 12.90 % 13.72 % Tier 1 capital 12.75 % 12.03 % 12.96 % 12.90 % 13.72 % Total capital 13.71 % 12.85 % 13.68 % 14.14 % 14.44 % Tier 1 leverage 9.94 % 10.94 % 11.20 % 11.33 % 12.29 % Asset Quality Data: Nonaccrual loans (7) $ 45,204 $ 49,687 $ 54,616 $ 85,238 $ 54,785 Accruing delinquent loans past due 90 days or more (8) 261 401 2,131 614 7,547 Accruing troubled debt restructured loans — 16,931 52,418 37,354 35,709 Total nonperforming loans 45,465 67,019 109,165 123,206 98,041 Other real estate owned 63 2,418 2,597 20,121 24,091 Total nonperforming assets (9) $ 45,528 $ 69,437 $ 111,762 $ 143,327 $ 122,132 Asset Quality Ratios: Nonaccrual loans to loans receivable 0.33 % 0.32 % 0.39 % 0.63 % 0.45 % Nonperforming assets to total assets (9) 0.24 % 0.36 % 0.62 % 0.84 % 0.78 % Allowance for credit losses to loans receivable 1.15 % 1.05 % 1.01 % 1.52 % 0.77 % Allowance for credit losses to nonaccrual loans 351.06 % 326.76 % 257.34 % 242.55 % 171.84 % Net charge-offs (recoveries) to average loans receivable 0.22 % (0.08) % 0.40 % 0.07 % 0.04 % ____________________________________________________ (1) Net income divided by average assets.
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, 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.
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.
With the adoption of ASU 2020-06, our convertible notes are accounted for entirely as debt and no longer has a discount or equity portion. (See Note 10 “Subordinated Debentures and Convertible Notes” of the Notes to the Consolidated Financial Statements for additional information regarding convertible notes issued).
With the adoption of ASU 2020-06, our convertible notes are accounted for entirely as debt and no longer has a discount or equity portion. (See Note 10 “Subordinated Debentures and Convertible Notes” of the Notes to Consolidated Financial Statements for additional information regarding convertible notes issued).
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.
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.” 61 We also commit to fund certain affordable housing partnership investments in the future.
Moody's Consensus projected key macroeconomic inputs as of December 31, 2022: Year Ending December 31, 2023 2024 2025 GDP Growth* 0.3% 1.6% 2.6% Unemployment Rate 4.6% 4.7% 4.2% CRE Price Index Growth* (2.6)% 1.7% 6.4% 10 Year Treasury Rate 4.5% 3.7% 3.3% __________________________________ * Represents year over year growth rates.
Moody's consensus projected key macroeconomic variable inputs as of December 31, 2022: Year Ending December 31, 2023 2024 2025 GDP Growth* 0.3% 1.6% 2.6% Unemployment Rate 4.6% 4.7% 4.2% CRE Price Index Growth* (2.6)% 1.7% 6.4% 10 Year Treasury Rate 4.5% 3.7% 3.3% __________________________________ * Represents year over year growth rates.
The increase was primarily due to increases in loans yields, which increased by 55 basis points for 2022 compared to 2021, and an increase in average loan balances. These increases contributed to an increase in total interest income of $149.6 million for 2022 compared to 2021.
The increase was primarily due to increases in loans yields, which increased by 55 basis points for 2022 compared with 2021, and an increase in average loan balances. These increases contributed to an increase in total interest income of $149.6 million for 2022 compared with 2021.
All of our significant accounting policies are described in Note 1 of our 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.
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.
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. 28 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, 2022.
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. 28 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, 2023.
Some of these factors are more subjective than others and require significant judgment from management to determine estimated losses. 32 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 provision for credit losses.
Some of these factors are more subjective than others and require significant judgment from management to determine estimated losses. 32 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.
Our principal business involves earning interest on loans and investment securities that are funded primarily by customer deposits, wholesale deposits, and other borrowings.
Overview Our principal business involves earning interest on loans and investment securities that are funded primarily by customer deposits, wholesale deposits, and other borrowings.
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 Consolidated Financial Statements presented elsewhere in this Report.
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.
Subordinated Debentures At December 31, 2022, 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.
Subordinated Debentures At December 31, 2023, 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.
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, 2022 and 2021.
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, 2023 and 2022.
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, 2022.
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, 2023.
The following is a summary of the more subjective and complex accounting estimates and judgements 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.
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.
At December 31, 2022 and 2021, 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.
At December 31, 2023 and 2022, 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.
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.
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 and BTFP.
Our capital ratios at December 31, 2022 and 2021 exceeded all of the regulatory minimums including the fully-phased in capital conservation buffer. 61 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.
Our capital ratios at December 31, 2023 and 2022, 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.
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 Asset Liability Committee (“ALCO”). 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.
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.
The investment securities HTM as of December 31, 2022 were all issued by the U.S. government or government-sponsored enterprises and therefore the Company applied a zero credit loss assumption.
