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What changed in HOPE BANCORP INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of HOPE BANCORP INC's 2023 and 2024 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 2024 report.

+388 added−352 removedSource: 10-K (2025-02-26) vs 10-K (2024-02-28)

Top changes in HOPE BANCORP INC's 2024 10-K

388 paragraphs added · 352 removed · 285 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

65 edited+14 added−8 removed105 unchanged
Biggest changeThe BTFP, which was introduced in March 2023 and will cease making new advances in March 2024, allows institutions to pledge certain securities at par value and borrow at a rate no lower than the interest rate on reserve balances in effect on the day the loan is made. 6 Long-Term Debt At December 31, 2023, we had nine wholly-owned subsidiary grantor trusts (“Trusts”) that have issued $126.0 million of pooled trust preferred securities (“Trust Preferred Securities”).
Biggest changeThe BTFP ceased making new advances in March 2024. 7 Long-Term Debt At December 31, 2024, we had nine wholly-owned subsidiary grantor trusts (“Trusts”) that have issued $126.0 million of pooled trust preferred securities (“Trust Preferred Securities”). The Trust Preferred Securities accrue and pay distributions periodically at specified annual rates as provided in the related indentures for the securities.
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.
Interest rates for the first TD bank loans are subject to normal bank commercial rates and terms, and the second TD CDC loans are fixed for the life of the loans based on certain indices. SBA EZ loans are C&I loans that are unsecured term loans extended for business purposes.
In addition, we may borrow from the FHLB on a longer term basis to provide funding for certain loan or investment securities strategies, as well as asset-liability management strategies. The FHLB functions in a reserve credit capacity for qualifying financial institutions.
In addition, we may borrow from the FHLB on a longer term basis to provide funding for certain loan or investment securities strategies, as well as for asset-liability management. The FHLB functions in a reserve credit capacity for qualifying financial institutions.
Community Reinvestment Act The Bank is subject to the CRA, which requires federal banking regulators to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low and moderate income neighborhoods.
Community Reinvestment Act The Bank is subject to the CRA, which requires federal banking regulators to evaluate the record of a financial institution in meeting the credit needs of its local communities, including in low- and moderate-income neighborhoods.
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.
Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; and expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting whistleblower incentives and protections.
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.
We offer a leading compensation and benefits package that includes medical, dental and vision healthcare, 401(k) benefits, parental and family leave, holiday paid time off, and tuition assistance.
The Basel III Capital Rules (i) establish a capital measure called “common equity Tier 1 and a related regulatory capital ratio of common equity Tier 1 to risk‑weighted assets, (ii) specify that Tier 1 capital consists of common equity Tier 1 and “additional Tier 1 capital” instruments meeting certain requirements, (iii) mandate that most deductions and adjustments to regulatory capital measures be made to common equity Tier 1 and not to the other components of capital, and (iv) specify deductions from and adjustments to capital that are somewhat more expansive than those under prior capital rules.
The Basel III Capital Rules (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.
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.
Our network of branches and loan production offices includes locations in California, New York, Texas, Washington, Illinois, New Jersey, Georgia, Florida, Alabama, Colorado, and Oregon, and includes a representative office in Seoul, South Korea. Our headquarters are located at 3200 Wilshire Boulevard, Suite 1400, Los Angeles, California 90010, and our telephone number at that address is (213) 639-1700.
The Basel III Capital Rules differ from earlier capital rules by excluding from Tier 1 capital trust preferred securities (subject to certain grandfathering exceptions for organizations like Hope Bancorp, which had less than $15 billion in assets as of December 31, 2009), mortgage servicing rights and certain deferred tax assets and to include unrealized gains and losses on available for sale debt and equity securities (unless the organization opts out of including such unrealized gains and losses). 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”).
The Basel III Capital Rules differ from earlier capital rules by excluding from Tier 1 capital trust preferred securities (subject to certain grandfathering exceptions for organizations like Hope Bancorp, which had less than $15 billion in assets as of December 31, 2009), mortgage servicing rights and certain deferred tax assets and to include unrealized gains and losses on available for sale debt and equity securities (unless the organization opts out of including such unrealized gains and losses). 10 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”).
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.
The competitive environment is primarily a result of strong competition among community, regional and national banks; changes in regulations; changes in technology and product delivery systems, as well as consolidation among financial services companies. In addition, federal legislation may have the effect of further increasing the pace of consolidation within the financial services industry.
Short-term loans are often used to finance business working capital needs, collateralized with current assets, and typically have terms of one year with interest paid monthly on the outstanding balance with the principal balance due at maturity. Long-term loans typically have terms of three to five years with principal and interest paid monthly.
Short-term loans are often used to finance business working capital needs, collateralized with current assets, and typically have terms of one year with interest paid monthly on the outstanding balance with the principal balance due at maturity. Term loans typically have terms of three to five years with principal and interest paid monthly.
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.
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. 11 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.
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.
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. 9 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.
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.
Adjustable-rate mortgage loans are also offered with flexible initial and periodic adjustments ranging from five to seven years. 6 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.
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.
While Hope Bancorp and the Bank had no investment positions or relationships at December 31, 2024, that were subject to the Volcker Rule, we may be subject to the compliance and recording keeping provisions of this rule. The Dodd-Frank Act requires banking organizations with consolidated assets exceeding $10 billion to establish board-level risk committees and to perform annual stress tests.
The 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 actions of the FRB in these areas influence the growth of bank loans, investments, and deposits, and affect interest rates earned on interest earning assets and paid on interest bearing liabilities.
The nature and impact on Hope Bancorp, and the Bank, of future changes in monetary and fiscal policies cannot be predicted. 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.
The nature and impact on Hope Bancorp, and the Bank, of future changes in monetary and fiscal policies cannot be predicted. 8 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.
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.
None of the information on or hyperlinked from the Company’s website is incorporated into this Annual Report on Form 10-K. 4 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.
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.
We offer a full suite of commercial, corporate and consumer loans, deposit and fee-based products and services, including commercial and commercial real estate lending, Small Business Administration (“SBA”) lending, residential mortgage and other consumer lending, treasury management services, foreign currency exchange solutions, interest rate risk hedging products, and other and international trade financing, among others.
For additional information on deposits, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Deposits.” Borrowing Activities When we have more funds than required for our reserve requirements or short-term liquidity needs, we may sell federal funds to other financial institutions.
For additional information on deposits, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Deposits”. Borrowing Activities When we have more funds than required for our reserve requirements or short-term liquidity needs, we may sell federal funds to other financial institutions.
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.
We offer both fixed and floating rate CRE loans in addition to offering clients interest rate hedging options. It is our general policy to restrict CRE loan amounts to no more than 75% of the appraised value of the underlying collateral property at the date of origination.
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.
Management believes that as of December 31, 2024, Hope Bancorp and the Bank met all requirements under the Basel III Capital Rules applicable to them on a fully phased-in basis, including the capital conservation buffer.
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.
The credit worthiness of our borrowers is evaluated before a loan is originated through financial spread and collateral analysis and, if large enough, with financial projections to cover both base and downside case cash flow scenarios. Credit worthiness is typically reviewed quarterly to address potential borrower covenant defaults/appropriate borrower action plans as well as loan risk grading.
The Bank received a “Satisfactory” rating in the most recent public disclosure of CRA performance evaluation released by the FDIC in 2021, which states that the Bank’s CRA performance under the lending, investment, and service tests supports the overall rating.
The Bank received a “Satisfactory” rating in the most recent public disclosure of CRA performance evaluation released by the FDIC in 2024, which states that the Bank’s CRA performance under the lending, investment, and service tests supports the overall rating.
In addition to the interest yield earned on the unguaranteed portion of the SBA 7(a) loans that are not sold, we can recognize income from gains on sales and from loan servicing on the SBA 7(a) loans that are sold.
In addition to the interest income earned on the unguaranteed portion of the SBA 7(a) loans that are not sold, we recognize income from gains on sales and loan servicing income on the SBA 7(a) loans that are sold.