The investment securities HTM as of December 31, 2023, were all issued by the U.S. government or government-sponsored enterprises and therefore the Company applied a zero credit loss assumption.
December 31, 2022 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.
December 31, 2023 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.
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 available for sale portfolio.
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.
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 as of December 31, 2022.
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, 2023.
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, 2022, which has a more negative outlook on the economy compared to the Moody’s consensus scenario.
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, 2023, which has a more negative outlook on the economy compared with the Moody’s consensus scenario.
As of December 31, 2022, our lending limit was approximately $364.9 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.
At December 31, 2023, our lending limit was approximately $352.6 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.
Investment securities are discussed in more detail under “Financial Condition - Investment Security 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 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.
We ultimately decided to collectively assess TDRs and 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 TDR and nonaccrual loans with immaterial balances.
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.
Within our commercial and business loan portfolio, the largest industry concentrations are finance and insurance (20%), manufacturing (14%), information technology (13%), and retail trade (12%). 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.
Within our C&I loan portfolio, the largest industry concentrations are finance and insurance (20%), information technology (15%), manufacturing (14%), and retail trade (13%). 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.
Investment Securities Portfolio The main objectives of our investment strategy are to provide sources of liquidity while managing our interest rate risk and to generate an adequate level of interest income without taking undue risks. 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.
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.
The unrealized holding loss at the date of transfer will continue to be reported, net of taxes, in accumulated other comprehensive income as a component of stockholders’ equity and will be amortized over the remaining life of the securities as an adjustment to yield, offsetting the corresponding discount amortization’s impact on interest income.
The unrealized holding loss at the date of transfer is reported, net of taxes, in accumulated other comprehensive income (loss) (“AOCI”) as a component of stockholders’ equity and is being amortized over the remaining life of the securities as an adjustment to yield, offsetting the corresponding discount amortization’s impact on interest income.
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.
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.
For loans which do not share similar risk characteristics such as nonaccrual and troubled debt restructured (“TDR”) loans above $1.0 million, we evaluate these loans on an individual basis in accordance with ASC 326. These nonaccrual and TDR loans are considered to have different risk profiles than performing loans and therefore are evaluated separately.
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.
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 $485.5 million, $324.2 million, and $165.9 million during 2022, 2021 and 2020, respectively.
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. 60 Net cash inflows from operating activities totaled $473.8 million, $485.5 million, and $324.2 million during 2023, 2022 and 2021, respectively.
Changes to the fair value of equity investments with readily determinable fair values is recorded in other noninterest income. Equity investments without readily determinable fair values at December 31, 2022 included $36.7 million in CRA investments, $1.0 million in Community Development Financial Institutions investments, and $370 thousand in correspondent bank stock.
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, 2023, included $38.0 million in CRA investments, $1.0 million in Community Development Financial Institutions investments, and $370 thousand in correspondent bank stock.
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, 2022 and 2021, OREO, net totaled $2.4 million and $2.6 million, respectively. The number of OREO properties held at December 31, 2022 and 2021 was four and six, respectively.
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, 2023 and 2022, OREO, net, totaled $63 thousand and $2.4 million, respectively. The number of OREO properties held at December 31, 2023 and 2022, was one and four, respectively.
All of our corporate, asset-backed, and municipal securities at December 31, 2022 were rated as investment grade. 45 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, 2022 December 31, 2021 Amortized Cost Estimated Fair Value Net Unrealized Gain (Loss) Amortized Cost Estimated Fair Value Net Unrealized Gain (Loss) (Dollars in thousands) Debt securities available for sale: U.S.
All of our corporate, asset-backed, and municipal securities at December 31, 2023, were rated as investment grade. 44 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, 2023 December 31, 2022 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.
Moody's Consensus projected key macroeconomic inputs as of December 31, 2021: Year Ending December 31, 2022 2023 2024 GDP Growth* 4.0% 2.5% 2.2% Unemployment Rate 4.0% 3.7% 3.6% CRE Price Index Growth* 3.1% 9.6% 6.4% 10 Year Treasury Rate 1.7% 2.1% 2.5% __________________________________ * 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.
Debentures totaled $106.6 million at December 31, 2022 and $105.4 million at December 31, 2021. As of December 31, 2022 and 2021, 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.
Debentures totaled $107.8 million at December 31, 2023, and $106.6 million at December 31, 2022. At December 31, 2023 and 2022, 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.
Investment Securities Description - We evaluate investment securities available for sale (“AFS”) and held to maturity (“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, 2022.
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, 2023.
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 $608.2 million to one borrower as of December 31, 2022.
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 $587.6 million to one borrower at December 31, 2023.
The following table shows our loan commitments and letters of credit outstanding at the dates indicated: December 31, 2022 2021 2020 2019 2018 (Dollars in thousands) Commitments to extend credit $ 2,856,263 $ 2,329,421 $ 2,137,178 $ 1,864,947 $ 1,712,032 Standby letters of credit 132,538 126,137 108,834 113,720 69,763 Other commercial letters of credit 22,376 56,333 40,508 37,627 65,822 Total $ 3,011,177 $ 2,511,891 $ 2,286,520 $ 2,016,294 $ 1,847,617 Nonperforming Assets Nonperforming assets consist of nonaccrual loans, accruing loans that are 90 days or more past due, accruing restructured loans, and OREO.
The following table shows our loan commitments and letters of credit outstanding at the dates indicated: December 31, 2023 2022 2021 2020 2019 (Dollars in thousands) Unfunded commitments to extend credit $ 2,274,239 $ 2,856,263 $ 2,329,421 $ 2,137,178 $ 1,864,947 Standby letters of credit 132,132 132,538 126,137 108,834 113,720 Other commercial letters of credit 51,983 22,376 56,333 40,508 37,627 Total $ 2,458,354 $ 3,011,177 $ 2,511,891 $ 2,286,520 $ 2,016,294 49 Nonperforming Assets Nonperforming assets consist of nonaccrual loans, accruing loans that are 90 days or more past due, accruing restructured loans, and OREO.
At December 31, 2022, total uninsured deposits of the Bank reported by the Bank was approximately $10.19 billion 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.
At December 31, 2023, total uninsured deposits of the Bank reported by the Bank was approximately $5.67 billion, or 38% 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.
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. 50 Nonperforming assets were $69.4 million at December 31, 2022 compared to $111.8 million at December 31, 2021.
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 $45.5 million at December 31, 2023, compared with $69.4 million at December 31, 2022.
Our investment securities portfolio is primarily invested in residential CMOs and residential and commercial MBS, which combined to represent 84% and 89% of our total investment securities portfolio as of December 31, 2022 and 2021, respectively.
Our investment securities portfolio is primarily invested in residential CMOs and residential and commercial MBS, which combined to represent 76% and 84% of our total investment securities portfolio at December 31, 2023 and 2022, respectively.
The changes in OREO for the years ended December 31, 2022 and 2021 were as follows: Year Ended December 31, 2022 2021 (Dollars in thousands) Balance at beginning of period $ 2,597 $ 20,121 Additions to OREO 938 — OREO sales (702) (15,903) Valuation adjustments, net (415) (1,621) Balance at end of period $ 2,418 $ 2,597 Deposits Deposits are our primary source of funds for loans and investments.
The changes in OREO for the years ended December 31, 2023 and 2022, were as follows: Year Ended December 31, 2023 2022 (Dollars in thousands) Balance at beginning of period $ 2,418 $ 2,597 Additions to OREO 105 938 OREO sales (2,418) (702) Valuation adjustments, net (42) (415) Balance at end of period $ 63 $ 2,418 Deposits Deposits are our primary source of funds for loans and investments.
At December 31, 2022, our ratio of common equity to total assets was 10.54% compared to 11.70% at December 31, 2021, and our tangible common equity represented 8.29% of tangible assets at December 31, 2022, compared with 9.31% of tangible assets at December 31, 2021.
At December 31, 2023, our ratio of common equity to total assets was 11.09% compared with 10.54% at December 31, 2022, and our tangible common equity represented 8.86% of tangible assets at December 31, 2023, compared with 8.29% of tangible assets at December 31, 2022.
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. 52 Allowance for Credit Losses The allowance for credit losses (“ACL”) was $162.4 million at December 31, 2022 compared to allowance for credit losses of $140.6 million at December 31, 2021.
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. 51 Allowance for Credit Losses The allowance for credit losses (“ACL”) was $158.7 million at December 31, 2023, compared with allowance for credit losses of $162.4 million at December 31, 2022.
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 $15.1 million compared to the results using the Moody’s consensus forecast as of December 31, 2022.
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 $21.6 million compared with the results using the Moody’s consensus forecast as of December 31, 2023.
Real estate loans as a percentage to total loans was 61% at December 31, 2022, compared to 65% at December 31, 2021. 48 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.
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.
The increase in interest income was partially offset by an increase in interest expense of $83.9 million largely due to an increase in the cost of interest bearing deposits, which grew by 74 basis points for 2022 compared to 2021, reflecting increased market interest rates driven in part by Federal Funds target rate hikes during 2022.
The increase in interest income was partially offset by an increase in interest expense of $83.9 million, driven by an increase in the cost of interest bearing deposits, which grew by 74 basis points for 2022 compared with 2021, and reflected higher market interest rates Federal Funds target rate hikes during 2022.
Net gain on sale of residential mortgage loans decreased in 2021 compared to 2020 due to a decrease in loans sold and a decrease in premiums received. During 2021, we sold $186.5 million in residential mortgage loans compared to $298.4 million residential mortgage loans sold in 2020.
Net gain on sale of residential mortgage loans decreased in 2022 compared with 2021 due to a decrease in loans sold and a decrease in premiums received. During 2022, we sold $49.1 million in residential mortgage loans compared with $186.5 million residential mortgage loans sold in 2021.
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. 56 Individually evaluated loans at December 31, 2022 were $66.1 million, a net decrease of $40.5 million from $106.6 million at December 31, 2021.