The Economic Growth, Regulatory Relief, and Consumer Protection Act enacted in 2018 raises the asset thresholds for these requirements to $50 billion and $100 billion, respectively.
The Economic Growth, Regulatory Relief, and Consumer Protection Act enacted in 2018 raised the asset thresholds for these requirements to $50 billion and $100 billion, respectively.
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.
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.
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.
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.
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”).
A prepayment penalty is usually imposed for early repayment of these advances. Information concerning FHLB advances and other borrowings is included in Note 9 of our Notes to Consolidated Financial Statements. We may also borrow from the Federal Reserve Bank’s discount window.
The remaining net carrying balance of convertible notes at December 31, 2023, was $444 thousand. Market Area and Competition As of December 31, 2023, we had 54 branches in the United States, predominantly in multi-ethnic communities.
The remaining net carrying balance of convertible notes at December 31, 2024, was $444 thousand. Market Area and Competition As of December 31, 2024, we had 46 branches in the United States, predominantly in multi-ethnic communities.
We are generally able to sell the guaranteed portion of the SBA 7(a) loans in the secondary market at a premium while earning servicing fee income on the sold portion over the remaining life of the loan.
We are generally able to sell the guaranteed portion of the SBA 7(a) loans in the secondary market at a premium and earn servicing fee income on the sold portion over the remaining life of the loan.
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.
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.
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.
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.
Of these, 29 were located in California, nine were located in New York and New Jersey; four were in Illinois; four were in Texas; two were in Virginia; four were in Washington; one was in Alabama, and one was in Georgia.
Of these, 25 were located in California, nine were located in New York and New Jersey; four were in Washington; three were in Illinois; three were in Texas; one was in Alabama, and one was in Georgia.
On October 24, 2023, the federal banking regulators issued new CRA rules intended to adapt to changes in the banking industry, including the expanded role of mobile and online banking, and to tailor performance standards to account for differences in bank size and business models.
In 2024, the federal banking regulators issued final CRA rules to adapt to changes in the banking industry, including the expanded role of mobile and online banking, and to tailor performance standards to account for differences in bank size and business models.
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 the right to defer interest on the Debentures for up to five years. In 2018, we issued $217.5 million aggregate principal amount of 2.00% convertible senior notes maturing on May 15, 2038, in a private offering to investors. The convertible notes were issued as part of our plan to repurchase shares of our common stock.
Through our branch network, we provide our banking customers with personal and business checking accounts, money market accounts, savings accounts, time deposit accounts, individual retirement accounts, 24-hour ATMs, internet banking and bill-pay, remote deposit capture, lock boxes, and ACH origination services.
Through our branch network, we provide our banking customers with personal and business checking accounts, money market accounts, savings accounts, time deposit accounts, individual retirement accounts, 24-hour automated teller machines (“ATM”), internet banking and bill-pay, remote deposit capture, lock boxes, and automated clearing house (“ACH”) origination services.
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.
We also offer C&I loans under the SBA 504, SBA 7(a), and SBA Express Loan (“EZ”) programs, which are described in more detail in the following sub-section titled Small Business Administration Loans . 5 Commercial Real Estate Loans Commercial real estate (“CRE”) loans cover a broad array of commercial real estate segments including multi-tenant retail, hotels/motels, gas stations & car washes, mixed-use facilities, industrial warehouses, multi-family, single-tenant retail, office and other.
Although we were previously subject to regulations issued by the CFPB, the Bank’s primary federal regulator, the FDIC, previously had responsibility for our consumer compliance examinations.
Although we were subject to regulations issued by the CFPB when we were less than $10 billion in assets, the Bank’s primary federal regulator, the FDIC, previously had responsibility for our consumer compliance examinations.
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).
These C&I loans, at times done through participations in a syndicated facility, are provided for various purposes such as working capital needs, purchasing inventory, debt refinancing, business acquisitions, and other business-related financing needs. C&I loans are typically classified as (1) revolving, or short-term loans, or lines of credit or (2) term loans to businesses.
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.
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.
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.
Through our social rewards and recognition platform, called Bucketlist, employees recognize one another for milestones and achievements, or simply express gratitude to anyone within the Bank for demonstrating Bank of Hope Core Values of trust, excellence, agility, meritocracy, and service.
USA PATRIOT Act and Anti-Money Laundering Laws Under the USA PATRIOT Act of 2001, financial institutions are subject to prohibitions against specified financial transactions and account relationships, as well as enhanced due diligence standards that are intended to prevent and detect the use of the United States financial system for money laundering and terrorist financing activities.
Most provisions of the final rule will become effective on January 1, 2026, and the data reporting requirements will become effective on January 1, 2027. 12 USA PATRIOT Act and Anti-Money Laundering Laws Under the USA PATRIOT Act of 2001, financial institutions are subject to prohibitions against specified financial transactions and account relationships, as well as enhanced due diligence standards that are intended to prevent and detect the use of the United States financial system for money laundering and terrorist financing activities.
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.
At December 31, 2024, the ratios of each of Hope Bancorp and the Bank exceeded the minimum percentage requirements to generally be deemed “well-capitalized” for bank regulatory purposes and satisfied the capital conservation buffer requirement. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
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.
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.
The revisions mandate specific underwriting criteria for home loans in order for creditors to make a reasonable, good faith determination of a consumer’s ability to repay and establish certain protections from liability under the requirements for “qualified mortgages” that meet certain specific standards.
CFPB regulations mandate specific underwriting criteria for home loans requiring lenders to make a reasonable, good faith determination of a consumer’s ability to repay, establish certain protections from liability under the requirements for “qualified mortgages” that meet certain specific standards and implement TILA-RESPA Integrated Disclosure requirements for mortgages.
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.
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.
The new rule also includes data collection and reporting requirements, some of which are applicable only to banks with over $10 billion in assets. Most provisions of the final rule will become effective on January 1, 2026, and the data reporting requirements will become effective on January 1, 2027.
The new rule also includes data collection and reporting requirements, some of which are applicable only to banks with over $10 billion in assets, like the Bank.
Safety and Soundness Standards; Regulatory Enforcement Authority The federal and California bank regulatory agencies have extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of appropriate loan loss reserves for regulatory purposes.
Any future changes in FDIC insurance assessments may have a material and adverse effect on our earnings and could have a material adverse effect on the value of, or market for, our common stock. 13 Safety and Soundness Standards; Regulatory Enforcement Authority The federal and California bank regulatory agencies have extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of appropriate loan loss reserves for regulatory purposes.
The 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.
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 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.
The Bank Secrecy Act (the “BSA”) establishes requirements for recordkeeping and reporting by banks and other financial institutions that are intended to help identify the source, volume and movement of currency and other monetary instruments into and out of the United States, to help detect and prevent money laundering connected with drug trafficking, terrorism, and other criminal activities.
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.
Some of the highlights we have taken to be a socially responsible company are: • Approximately 37% of the Bank’s branches are located in low-to-moderate income areas; • Our employees had nearly 312 hours of CRA-reportable volunteer hours in 2024; • We funded approximately $2.24 billion of loans in 2024; • We invest in affordable housing partnerships, CRA investments, CDFI investments and in renewal energy credits; • We had approximately 528 CRA-reportable small business loans totaling to $196.2 million in 2024, with 439 loans totaling $153.8 million within the Bank’s assessment areas; • We had approximately over $600 thousand in charitable donations to 158 organizations to support the social, educational, and cultural wellness of the communities in which we operate; and • We awarded 60 students scholarships of $2,500 each in 2024.
In aggregate, we contributed approximately more than $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).
In aggregate, we contributed approximately more than $3.0 million to the Hope Scholarship Foundation since its establishment in 2001. 15 Our Environmental, Social and Governance (“ESG”) report and webpage are available in our investor relation website (www.ir-hopebancorp.com). The ESG report contains our ESG progress including the establishment of an ESG framework, ESG policy, and our achievements on ESG compliance. 16
This rate will be applied to an assessment base of the insured depository institution’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits. We recorded an expense of $4.0 million in 2023 for the estimated total amount due under this special assessment.