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, 2023, were $45.2 million, a net decrease of $20.9 million from $66.1 million at December 31, 2022.
Salaries and employee benefits expense increased by $29.6 million for 2022 compared to 2021. The increase in salaries and employee benefits was due to an overall increase in compensation costs to account for an increase in employees and the competitive staffing market and also reflects higher incentive compensation accruals related to the strong financial performance.
Salaries and employee benefits expense increased by $29.6 million for 2022 compared with 2021. The increase in salaries and employee benefits was due to an overall increase in compensation costs, reflecting an increase in employees, the competitive staffing market, and higher incentive compensation accruals.
(5) Cost on interest bearing liabilities and noninterest bearing deposits. 36 The following table presents net loan origination fees, loan prepayments 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) 2022 $ 9,990 $ 5,350 $ (2,523) $ 2,630 2021 $ 14,950 $ 4,106 $ (3,184) $ 9,925 2020 $ 4,810 $ 3,740 $ (1,128) $ 23,059 Net Interest Income Net interest income was $578.4 million for 2022, compared to $512.8 million for 2021 and $467.5 million for 2020.
(5) Cost on interest bearing liabilities and noninterest bearing deposits. 37 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) 2023 $ 8,657 $ 2,313 $ (2,926) $ 2,789 2022 $ 9,990 $ 5,350 $ (2,523) $ 2,630 2021 $ 14,950 $ 4,106 $ (3,184) $ 9,925 Net Interest Income Net interest income was $525.9 million for 2023, compared with $578.4 million for 2022 and $512.8 million for 2021.
The increase in net income for 2021 compared to 2020 was due to a decrease in provision for credit losses and a decrease in interest expense offset partially by a decline in interest income. 35 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 increase in net income for 2022 compared with 2021 was due primarily to an increase in net interest income, offset partially by increases in the provision for credit losses and noninterest expense. 35 Net Interest Margin and Net Interest Rate Spread We analyze our earnings performance using, among other measures, net interest spread and net interest margin.
At December 31, 2022, the qualitative portion of our allowance for credit losses totaled $45.1 million compared to $37.7 million at December 31, 2021.
At December 31, 2023, the qualitative portion of our allowance for credit losses totaled $35.7 million compared with $45.1 million at December 31, 2022.
Our diluted earnings per common share totaled $1.81, $1.66, and $0.90 for the years 2022, 2021, and 2020, respectively. The return on average assets was 1.20%, 1.17%, and 0.68% and the return on average stockholders’ equity was 10.73%, 9.88%, and 5.49% for the years 2022, 2021, and 2020, respectively.
Our diluted earnings per common share totaled $1.11, $1.81, and $1.66 for the years 2023, 2022, and 2021, respectively. The return on average assets was 0.67%, 1.20%, and 1.17% and the return on average stockholders’ equity was 6.48%, 10.73%, and 9.88% for the years 2023, 2022, and 2021, respectively.
Real estate 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 consumer loans). Construction loans are also a small portion of the total real estate portfolio, comprising approximately 1% of total loans outstanding.
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 $196.3 million and comprising 1% of total loans outstanding as of December 31, 2023.
The net decrease in individually evaluated loans was due primarily to sale of problem loans and continued de-risking the loan portfolio in 2022. We also maintain a separate ACL for our off-balance sheet unfunded loan commitments. We utilize a funding rate to allocate the allowance to undrawn exposures.
The net decrease in individually evaluated loans was due to charge offs and the sale of problem loans in 2023. 55 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.
Equity investments as of December 31, 2022 included $4.3 million in equity investments with readily determinable fair values and $38.1 million in equity investments without readily determinable fair values. Equity investments with readily determinable fair values at December 31, 2022 consisted of mutual funds totaling $4.3 million.
Equity investments at December 31, 2023 included $4.4 million in equity investments with readily determinable fair values and $39.4 million in equity investments without readily determinable fair values. Equity investments with readily determinable fair values at December 31, 2023, consisted of mutual funds totaling $4.4 million.
The following table illustrates the composition of nonperforming assets and nonperforming loans as of the dates indicated: December 31, 2022 2021 2020 2019 2018 (Dollars in thousands) Nonaccrual loans (1) $ 49,687 $ 54,616 $ 85,238 $ 54,785 $ 53,286 Loans 90 days or more days past due, still accruing (2) 401 2,131 614 7,547 1,529 Accruing restructured loans 16,931 52,418 37,354 35,709 50,410 Total nonperforming loans 67,019 109,165 123,206 98,041 105,225 OREO 2,418 2,597 20,121 24,091 7,754 Total nonperforming assets $ 69,437 $ 111,762 $ 143,327 $ 122,132 $ 112,979 _________________________ (1) Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation and excludes PCI loans for periods prior to 2020.
The following table illustrates the composition of nonperforming assets and nonperforming loans at the dates indicated: December 31, 2023 2022 2021 2020 2019 (Dollars in thousands) Nonaccrual loans (1)(2) $ 45,204 $ 49,687 $ 54,616 $ 85,238 $ 54,785 Accruing delinquent loans past due 90 days or more (2) 261 401 2,131 614 7,547 Accruing troubled debt restructured loans (3) — 16,931 52,418 37,354 35,709 Total nonperforming loans 45,465 67,019 109,165 123,206 98,041 OREO 63 2,418 2,597 20,121 24,091 Total nonperforming assets $ 45,528 $ 69,437 $ 111,762 $ 143,327 $ 122,132 _________________________ (1) Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation.
Treasury securities $ 3,990 $ 3,886 $ (104) $ — $ — $ — U.S. Government agency and U.S.
Treasury securities $ 103,691 $ 103,677 $ (14) $ 3,990 $ 3,886 $ (104) U.S. Government agency and U.S.
At December 31, 2022, $360.7 million in securities were pledged to secure public deposits, or for other purposes required or permitted by law, of which $359.1 million in securities were pledged in the State of California time deposit program, and $648 thousand was pledged for other public deposits.
At December 31, 2023, $1.70 billion in securities were pledged to the BTFP, to secure public deposits, or for other purposes required or permitted by law, of which $230.4 million in securities were pledged in the State of California time deposit program, and $133 thousand was pledged for other public deposits.
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 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.
We amortize the initial cost of investments in affordable housing partnership by tax loss/deductions. This amortization expense is more than offset by both tax credits received, which reduces our tax provision expense dollar for dollar and the tax benefits related to any tax losses generated through the affordable housing project’s expenditures.
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.
Although we have a diversified loan portfolio, a substantial portion of the loan portfolio and credit performance depends on the economic stability of Southern California. Within the California market, most of our business activity is with customers located within Southern California (46%).
The remaining 28% of total loans outstanding represented loans from other states. Although we have a diversified loan portfolio, a substantial portion of the loan portfolio and credit performance depends on the economic stability of Southern California. Within the California market, most of our business activity is with customers located in Southern California (47%).
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. An impairment loss must be recognized for any excess of carrying value over fair value of the goodwill.
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.
The yield on average interest earning assets was 4.16% for 2022, compared to 3.42% for 2021 and 3.84% for 2020 .
The yield on average interest earning assets was 5.60% for 2023, compared with 4.16% for 2022, and 3.42% for 2021 .
The decline to certain key macroeconomic inputs contributed to an increase in our allowance for credit losses at December 31, 2022 compared to at December 31, 2021. Changes in our key macroeconomic variables are presented in the tables below.
This contributed to an increase in our allowance for credit losses estimated loss rates at December 31, 2023, compared with at December 31, 2022. Changes in the key macroeconomic variables are presented in the tables below.
We have the ability and intent to hold investment securities classified as HTM to maturity. $254.1 million in investment securities were purchased and $336.3 million in investment securities were paid down in 2022. There were no sales of investment securities in 2022.
We have the ability and intent to hold investment securities classified as HTM to maturity. $465.7 million in investment securities were purchased and $333.9 million in investment securities were paid down in 2023. There were no sales of investment securities in 2023.
The decrease in accumulated other comprehensive income from December 31, 2021 to December 31, 2022 was due to the increase in unrealized losses on our investment securities AFS as a result of rising market interest rates.
The increase in AOCI from December 31, 2022, to December 31, 2023, was due to the decrease in unrealized losses on our investment securities AFS as a result of changes to market rates.
Net cash inflows from financing activities for 2022 was primarily attributable to an increase in deposits, proceeds from FHLB advances, and proceeds from FRB borrowings. These inflows were partially offset by the repayment of FHLB advances, the repayment of FRB borrowings, dividends paid on common stock, and purchase of treasury stock.
Net cash outflows from financing activities for 2023 was primarily attributable to the repayment of FRB borrowings, the repayment of FHLB advances, a decrease in deposits, repurchase and repayment of convertible notes, and dividends paid on common stock. These outflows were partially offset by proceeds from FRB borrowings and FHLB advances.
For the year ended December 31, 2022, one property was transferred to OREO totaling $938 thousand and we sold three OREO properties with carrying balances totaling $702 thousand. For the year ended December 31, 2021, no properties were transferred to OREO and we sold eight OREO properties totaling $15.9 million.
For the year ended December 31, 2023, one property was transferred to OREO totaling $105 thousand and we sold two OREO properties with carrying balances totaling $2.4 million. For the year ended December 31, 2022, one property was transferred to OREO totaling $938 thousand and we sold three OREO properties totaling $702 thousand.
Therefore, our exposure to credit risk is significantly affected by changes in the economy in the Southern California area. Within our commercial real estate loan portfolio, the largest industry concentrations are retail building (27%), multifamily (14%), industrial & warehouse (14%), and gas station & car wash (11%).
Therefore, our exposure to credit risk is significantly affected by changes in the economy in the Southern California area. Within our CRE loan portfolio, the largest property concentrations are multi-tenant retail buildings (19%), multifamily (14%), industrial & warehouse (14%), and gas station & car wash (12%).