This rate will be applied to an assessment base of the insured depository institution’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits. In February 2024, the FDIC informed banks of an increase from the original estimate related to this special assessment.
Consumer Financial Protection Bureau The Dodd-Frank Act created the CFPB as an independent entity within the FRB with broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans and credit cards.
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. 14 Consumer Financial Protection Bureau The Dodd-Frank Act created the CFPB as an independent entity within the FRB with broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans, and credit cards.
The 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.
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.
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.
The Bank is subject to examination by the CFPB. The CFPB has the authority to bring formal and informal enforcement actions against the Bank similar to those that may be brought by the federal banking regulators discussed above.
The Bank is also subject to capital adequacy requirements under the California Financial Code.
The Bank is also subject to capital adequacy requirements under the California Financial Code. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
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.
Due to lower premium rates paid in the secondary market, it was more economic to retain the production on our Consolidated Statements of Financial Condition and earn interest income on the full production amount. During the 2024 second quarter, the Company resumed sales of the guaranteed portion of its SBA 7(a) loans as secondary market premium rates increased.
The Trust Preferred Securities accrue and pay distributions periodically at specified annual rates as provided in the related indentures for the securities. The Trusts used the net proceeds from the offering of the Trust Preferred Securities to purchase a like amount of subordinated debentures of Hope Bancorp (the “Debentures”). The Debentures are the sole assets of the trusts.
The Trusts used the net proceeds from the offering of the Trust Preferred Securities to purchase a like amount of subordinated debentures of Hope Bancorp (the “Debentures”). The Debentures are the sole assets of the trusts. Our obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by us of the obligations of the Trusts.
Our obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by us of the obligations of the Trusts. The Trust Preferred Securities are mandatorily redeemable upon the maturity of the Debentures (which have maturity dates ranging from 2033 to 2037), or upon earlier redemption as provided in the indentures.
The Trust Preferred Securities are mandatorily redeemable upon the maturity of the Debentures (which have maturity dates ranging from 2033 to 2037), or upon earlier redemption as provided in the indentures. We have the right to redeem the Debentures in whole (but not in part) on a quarterly basis at a specified redemption price.
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.
As of December 31, 2024 and 2023, the Bank and Hope Bancorp both had 1,244 full-time equivalent employees. None of our employees are represented by a union or covered by a collective bargaining agreement. Management believes that its relations with its employees are good.
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.
The maximum loan amount is $350 thousand, and loans are processed based on the Company’s credit scoring program. Our SBA loans are originated through our SBA loan department, our SBA loan production offices, or can be referred through our branch network. The Bank has been designated as an SBA Preferred Lender, which is the highest designation awarded by the SBA.
Our employees are committed to be good neighbors that foster growth for our customers and communities.
Our employees actively share their talents with their communities through volunteer activities in education, economic development, human and health services, and community reinvestment. Our employees are committed to be good neighbors that foster growth for our customers and communities.
As 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.
Human Capital Resources It is our philosophy to attract, develop, and retain a diverse range of qualified bankers who share our values, entrepreneurial spirit and unwavering commitment to service. The Company respects, values, and invites diversity in our team members, customers, suppliers, marketplace, and community.
Removed
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.
Added
Our website at www.bankofhope.com offers internet banking services and applications in both English and Korean. On March 28, 2024, the Bank entered into a Purchase and Assumption Agreement with PromiseOne Bank, a Georgia state bank, to sell the deposits, other liabilities, and certain physical assets of the Bank’s two branches located in Virginia (Annandale and Centreville).
Removed
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.
Added
The transaction was completed on October 1, 2024. On April 26, 2024, the Company entered into a merger agreement with Territorial Bancorp Inc. (“Territorial”), headquartered in Honolulu, Hawaii.
Removed
Any future changes in FDIC insurance assessments may have a material and adverse effect on our earnings and could have a material adverse effect on the value of, or market for, our common stock.
Added
Under the terms of the merger agreement, assuming the transaction is consummated, Territorial will merge with and into the Company, immediately followed by the merger of Territorial’s subsidiary bank, Territorial Savings Bank, with and into the Company’s subsidiary bank, Bank of Hope.
Removed
The Bank is subject to examination by the CFPB.
Added
Upon completion, Territorial shareholders would receive a fixed exchange ratio of 0.8048 shares of the Company’s common stock in exchange for each share of Territorial common stock they own.
Removed
As of December 31, 2023, we had 1,244 full-time equivalent employees compared with 1,549 full-time equivalent employees at December 31, 2022. In the third quarter of 2023, the Company announced a strategic reorganization that is expected to generate cost savings through increased efficiencies that include branch consolidations and reduced staffing.
Added
Based on the closing price of the Company’s common stock on April 26, 2024, this represented a value of $8.82 per share of Territorial common stock, although the actual value will be determined upon the completion of the merger.
Removed
Building a culture of inclusion and high performance has been a growing focus of management and an essential element of our long-term success. As of December 31, 2023, women accounted for 64% of our total workforce and represented 32% of our associates with positions of senior vice president and above.
Added
Following the completion of the pending transaction, the legacy Territorial franchise in Hawaii would continue to do business under the trade name Territorial Savings, a division of Bank of Hope.
Removed
We strive to attract, develop, and retain a diverse range of qualified bankers who share our values, entrepreneurial spirit and unwavering commitment to service. Our employees actively share their talents in their communities through volunteer activities in education, economic development, human and health services, and community reinvestment.
Added
For a breakdown of CRE loans by owner occupied and non-owner occupied, as well as by property types, see “Commercial Real Estate Loans” section in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition”. Small Business Administration Loans We extend loans partially guaranteed by the SBA.
Removed
The ESG report contains our ESG progress including the establishment of an ESG framework, ESG policy, and our achievements on ESG compliance. 15

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

36 edited+27 added−0 removed136 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. 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.
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.
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 for residential properties because there are fewer potential purchasers of the collateral.
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.
Among others, the corrective measures that such regulatory authorities may take include requiring us to enter into informal or formal agreements regarding our operations, the issuance of cease and desist orders to refrain from engaging in unsafe and unsound practices, removal of officers and directors, or the assessment of civil monetary penalties.
Increases in the level of our problem assets, occurrence of operating losses or a failure to comply with requirements of the agencies which regulate us may result in regulatory actions against us which may materially and adversely affect our business and the market price of our common stock .
Increases in the level of our problem assets, occurrence of operating losses or a failure to comply with requirements of the agencies that regulate us may result in regulatory actions against us, which may materially and adversely affect our business and the market price of our common stock .
When market rates of interest change, the interest we receive on our assets and the interest we pay on our liabilities will fluctuate. This can cause decreases in our spread and can greatly affect our income. In addition, interest rate fluctuations can affect how much money we may be able to lend.
When market interest rates change, the interest we receive on our assets and the interest we pay on our liabilities will fluctuate. This can cause decreases in our spread and can greatly affect our income. In addition, interest rate fluctuations can affect how much money we may be able to lend.
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.
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.
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 .
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. 17 Our allowance for credit losses may not cover our actual loan losses .
In addition, failure in our internal control over financial reporting and disclosure controls and procedures could cause us to fail to meet the continued listing requirements of the Nasdaq Global Select Market and, as a result, adversely impact the liquidity and trading price of our securities. 22 Anti-takeover provisions in our charter documents and applicable federal and state law may limit the ability of another party to acquire us, which could cause our stock price to decline.
In addition, failure in our internal control over financial reporting and disclosure controls and procedures could cause us to fail to meet the continued listing requirements of the Nasdaq Global Select Market and, as a result, adversely impact the liquidity and trading price of our securities. 24 Anti-takeover provisions in our charter documents and applicable federal and state law may limit the ability of another party to acquire us, which could cause our stock price to decline.
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 .
If we are unable to manage these risks, our operations may be materially and adversely affected. 21 Adverse conditions in South Korea or globally may adversely affect our business .
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.
There can be no assurance that we will be successful in minimizing the potentially adverse effects of changes in interest rates. 18 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.
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.