The following table presents total nonaccrual and delinquent loans (loans past due 30+ days) as of the dates indicated: December 31, 2022 2021 2020 2019 2018 (Dollars in thousands) Real estate - residential $ 1,266 $ — $ — $ — $ — Real estate - commercial 36,764 60,203 64,894 40,460 38,260 Real estate - construction — — 18,723 14,015 — Commercial business 9,146 15,576 17,304 12,681 23,884 Residential mortgage 11,101 20,188 11,690 13,220 17,431 Consumer and other 1,103 848 1,414 1,100 804 Total nonaccrual and delinquent loans $ 59,380 $ 96,815 $ 114,025 $ 81,476 $ 80,379 Nonaccrual loans included above $ 49,687 $ 54,616 $ 85,238 $ 54,785 $ 53,286 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.
The following table presents total nonaccrual and delinquent loans (loans past due 30+ days) at the dates indicated: December 31, 2023 2022 2021 2020 2019 (Dollars in thousands) CRE loans $ 36,092 $ 38,030 $ 60,203 $ 83,617 $ 54,475 C&I loans 6,640 9,146 15,576 17,304 12,681 Residential mortgage loans 6,173 11,101 20,188 11,690 13,220 Consumer and other loans 682 1,103 848 1,414 1,100 Total nonaccrual and delinquent loans $ 49,587 $ 59,380 $ 96,815 $ 114,025 $ 81,476 Nonaccrual loans included above $ 45,204 $ 49,687 $ 54,616 $ 85,238 $ 54,785 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 did not have any federal funds purchased at December 31, 2022 and 2021. 58 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.
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.
If one of the criteria is met, the security’s amortized cost basis is written down to fair value through current earnings. For 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.
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.
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. The sale of investment securities and loans held for sale also serves as a source of funds.
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.
As of December 31, 2022, the maximum amount that we were able to borrow on an overnight basis from the FHLB and the FRB was an aggregate of $5.26 billion, and we had $600.0 million in borrowings from the FHLB and $265.0 million borrowings outstanding from the FRB.
At December 31, 2023, the maximum amount that we were able to borrow on an overnight basis from the FHLB and the FRB was an aggregate of $6.51 billion, and we had $100.0 million in borrowings from the FHLB and $1.70 billion in borrowings outstanding from the FRB.
At times we maintain a portion of our liquid assets in interest bearing cash deposits with other banks, overnight federal funds sold to other banks, and in investment securities available for sale that are not pledged.
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.

… 235 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

13 edited+12 added−8 removed5 unchanged
Biggest changeThe fundamental objective of our ALM is to manage our exposure to interest rate fluctuations while maintaining adequate levels of liquidity and capital. The ALM meets regularly to monitor interest rate risk, the sensitivity of our assets and liabilities to interest rate changes, the book and market values of our assets and liabilities, and our investment activities.
Biggest changeALM meets regularly to monitor interest rate risk, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, and the Company’s investment activities. It also directs changes in the composition of assets and liabilities. Overall, the Company aims to reduce the sensitivity of earnings to interest rate fluctuations.
Interest rate swaps involve the exchange of fixed-rate and variable-rate interest payment obligations without the exchange of the underlying notional amounts. Our monitoring activities related to managing interest rate risk include both interest rate sensitivity “gap” analysis and the use of a simulation model.
Interest rate swaps involve the exchange of fixed-rate and variable-rate interest payment obligations without the exchange of the underlying notional amounts. 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.
The ALCO, which oversees our interest rate risk management, has established the exposure limits for acceptable changes in net interest income and market value of equity related to these hypothetical changes in market interest rates. Given the limitations of the analysis, management believes that these hypothetical changes are considered tolerable and manageable as of December 31, 2022.
The Board Risk Committee, which oversees our interest rate risk management, has established the exposure limits for acceptable changes in net interest income and market value of equity related to these hypothetical changes in market interest rates. Given the limitations of the analysis, management believes that these hypothetical changes are considered tolerable and manageable as of December 31, 2023.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The objective of our asset and liability management activities is to maximize our earnings while maintaining adequate liquidity and an exposure to interest rate risk deemed by management to be acceptable by adjusting the type and mix of assets and liabilities to seek to effectively address changing conditions and risks.
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.
This analysis assesses the changes in market values of interest rate sensitive financial instruments that would occur in response to an instantaneous and sustained increase in market interest rates.
This analysis assesses the changes in the market values of our interest rate sensitive assets and liabilities that would occur in response to an instantaneous and sustained increase in market interest rates.
Our net interest income and market value of equity exposure related to these hypothetical changes in market interest rates are illustrated in the following table: December 31, 2022 December 31, 2021 Simulated Rate Changes Estimated Net Interest Income Sensitivity Market Value Of Equity Volatility Estimated Net Interest Income Sensitivity Market Value Of Equity Volatility + 200 basis points 9.86 % (6.01) % 6.95 % 0.84 % + 100 basis points 4.94 % (2.57) % 3.52 % 1.55 % - 100 basis points (4.57) % 1.58 % (2.62) % (5.94) % - 200 basis points (9.25) % 1.42 % (4.25) % (15.71) % 65 The estimated sensitivity does not necessarily represent our forecast of future results and the estimated results may not be indicative of actual changes to our net interest income.
Our net interest income and economic value of equity exposure related to hypothetical changes in market interest rates are illustrated in the following table: December 31, 2023 December 31, 2022 Simulated Rate Changes Estimated Net Interest Income Sensitivity Economic Value Of Equity Volatility Estimated Net Interest Income Sensitivity Economic Value Of Equity Volatility + 200 basis points 3.30 % (11.94) % 7.27 % (6.45) % + 100 basis points 2.20 % (5.45) % 3.71 % (2.84) % - 100 basis points (2.82) % 2.47 % (3.20) % 1.98 % - 200 basis points (5.49) % 3.29 % (6.74) % 2.25 % The estimated sensitivity does not necessarily represent our forecast of future results and the estimated results may not be indicative of actual changes to our net interest income.
One application of our simulation model measures the impact of market interest rate changes on the net present value of estimated cash flows from our assets and liabilities, defined as our market value of equity.
Future actual performance will be dependent on market conditions, the level of competition for deposits, and the magnitude and timing of interest rate increases or decreases. 64 Another application of the simulation model measures the impact of market interest rate changes on the net present value of estimated cash flows from our assets and liabilities, defined as our economic value of equity (“EVE”).
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. We consider the anticipated effects of these factors when implementing our interest rate risk management objectives.
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.
Interest rate risk occurs when interest rate sensitive assets and liabilities do not reprice simultaneously and in equal volumes. A key objective of asset and liability management is to manage interest rate risk associated with changing asset and liability cash flows, values of our assets and liabilities, and market interest rate movements.
A key objective of asset and liability management is to manage interest rate risk associated with changing asset and liability cash flows and values, and market interest rate movements. The management of interest rate risk is governed by policies reviewed and approved annually by the Board.
The management of interest rate risk is governed by policies reviewed and approved annually by the Board of Directors. Our 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 Board delegates responsibility for interest rate risk management to the BRC and to the 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.
For additional information about our associated risks, please refer to Item 1A, Risk Factors. 66
The transition away from LIBOR did not have a material impact on the Company’s consolidated financial statements. For additional information about our associated risks, please refer to Item 1A, Risk Factors. 65
LIBOR Transition The Company has financial instruments that are indexed to LIBOR including investment securities, loans, derivatives, subordinated debentures, and other financial contracts as of December 31, 2022. The Company’s LIBOR committee has identified all financial instruments that are indexed to LIBOR and maturing after June 30, 2023.
LIBOR Transition The Company had financial instruments that were indexed to LIBOR including investment securities, loans, derivatives, subordinated debentures, and other financial contracts prior to June 30, 2023. Since January 1, 2022, we ceased to originate any LIBOR based financial instruments. We have completed our efforts to modify financial instruments tied to LIBOR by establishing an alternative benchmark rate.
Our operating strategies for attaining this objective include managing net interest margin through appropriate risk/return pricing of assets and liabilities and emphasizing growth in retail deposits, as a percentage of interest bearing liabilities, to reduce our cost of funds. We also seek to improve earnings by controlling noninterest expense and enhancing noninterest income.
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.
Removed
Through overall management of our balance sheet and by seeking to manage various risks, we seek to optimize our financial returns within safe and sound parameters.
Added
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 occurs when interest rate sensitive assets and liabilities do not reprice simultaneously and/or in equal volumes.
Removed
We also use various methods to protect against our exposure to interest rate fluctuations with the objective of reducing the effects fluctuations might have on associated cash flows or values. Finally, we perform internal analysis to measure, evaluate, and monitor risk. Interest Rate Risk Interest rate risk is the most significant market risk impacting us.
Added
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.
Removed
It also directs changes in the composition of our assets and liabilities. Our strategy has been to reduce the sensitivity of our earnings to interest rate fluctuations by more closely matching the effective maturities or repricing characteristics of our assets and liabilities. Certain assets and liabilities, however, may react in different degrees to changes in market interest rates.
Added
A negative cumulative gap suggests that earnings will increase when interest rates fall and decrease when interest rates rise.