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. 25 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 . 21 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 . 23 Environmental laws may force us to pay for environmental problems .
While our Board and the Board Risk Committee oversee our cybersecurity program, management is responsible for implementing the program. 25 Our Chief Information Security Officer, who reports to our Chief Risk Officer, is responsible for managing our information security team, maintaining and continuing to develop and implement our cybersecurity program enterprise-wide and assessing and managing risks from cybersecurity threats, subject to oversight by and reporting to the Board Risk Committee, which in turn reports directly to the Board.
While our Board and the Board Risk Committee oversee our cybersecurity program, management is responsible for implementing the program. 27 Our Chief Information Security Officer, who reports to our Chief Risk Officer, is responsible for managing our information security team, maintaining, and continuing to develop and implement our cybersecurity program enterprise-wide and assessing and managing risks from cybersecurity threats, subject to oversight by and reporting to the Board Risk Committee, which in turn reports directly to the Board.
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.
Any changes to the SBA program, including changes to the level of guarantee provided by the federal government on SBA loans, may also have a material adverse effect on our business. The sales of SBA 7(a) loans result in both premium income at the time of sale and a stream of future servicing income.
We, 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.
We, along with our customers, will need to respond to new or changing laws and regulations as well as consumer and business preferences resulting from climate change concerns. We may also face cost increases, asset value reductions, and operating process changes, among other impacts.
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.
Diverse views, increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.
Risks involved in acquisitions of other companies include: • the risk of failure to adequately evaluate the asset quality of the acquired company; • difficulty in assimilating the operations, technology and personnel of the acquired company; • diversion of management’s attention from other important business activities; • difficulty in maintaining good relations with the loan and deposit customers of the acquired company; • inability to maintain uniform and effective operating standards, controls, procedures and policies; • potentially dilutive issuances of equity securities or the incurrence of debt and contingent liabilities; and • amortization of expenses related to acquired intangible assets that have finite lives.
Risks involved in acquisitions of other companies include: • the risk of failure to adequately evaluate the asset quality of the acquired company; • difficulty in assimilating the operations, technology, and personnel of the acquired company; • diversion of management’s attention from other important business activities; • costs and unpredictability of stockholder litigation in connection with acquisitions; • difficulty in maintaining good relations with the loan and deposit customers of the acquired company; • inability to maintain uniform and effective operating standards, controls, procedures, and policies; • potentially dilutive issuances of equity securities or the incurrence of debt and contingent liabilities; and • amortization of expenses related to acquired intangible assets that have finite lives.
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).
We have a high level of loans secured by real estate collateral. A downturn in the real estate market may seriously impair our loan portfolio . As of December 31, 2024, approximately 63% of our loan portfolio consisted of loans secured by various types of commercial real estate (excluding 1-4 family residential mortgage loans).
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.
As a result, banking regulators are examining commercial real estate lending activity with heightened scrutiny and may require banks with higher levels of commercial real estate loan growth or exposure to implement more stringent underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for losses and capital levels.
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.
A significant portion of our operations are concentrated in Southern California, which is an earthquake and fire prone region. A major earthquake or fire in the Greater Los Angeles Area may result in material loss to us. A significant percentage of our loans are and will be secured by real estate.
As a lender, we are exposed to the risk that the principal of, or interest on, a loan will not be paid timely or at all or that the value of any collateral supporting a loan will be insufficient to cover our outstanding exposure. In accordance with U.S.
As a lender, we are exposed to the risk that the principal of, or interest on, a loan will not be paid timely, or at all, or that the value of any collateral supporting a loan will be insufficient to cover our outstanding exposure.
In 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.
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. 20 The development and use of artificial intelligence (“AI”) presents risks and challenges that may adversely impact the Company’s business.
We believe our information security team is well positioned to identify risks from cybersecurity threats based on numerous job qualifications and on-going training. 24 As a regulated financial institution, we have designed our cybersecurity program based on the requirements of the Gramm-Leach Bliley Act of 1999 (“GLBA”) and the Federal Financial Institutions Examination Council (“FFIEC”) Cybersecurity Assessment Tool.
We believe our information security team is well positioned to identify risks from cybersecurity threats based on numerous job qualifications and ongoing training. 26 As a regulated financial institution, we have designed our cybersecurity program based on the requirements of the GLBA and the Federal Financial Institutions Examination Council (“FFIEC”) Cybersecurity Assessment Tool.
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 .
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.
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.
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.
GAAP, we maintain an allowance for credit losses to provide for loan defaults and non-performance. If our actual credit losses exceed the amount we have allocated for estimated current expected credit losses, our business will be adversely affected.
In accordance with generally accepted accounting principles in the United States of America (“GAAP”), we maintain an allowance for credit losses to provide for loan defaults and non-performance. If our actual credit losses exceed the amount we have allocated for estimated current expected credit losses, our business will be adversely affected.
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.
There continues to be a rise in electronic fraudulent activity, security breaches, and cyber-attacks within the financial services industry, especially in the commercial banking sector due to cyber criminals targeting commercial bank accounts. Consistent with industry trends, we have also experienced an increase in attempted electronic fraudulent activity and information system breaches in recent periods.
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.
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.
Our ability to acquire deposits or borrow may also be impaired by factors that are not specific to us, such as a disruption of the financial markets or negative views and expectations about the prospects for the banking industry or the general financial services industry as a whole.
Our ability to acquire deposits or borrow may also be impaired by factors that are not specific to us, such as a disruption of the financial markets or negative views and expectations about the prospects for the banking industry or the general financial services industry as a whole. 19 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.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our financial condition and results of operations. New government regulations could also result in new or more stringent forms of ESG oversight and expand mandatory and voluntary reporting, diligence, and disclosure.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our financial condition and results of operations. In addition, views about ESG are diverse and rapidly changing.
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.
As a financial institution, we are susceptible to fraudulent activity and security breaches, including those related to cybersecurity incidents, that may materially and adversely affect us or our clients or our third-party service providers. Fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, social engineering, and other dishonest acts.
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.
As we expand outside our traditional geographic markets, we may encounter additional risks that may adversely affect us . Currently, the majority of our offices are located in California, but we also have branches or loan production offices in the greater New York City area, Chicago, Houston, Dallas, Tampa, and Seattle metropolitan areas, New Jersey, Colorado, Georgia, and Alabama.
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.
See Item 1 “Business-Business Overview” and Note 24 of our Notes to Consolidated Financial Statements for more information about our pending merger with Territorial Bancorp Inc. If we do not adequately address the financial and operational risks associated with acquisitions of other companies, we may incur material unexpected costs and disruption of our business.
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.
Unlike a bank with operations that are more geographically diversified, we are vulnerable to greater losses if an earthquake, fire, flood, mudslide, or other natural catastrophe occurs in Southern California. The Greater Los Angeles Area fires in early 2025 did not have material impact to the Company or its borrowers.
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.
As a financial institution, we receive and maintain the business and personal information of our customers on a daily basis.
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.
In addition, as we are over $10 billion in assets, we are subject to enhanced CFPB examination and required to perform more comprehensive stress-testing on our business and operations. 22 We cannot predict whether or in what form any other proposed regulations or statutes will be adopted or the extent to which our business may be affected by any new regulation or statute.
Added
Changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact our business, financial condition, and results of operations. The current Presidential Administration has signaled that tariffs and retaliatory tariffs, as well as other trade restrictions, may be imposed against U.S. trading partners.
Added
In response to tariffs, foreign countries have implemented, or may implement, retaliatory tariffs on U.S. goods. Historically, tariffs have led to increased trade and political tensions.
Added
Political tensions as a result of trade policies could reduce trade volume, investment, technological exchange, and other economic activities between major international economies, resulting in a material adverse effect on global economic conditions and the stability of global financial markets.
Added
It may also cause the prices of our customers’ products to increase, which could reduce demand for such products, or reduce our customers' margins, and adversely impact their revenues, financial results, and ability to service debt. This in turn could adversely affect our financial condition and results of operations.
Added
In addition, to the extent changes in the political environment have a negative impact on us, or on the markets in which we operate our business, our results of operations and financial condition could be materially and adversely impacted in the future.
Added
At this time, it remains unclear what the U.S. government or foreign governments will or will not do with respect to additional tariffs that may be imposed or international trade agreements and policies. We may experience adverse effects from acquisitions .
Added
We have acquired other banking companies and bank offices in the past, and will consider additional acquisitions as opportunities arise. For example, on April 26, 2024, we entered into a merger agreement with Territorial Bancorp Inc.
Added
Future acquisitions may increase the degree of such risks.
Added
The Company may develop or incorporate AI technology in certain business processes, services, or products in the future. In addition, the Company’s third-party (or fourth-party) vendors, clients, or counterparties may have developed or in the future may develop AI technology in certain business processes, services, or products.
Added
The development and use of AI presents a number of risks and challenges to the Company’s business.
Added
The legal and regulatory environment relating to AI is uncertain and rapidly evolving, both in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI.
Added
These evolving laws and regulations could require changes in the Company’s implementation of AI technology and increase the Company’s compliance costs and the risk of non-compliance.
Added
AI models, particularly generative AI models, may produce output or take action that is incorrect, that reflects biases included in the data on which they are trained, that results in the release of private, confidential, or proprietary information, that infringes on the intellectual property rights of others, or that is otherwise harmful.
Added
In addition, the complexity of many AI models makes it difficult to understand why they are generating particular outputs.
Added
This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding, and monitoring the capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made.
Added
Further, the Company may rely on AI models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which the Company may have limited visibility.
Added
Any of these risks could expose the Company to liability or adverse legal or regulatory consequences and harm the Company’s reputation and the public perception of its business or the effectiveness of its security measures.
Added
In recent years, "anti-ESG" sentiment has gained momentum across the U.S., with several states and Congress having proposed or enacted "anti-ESG" policies, legislation, or initiatives. Recently an executive order was issued that opposes diversity and inclusion ("DEI") initiatives in the private sector.
Added
Institutional investors and proxy advisory firms have also updated or are in the process of updating their guidelines and expectations with respect to ESG and DEI initiatives.
Added
New and changing state or federal government regulations could result in additional compliance obligations, expand mandatory and voluntary reporting, diligence, and disclosure, and could result in our sustaining reputational harm, which could adversely impact our financial condition and results of operations and could have an adverse effect on the trading price of our common stock.
Added
Over time, we may seek to establish offices in other parts of the United States as well.
Added
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.
Added
These changes become less predictable, yet more likely to occur, following the transition of power from one presidential administration to another. Any such changes could subject our business to additional costs, limit the types of financial services and products we may offer and increase the ability of non-banks to offer competing financial services and products, among other things.
Added
Moreover, the turnover of the presidential administration is expected to result in certain changes in the leadership and senior staffs of the federal banking agencies. Such changes are likely to impact the rulemaking, supervision, examination and enforcement priorities and policies of the agencies.
Added
In addition, changes in key personnel at the agencies that regulate such banking organizations, including the federal banking agencies, may result in differing interpretations of existing rules and guidelines and potentially different enforcement priorities than previously. The potential impact of any changes in agency personnel, policies, priorities, and interpretations on the financial services sector, including us, cannot be predicted.
Added
We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
Added
The failures of some depository institutions in 2023 have raised concerns among depositors that their deposits may be at risk.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeItem 1C. Cybersecurity 24 Item 2. Properties 26 Item 3. Legal Proceedings 26 Item 4. Mine Safety Disclosures 26 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 27 Item 6. [RESERVED] 27 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28 Item 7A.
Biggest changeItem 1C. Cybersecurity 26 Item 2. Properties 28 Item 3. Legal Proceedings 28 Item 4. Mine Safety Disclosures 28 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 29 Item 6. [RESERVED] 29 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30 Item 7A.
Quantitative and Qualitative Disclosures about Market Risk 63 Item 8. Financial Statements and Supplementary Data 66 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 66 Item 9A. Controls and Procedures 67 Item 9B. Other Information 68
Quantitative and Qualitative Disclosures about Market Risk 65 Item 8. Financial Statements and Supplementary Data 68 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 68 Item 9A. Controls and Procedures 69 Item 9B. Other Information 70

Item 2. Properties

Properties — owned and leased real estate

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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.
Biggest changeItem 2. PROPERTIES Our principal executive offices are located at 3200 Wilshire Blvd., Suite 1400, Los Angeles, California 90010. As of December 31, 2024, we operated full-service branches at 41 leased and five owned facilities, and we operated loan production offices at 9 leased facilities. Expiration dates of our leases range from 2025 to 2032.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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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.
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 $664 thousand at December 31, 2024.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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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
Biggest changeASSUMES $100 INVESTED ON DECEMBER 31, 2019 ASSUMES DIVIDENDS REINVESTED FISCAL YEAR ENDING DECEMBER 31, 2024 Period Ending Stock/Index 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Hope Bancorp, Inc. $100.00 $77.98 $109.55 $99.06 $98.96 $105.65 NASDAQ Composite Index $100.00 $144.92 $177.06 $119.45 $172.77 $223.87 KBW Nasdaq Regional Banking Index $100.00 $91.29 $124.74 $116.10 $115.64 $130.90
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.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the NASDAQ Global Select Market under the symbol “HOPE.” The following table sets forth quarterly dividends paid on our common stock for the past two fiscal years: For the Three Months Ended March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024 September 30, 2024 December 31, 2024 Dividends Paid $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.14 The Board expects to continue to pay quarterly cash dividends, however, no assurance can be given as to whether future dividends will be paid as cash dividend payments are dependent on the Company’s future earnings, capital requirements, and financial condition.
The 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 following table summarizes share repurchase activities during the three months ended December 31, 2024: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (Dollars in thousands) October 1, 2024 to October 31, 2024 — $ — — $ 35,333 November 1, 2024 to November 30, 2024 — — — 35,333 December 1, 2024 to December 31, 2024 — — — 35,333 Total — $ — — Stock Performance Graph The following graph compares the yearly percentage change in the cumulative total shareholder return (stock price appreciation plus reinvested dividends) on our common stock with (i) the cumulative total return of the NASDAQ Composite Index, and (ii) the cumulative total return of the KBW Nasdaq Regional Banking Index.
The Company did not repurchase any shares as part of this program during the three months ended December 31, 2023.
The Company did not repurchase any shares as part of this program during the three months ended December 31, 2024.
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.
The closing price for our common stock on the NASDAQ Global Select Market on February 19, 2025, was $11.21 per share. As of February 19, 2025, there were 1,098 stockholders of record of our common stock.

Item 7. Management's Discussion & Analysis

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

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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.