Removed
A negative cumulative gap suggests that earnings will increase when interest rates fall and decrease when interest rates rise. 64 The following table illustrates our combined asset and liability contractual repricing as of December 31, 2022: 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-bearing cash $ 293,002 $ — $ — $ — $ 293,002 Interest-bearing deposits in other financial institutions 735 — — — 735 Investment securities available for sale 149,247 — 126,876 1,696,006 1,972,129 Investment securities held to maturity 2,107 — 13,818 255,141 271,066 Equity investments 42,396 — — — 42,396 Loans outstanding (1) 7,254,524 975,635 6,279,573 943,053 15,452,785 Total rate sensitive assets $ 7,742,011 $ 975,635 $ 6,420,267 $ 2,894,200 $ 18,032,113 Rate Sensitive Liabilities: Money market and NOW $ 5,615,784 $ — $ — $ — 5,615,784 Savings deposits 170,324 55,375 57,765 — 283,464 Time deposits 1,166,952 3,806,071 17,037 — 4,990,060 FHLB and FRB borrowings 865,000 — — — 865,000 Convertible notes — 217,148 — — 217,148 Subordinated debentures 106,565 — — — 106,565 Total rate sensitive liabilities $ 7,924,625 $ 4,078,594 $ 74,802 $ — $ 12,078,021 Net Gap Position $ (182,614) $ (3,102,959) $ 6,345,465 $ 2,894,200 Cumulative Gap Position $ (182,614) $ (3,285,573) $ 3,059,892 $ 5,954,092 ___________________ (1) Includes nonaccrual loans of $49.7 million and loans held for sale of $49.2 million.
Added
However, actual earnings may not increase or decrease as expected based on the cumulative gap as there are other factors that impact earnings. 63 The following table illustrates our combined asset and liability contractual repricing as of December 31, 2023: 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 $ 1,756,154 $ — $ — $ — $ 1,756,154 Investment securities AFS 251,496 3,963 102,129 1,787,471 2,145,059 Investment securities HTM 2,150 — 38,766 222,996 263,912 Equity investments 43,750 — — — 43,750 Loans outstanding (1) 5,855,081 1,232,973 5,933,977 834,996 13,857,027 Total rate sensitive assets $ 7,908,631 $ 1,236,936 $ 6,074,872 $ 2,845,463 $ 18,065,902 Rate Sensitive Liabilities: Money market and NOW $ 4,169,543 $ — $ — $ — 4,169,543 Savings deposits 626,797 44,640 31,049 — 702,486 Time deposits 2,111,444 3,833,808 21,505 — 5,966,757 FHLB and FRB borrowings 1,795,726 — — — 1,795,726 Convertible notes 444 — — — 444 Subordinated debentures 107,825 — — — 107,825 Total rate sensitive liabilities $ 8,811,779 $ 3,878,448 $ 52,554 $ — $ 12,742,781 Net Gap Position $ (903,148) $ (2,641,512) $ 6,022,318 $ 2,845,463 Cumulative Gap Position $ (903,148) $ (3,544,660) $ 2,477,658 $ 5,323,121 ___________________ (1) Includes nonaccrual loans of $45.2 million and loans held for sale of $3.4 million.
Removed
The simulation model discussed above provides our ALM with the ability to simulate our net interest income. In order to measure, at December 31, 2022, the sensitivity of our forecasted net interest income to changing interest rates, both rising and falling interest rate scenarios were projected and compared to base market interest rate forecasts.
Added
Our simulation model provides our ALM with the ability to simulate our net interest income under various scenarios.
Removed
These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayment on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows.
Added
The simulation results presented above for estimated net interest income sensitivity is based on a 12-month ramp scenario, using an adjusted balance sheet, the implied forward rate curve and a parallel shift of long and short-end interest rates off of base interest rates.
Removed
While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions including how customer preferences or competitor influences may change.
Added
The adjusted balance sheet at December 31, 2023, reflects noninterest bearing deposit migration into interest bearing deposits, assumptions related to early withdrawals or deposit attrition, and changes to loan prepayment speeds based on interest rate scenarios.
Removed
Since January 1, 2022, the Company has ceased to originate any LIBOR based financial instruments. The Company has limited LIBOR exposures subsequent to June 2023 and is on track to transition financial instruments indexed to LIBOR to an alternative index. The transition away from LIBOR is not expected to have a material impact on the Company’s consolidated financial statements.
Added
The adjusted balance sheet does not reflect growth, or other asset or liability migration and attrition, that would occur in a dynamic environment of rising or falling interest rates or actions that we would take in response to such events.
Added
The adjusted balance sheet at December 31, 2022, reflects the same assumptions, except those of noninterest bearing deposit migration into interest bearing deposits and time deposit early withdrawals.
Added
Year-over-year changes in interest rates and the composition of the balance sheet impacted the dollar amount of the base interest income, the replacement yields and rates for maturing assets and liabilities, and the deposit beta assumptions utilized in the simulation model.
Added
The year-over-year EVE volatility at December 31, 2023, showed increased liability sensitivity largely attributable to higher balances of investment securities and an increase in receive-fixed rate/pay-float interest rate swaps executed in 2023. Our models are driven by expected behavior in various interest rate scenarios and various factors besides market interest rates can affect our net interest income.
Added
As a result, model outputs could be materially different from actual results. For this reason, we model many different combinations of interest rates and balance sheet assumptions to understand our overall sensitivity to market interest rate changes, including shocks, ramps, yield curve flattening, yield curve steepening, as well as forecasts of likely interest rate scenarios tested.

Other HOPE 10-K year-over-year comparisons