Biggest changeAs of or For The Year Ended December 31, 2024 2023 2022 2021 2020 (Dollars in thousands, except share and per share data) Income Statement Data: Interest income $ 953,980 $ 1,048,878 $ 716,115 $ 566,532 $ 598,878 Interest expense 526,129 523,017 137,694 53,762 131,380 Net interest income 427,851 525,861 578,421 512,770 467,498 Provision (credit) for credit losses 17,280 31,592 9,850 (12,395) 95,660 Net interest income after provision (credit) for credit losses 410,571 494,269 568,571 525,165 371,838 Noninterest income 47,077 45,577 51,397 43,594 53,432 Noninterest expense 324,684 361,959 323,920 293,487 282,979 Income before income tax provision 132,964 177,887 296,048 275,272 142,291 Income tax provision 33,334 44,214 77,771 70,700 30,776 Net income $ 99,630 $ 133,673 $ 218,277 $ 204,572 $ 111,515 Per Common Share Data: Earnings — basic $ 0.83 $ 1.11 $ 1.82 $ 1.67 $ 0.90 Earnings — diluted $ 0.82 $ 1.11 $ 1.81 $ 1.66 $ 0.90 Cash dividends declared $ 0.56 $ 0.56 $ 0.56 $ 0.56 $ 0.56 Book value (period end) $ 17.68 $ 17.66 $ 16.90 $ 17.44 $ 16.66 Number of common shares outstanding (period end) 120,755,658 120,126,786 119,495,209 120,006,452 123,264,864 Balance Sheet Data—At Period End: Total assets $ 17,054,008 $ 19,131,522 $ 19,164,491 $ 17,889,061 $ 17,106,664 Interest earning cash and deposits at other banks 235,541 1,756,154 293,002 44,947 94,014 Investment securities AFS and HTM 2,075,628 2,408,971 2,243,195 2,666,275 2,285,611 Loans receivable, net of unearned loan fees and discounts (excludes loans held for sale) 13,618,272 13,853,619 15,403,540 13,952,743 13,563,213 Deposits 14,327,489 14,753,753 15,738,801 15,040,450 14,333,912 FHLB and FRB borrowings 239,000 1,795,726 865,000 300,000 250,000 Convertible notes, net 444 444 217,148 216,209 204,565 Subordinated debentures 109,140 107,825 106,565 105,354 104,178 Stockholders’ equity 2,134,505 2,121,243 2,019,328 2,092,983 2,053,745 Average Balance Sheet Data: Total assets $ 17,746,408 $ 19,806,163 $ 18,231,609 $ 17,467,665 $ 16,515,102 Interest earning cash and deposits at other banks 856,768 1,685,462 116,689 774,756 921,163 Investment securities AFS and HTM 2,213,068 2,262,840 2,415,621 2,392,589 1,899,948 Loans receivable and loans held for sale 13,634,728 14,732,166 14,634,627 13,343,431 12,698,523 Deposits 14,677,630 15,630,018 15,172,272 14,727,807 13,560,629 FHLB and FRB borrowings 531,869 1,618,292 528,342 208,721 435,836 Stockholders’ equity 2,130,140 2,061,665 2,034,027 2,071,453 2,032,570 31 As of or For The Year Ended December 31, 2024 2023 2022 2021 2020 (Dollars in thousands) Selected Performance Ratios: Return on average assets (1) 0.56 % 0.67 % 1.20 % 1.17 % 0.68 % Return on average stockholders’ equity (2) 4.68 % 6.48 % 10.73 % 9.88 % 5.49 % Dividend payout ratio 68.07 % 50.44 % 30.91 % 33.71 % 62.22 % Net interest margin (3) 2.55 % 2.81 % 3.36 % 3.09 % 3.00 % Yield on interest earning assets (4) 5.69 % 5.60 % 4.16 % 3.42 % 3.84 % Cost of interest bearing liabilities (5) 4.52 % 4.00 % 1.32 % 0.56 % 1.26 % Efficiency ratio (6) 68.36 % 63.34 % 51.43 % 52.75 % 54.32 % Regulatory Capital Ratios: Tangible common equity (“TCE”) ratio 10.05 % 8.86 % 8.29 % 9.31 % 9.50 % Hope Bancorp: Common equity tier 1 13.06 % 12.28 % 10.55 % 11.03 % 10.94 % Tier 1 capital 13.79 % 12.96 % 11.15 % 11.70 % 11.64 % Total capital 14.78 % 13.92 % 11.97 % 12.42 % 12.87 % Tier 1 leverage 11.83 % 10.11 % 10.15 % 10.11 % 10.22 % Bank of Hope: Common equity tier 1 13.61 % 12.75 % 12.03 % 12.96 % 12.90 % Tier 1 capital 13.61 % 12.75 % 12.03 % 12.96 % 12.90 % Total capital 14.61 % 13.71 % 12.85 % 13.68 % 14.14 % Tier 1 leverage 11.68 % 9.94 % 10.94 % 11.20 % 11.33 % Asset Quality Data: Nonaccrual loans (7) $ 90,564 $ 45,204 $ 49,687 $ 54,616 $ 85,238 Accruing delinquent loans past due 90 days or more 229 261 401 2,131 614 Accruing troubled debt restructured loans (8) — — 16,931 52,418 37,354 Total nonperforming loans 90,793 45,465 67,019 109,165 123,206 Other real estate owned — 63 2,418 2,597 20,121 Total nonperforming assets (9) $ 90,793 $ 45,528 $ 69,437 $ 111,762 $ 143,327 Asset Quality Ratios: Nonaccrual loans to loans receivable 0.67 % 0.33 % 0.32 % 0.39 % 0.63 % Nonperforming assets to total assets (9) 0.53 % 0.24 % 0.36 % 0.62 % 0.84 % Allowance for credit losses to loans receivable 1.11 % 1.15 % 1.05 % 1.01 % 1.52 % Allowance for credit losses to nonaccrual loans 166.21 % 351.06 % 326.76 % 257.34 % 242.55 % Net charge-offs (recoveries) to average loans receivable 0.19 % 0.22 % (0.08) % 0.40 % 0.07 % ____________________________________________________ (1) Net income divided by average assets.
The decrease in net interest income was driven by a higher cost of funds and increases in average interest bearing deposits and short-term borrowings, partially offset by expanding yields on interest earning assets and higher average balances in loans and interest earning cash and deposits in other banks.
The decrease in net interest income was driven by a higher cost of funds and increases in average balance of interest bearing deposits and short-term borrowings, partially offset by expanding yields on interest earning assets and higher average balances in loans and interest earning cash and deposits in other banks.
The sale of investment securities and loans held for sale also serves as a source of funds. Our primary sources of liquidity are derived from financing activities, which include deposits, federal funds facilities, and borrowings from the FHLB and the FRB’s Discount Window and BTFP.
The sale of investment securities and loans held for sale also serves as a source of funds. Our primary sources of liquidity are derived from financing activities, which include deposits, federal funds facilities, and borrowings from the FHLB and the FRB’s Discount Window.
If we are not able to realize all or part of our net deferred tax asset in the future or if a tax position is overturned by a taxing authority, an adjustment to the deferred tax asset valuation allowance would be charged to income tax expense in the period such determination was made which could have a material impact on our earnings. 34 Results of Operations Operations Summary Our most significant source of income is net interest income, which is the difference between our interest income and our interest expense.
If we are not able to realize all or part of our net deferred tax asset in the future or if a tax position is overturned by a taxing authority, an adjustment to the deferred tax asset valuation allowance would be charged to income tax expense in the period such determination was made which could have a material impact on our earnings. 36 Results of Operations Operations Summary Our most significant source of income is net interest income, which is the difference between our interest income and our interest expense.
Holders of the notes can put the notes for cash on the fifth, tenth, and fifteenth year of the notes. The net carrying balance of convertible notes at December 31, 2023, was $444 thousand.
Holders of the notes can put the notes for cash on the fifth, tenth, and fifteenth year of the notes. The net carrying balance of convertible notes at December 31, 2024 and 2023 was $444 thousand.
Additionally, a security that had no apparent risk could be affected by a sudden or acute market condition and necessitate an impairment charge. 31 Allowance for Credit Losses Description - The allowance for credit losses is maintained at a level believed to be adequate by management to absorb expected lifetime credit losses in the loan portfolio as of the date of the consolidated financial statements.
Additionally, a security that had no apparent risk could be affected by a sudden or acute market condition and necessitate an impairment charge. 33 Allowance for Credit Losses Description - The allowance for credit losses is maintained at a level believed to be adequate by management to absorb expected lifetime credit losses in the loan portfolio as of the date of the consolidated financial statements.
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.
Our capital ratios at December 31, 2024 and 2023, exceeded all of the regulatory minimums including the fully-phased in capital conservation buffer. Liquidity Management Liquidity risk is the risk of reduction in our earnings or capital that could result if we were not able to meet our obligations when they come due without incurring unacceptable losses.
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.
Some of these factors are more subjective than others and require significant judgment from management to determine estimated losses. 34 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.
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.
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.” 63 We also commit to fund certain affordable housing partnership investments in the future.
At December 31, 2023, we are not aware of any material commitments for capital expenditures in the foreseeable future. Off-Balance-Sheet Activities and Contractual Obligations The Bank routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected, in whole or in part, in the Consolidated Financial Statements.
At December 31, 2024, we are not aware of any material commitments for capital expenditures in the foreseeable future. Off-Balance-Sheet Activities and Contractual Obligations The Bank routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected, in whole or in part, in the Consolidated Financial Statements.
Goodwill is discussed in more detail in Note 5 to our Consolidated Financial Statements presented this Report. Income Taxes Description - We use the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of our asset and liabilities.
Goodwill is discussed in more detail in Note 5 to our Notes to Consolidated Financial Statements presented in this Report. 35 Income Taxes Description - We use the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of our asset and liabilities.
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.
These key inputs are utilized in our models to develop probability of default (“PD”) and loss given default (“LGD”) assumptions used in the calculation of estimated quantitative losses. The key macroeconomic variables were derived from Moody’s consensus scenario as of December 31, 2024 and 2023.
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.
Equity investments without readily determinable fair values are carried at cost, less impairment, and adjustments are made to the carrying balance based on observable price changes. There were no impairments or observable price changes for these investments during the year ended December 31, 2024.
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.
Investment Securities Description - We evaluate investment securities AFS and HTM for impairment related to credit losses on at least a quarterly basis. Based on our evaluation, we do not believe that we had any investment securities AFS or HTM with a credit loss impairment as of December 31, 2024.
Prior to January 1, 2023, nonperforming loans included accruing TDR loans. 30 Critical Accounting Policies Our financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and generally accepted practices within the banking industry.
Prior to January 1, 2023, nonperforming loans included accruing TDR loans. 32 Critical Accounting Policies Our financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and generally accepted practices within the banking industry.
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.
At December 31, 2024 and 2023, all of our CMOs and MBS were issued by the Government National Mortgage Association (“GNMA”), Fannie Mae (“FNMA”), or Freddie Mac (“FHLMC”), which guarantee the contractual cash flows of these investments.
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.
Funded commitments are presented as investments in affordable housing partnerships in the Consolidated Financial Statements while unfunded commitments are presented as commitments to fund investment in affordable housing partnerships. The following table summarizes our contractual obligations and commitments to make future payments at December 31, 2024.
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.
The investment securities HTM as of December 31, 2024, were all issued by the U.S. government or government-sponsored enterprises and therefore the Company applied a zero credit loss assumption.
Federal Funds Purchased Federal funds purchased generally mature within one to three business days from the transaction date. We did not have any federal funds purchased at December 31, 2023 and 2022.
Federal Funds Purchased Federal funds purchased generally mature within one to three business days from the transaction date. We did not have any federal funds purchased at December 31, 2024 and 2023.
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.
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. 30 Selected Financial Data The following table presents selected financial and other data for each of the years in the five-year period ended December 31, 2024.
Management performed a sensitivity analysis of the discount rate used in the income approach of the goodwill impairment analysis and a 50 basis point increase to the discount rate would result in the fair value of the Company exceeding the carrying amount by 10.9% a reduction of 4.5%.
Management performed a sensitivity analysis of the discount rate used in the income approach of the goodwill impairment analysis, and a 50 basis point increase to the discount rate would result in the fair value of the Company exceeding the carrying amount by 10.9%.
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.
All of our corporate, asset-backed, and municipal securities at December 31, 2024, were rated as investment grade. 46 The following table presents the amortized cost, estimated fair value, and net unrealized gain and losses on our investment securities as of the dates indicated: December 31, 2024 December 31, 2023 Amortized Cost Estimated Fair Value Net Unrealized Gain (Loss) Amortized Cost Estimated Fair Value Net Unrealized Gain (Loss) (Dollars in thousands) Debt securities AFS: U.S.
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.
The decrease in AOCI from December 31, 2023, to December 31, 2024, was due to the increase in unrealized losses on our investment securities AFS as a result of changes to market interest rates.
Alternative sources of funds such as FHLB advances and FRB borrowings, brokered deposits, and other collateralized borrowings that provide liquidity as needed from diverse liability sources are an important part of our asset/liability management strategy. Our average gross loans to average deposits ratio was 94%, 96% and 91% for years ended 2023, 2022 and 2021.
Alternative sources of funds such as FHLB advances and FRB borrowings, brokered deposits, and other collateralized borrowings that provide liquidity as needed from diverse liability sources are an important part of our asset/liability management strategy. Our average gross loans to average deposits ratio was 93%, 94% and 96% for years ended 2024, 2023, and 2022, respectively.
We believe our liquidity sources to be stable and adequate to meet our day-to-day cash flow requirements. At December 31, 2023, management was not aware of any demands, commitments, trends, events, or uncertainties that will or are reasonably likely to have a material or adverse effect on our liquidity position.
We believe our liquidity sources are stable and adequate to meet our day-to-day cash flow requirements. At December 31, 2024, management is not aware of any demands, commitments, trends, events, or uncertainties that will or are reasonably likely to have a material or adverse effect on our liquidity position.
The allowance for credit losses coverage ratio was 1.05% of loans receivable at December 31, 2022, compared with 1.01% at December 31, 2021. 40 Noninterest Income Noninterest income is primarily comprised of service fees on deposit accounts, international service fees (fees received on trade finance letters of credit), wire transfer fees, swap fee income, net gains on sales of loans, and other income and fees, which included loan servicing fees, earnings on bank owned life insurance, changes in the fair value of our equity investments with readily determinable fair value, and other miscellaneous income.
The allowance for credit losses coverage ratio was 1.15% of loans receivable at December 31, 2023, compared with 1.05% at December 31, 2022. 41 Noninterest Income Noninterest income is primarily comprised of service fees on deposit accounts, international service fees (fees received on trade finance letters of credit), wire transfer fees, swap fee income, net gains on sales of loans, net gain on branch sales, and other income and fees, which included loan servicing fees, earnings on bank owned life insurance, changes in the fair value of our equity investments with readily determinable fair value, and other miscellaneous income.
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.
Changes to the fair value of equity investments with readily determinable fair values are recorded in other noninterest income. Equity investments without readily determinable fair values at December 31, 2024, included $34.2 million in CRA investments, $1.0 million in Community Development Financial Institutions investments, and $370 thousand in correspondent bank stock.
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.
At December 31, 2024, our lending limit was approximately $354.5 million per borrower for unsecured loans. For lending limit purposes, a secured loan is defined as a loan secured by collateral having a current fair value of at least 100% of the amount of the loan or extension of credit at all times and satisfying certain other requirements.
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.
The changes in OREO for the years ended December 31, 2024 and 2023, were as follows: Year Ended December 31, 2024 2023 (Dollars in thousands) Balance at beginning of period $ 63 $ 2,418 Additions to OREO — 105 OREO sales (63) (2,418) Valuation adjustments, net — (42) Balance at end of period $ — $ 63 Deposits Deposits are our primary source of funds for loans and investments.
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.
At December 31, 2024, total uninsured deposits of the Bank reported by the Bank was approximately $5.56 billion, or 39% of the Bank’s deposits, which represents the estimated portion of deposit accounts that exceed the FDIC insurance limit. This estimate was determined based on the same methodologies and assumptions used for regulatory reporting requirements.
Tangible common equity per share was $13.76 at December 31, 2023, compared with $12.96 at December 31, 2022. Tangible common equity to tangible assets and tangible common equity per share are non-GAAP financial measures that we believe provide investors with information that is useful in understanding our financial performance and position.
Tangible common equity per share was $13.81 at December 31, 2024, compared with $13.76 at December 31, 2023. Tangible common equity to tangible assets and tangible common equity per share are non-GAAP financial measures that we believe provide investors with information that is useful in understanding our financial performance and position.
For new loans, each loan application package is fully analyzed by experienced reviewers and approvers. In accordance with current lending approval authority guidelines, a majority of loans are approved by the Management Loan Committee (“MLC”) and Directors Loan Committee (“DLC”).
For new loans, each loan application package is fully analyzed by experienced reviewers and approvers. In accordance with current lending approval authority guidelines, a majority of loans are approved by the Management Loan Committee (“MLC”), and the largest loans are subject to additional review and approval by the Directors Loan Committee (“DLC”).
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.
OREO consists of real estate acquired by the Bank through foreclosure or similar means, including by deed from the owner in lieu of foreclosure, and is held for future sale. Nonperforming assets were $90.8 million at December 31, 2024, compared with $45.5 million at December 31, 2023.
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.
Our investment securities portfolio is primarily invested in residential CMOs and residential and commercial MBS, which combined to represent 85% and 76% of our total investment securities portfolio at December 31, 2024 and 2023, respectively.
Comparison of 2023 with 2022 The increase in interest expense on total deposits of $326.4 million, or 284%, for 2023 compared with 2022 was due to a higher cost of interest bearing deposits, growth in average time deposits, and an increase in average borrowings, reflecting usage of the BTFP.
Comparison of 2023 with 2022 The increase in interest expense on total deposits of $326.4 million, or 284%, for 2023 compared with 2022 was due to a higher cost of interest bearing deposits and growth in average time deposits.
There were no changes in our balance of subordinated debentures during 2023 or 2022 aside from the increases related to the discount accretion on subordinated debentures acquired from previous acquisitions. Interest expense on subordinated debentures was $10.5 million for 2023 compared with $6.0 million for 2022, $3.9 million for 2021.
There were no changes in our balance of subordinated debentures during 2024 or 2023 aside from the increases related to the discount accretion on subordinated debentures acquired from previous acquisitions. Interest expense on subordinated debentures was $10.8 million for 2024 compared with $10.5 million for 2023, and $6.0 million for 2022.
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.
In addition to unsecured loans, we are permitted to make such collateral-secured loans in an additional amount up to 10% (for a total of 25%) of our total capital and the allowance for credit losses for a total limit of approximately $590.8 million to one borrower at December 31, 2024.
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.
CRE loans secured by non-consumer residential real estate comprise less than 1% of the total loan portfolio (consumer residential mortgage loans are classified separately and included in residential mortgage loans). Construction loans are also a small portion of the total real estate portfolio, totaling $191.2 million and comprising 1% of total loans outstanding as of December 31, 2024.
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.
During the year ended December 31, 2023, we sold $79.1 million in SBA guaranteed loans and recorded $4.1 million in net gains on sale of SBA loans.
The provision for credit losses for each period is dependent upon many factors, including loan growth, net charge offs, changes in the composition of the loan portfolio, delinquencies, assessments by management, third parties’ and regulators’ examination of the loan portfolio, the value of the underlying collateral on problem loans, the general economic conditions in our market areas, and future projections of the economy.
Provision for credit losses on loans is dependent upon many factors, including loan growth, net charge offs, changes in the composition of the loan portfolio, delinquencies, assessments by management, examinations of the loan portfolio, the value of the underlying collateral on problem loans, the general economic conditions in our market areas, and future projections of the economy.
(2) Net income divided by average stockholders’ equity. (3) Net interest income expressed as a percentage of average interest earning assets. (4) Interest income divided by average interest earning assets. (5) Interest expense divided by average interest bearing liabilities. (6) Noninterest expense divided by the sum of net interest income plus noninterest income.
(2) Net income divided by average stockholders’ equity. (3) Net interest income divided by average interest earning assets. (4) Interest income divided by average interest earning assets. (5) Interest expense divided by average interest bearing liabilities. (6) Noninterest expense divided by the sum of net interest income plus noninterest income.
The majority of our investment portfolio consisted of securities issued by U.S. Government agencies or U.S. Government sponsored enterprises, which were determined to have a zero loss expectation. At December 31, 2023, we also had 18 asset-backed securities, six corporate securities, and 53 municipal bonds not issued by U.S. Government agencies or U.S.
The majority of our investment portfolio consisted of securities issued by U.S. Government agencies or U.S. Government sponsored enterprises, which were determined to have a zero loss expectation. At December 31, 2024, we also had one asset-backed security, six corporate securities, and 57 municipal bonds not issued by U.S. Government agencies or U.S.
Instead, at December 31, 2023, the long-term subordinated debentures of $107.8 million, net of $22.1 million in discounts, issued by us to the Trusts and the investment in Trusts’ common stock of $3.9 million (included in other assets) are separately reported.
Instead, at December 31, 2024, the long-term subordinated debentures of $109.1 million, net of $20.8 million in discounts, issued by us to the Trusts and the investment in Trusts’ common stock of $3.9 million (included in other assets) are separately reported.
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.
Incorporating key macroeconomic inputs from Moody’s S2 projected scenario in our calculation of the allowance for credit losses resulted in additional allowance for credit losses of approximately $28.5 million compared with the results using the Moody’s consensus forecast as of December 31, 2024.
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.
At December 31, 2024, the qualitative portion of our allowance for credit losses totaled $50.1 million compared with $35.7 million at December 31, 2023.
The average rate on other borrowings increased to 10.02% for 2023, compared with 5.84% for 2022, and 3.82% for 2021. The change in cost of other borrowings for 2023 and 2022 compared with prior years was due to changes in the 3-month SOFR and 3-month LIBOR rates.
The average rate on other borrowings increased to 10.17% for 2024, compared with 10.02% for 2023, and 5.84% for 2022. The change in cost of other borrowings for 2023 and 2022 compared with 2024 was due to changes in the 3-month SOFR and 3-month LIBOR rates.
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.
Any loan or portion of a loan judged by management to be uncollectible is charged against the allowance for credit losses, while any recoveries are credited to the allowance. The allowance for credit losses (“ACL”) was $150.5 million at December 31, 2024, compared with allowance for credit losses of $158.7 million at December 31, 2023.
We offer a wide variety of deposit account products to commercial and consumer customers. Total deposits decreased to $14.75 billion at December 31, 2023, from $15.74 billion at December 31, 2022.
We offer a wide variety of deposit account products to commercial and consumer customers. Total deposits decreased to $14.33 billion at December 31, 2024, from $14.75 billion at December 31, 2023.
(2) Excludes PCI loans for periods prior to 2020. (3) The Company adopted ASU 2022-02 on January 1, 2023, which eliminated the concept of TDR loans from GAAP. Prior to January 1, 2023, nonperforming loans included accruing TDR loans. Maturity of Loans The following table illustrates the maturity distribution intervals of loans outstanding at December 31, 2023.
(2) The Company adopted ASU 2022-02 on January 1, 2023, which eliminated the concept of TDR loans from GAAP. Prior to January 1, 2023, nonperforming loans included accruing TDR loans. Maturity of Loans The following table illustrates the maturity distribution intervals of loans outstanding at December 31, 2024.
At December 31, 2023, we had $1.54 billion in brokered deposits and $300.0 million in California State Treasurer deposits compared with $1.18 billion in brokered deposits and $300.0 million in California State Treasurer deposits at December 31, 2022. The brokered deposits represented approximately 10.43% of our total deposits at December 31, 2023, compared with 7.50% at December 31, 2022.
At December 31, 2024, we had $1.06 billion in brokered deposits and $300.0 million in California State Treasurer deposits compared with $1.54 billion in brokered deposits and $300.0 million in California State Treasurer deposits at December 31, 2023. The brokered deposits represented approximately 7% of our total deposits at December 31, 2024, compared with 10% at December 31, 2023.
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.
December 31, 2024 Less than 12 months 12 months or longer Total Description of Securities AFS Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses (Dollars in thousands) U.S. Government agency and U.S.
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.
The following table illustrates the composition of nonperforming assets and nonperforming loans at the dates indicated: December 31, 2024 2023 2022 2021 2020 (Dollars in thousands) Nonaccrual loans (1) $ 90,564 $ 45,204 $ 49,687 $ 54,616 $ 85,238 Accruing delinquent loans past due 90 days or more 229 261 401 2,131 614 Accruing troubled debt restructured loans (2) — — 16,931 52,418 37,354 Total nonperforming loans 90,793 45,465 67,019 109,165 123,206 OREO — 63 2,418 2,597 20,121 Total nonperforming assets $ 90,793 $ 45,528 $ 69,437 $ 111,762 $ 143,327 _________________________ (1) Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation.
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.
Moody's consensus projected key macroeconomic variable inputs as of December 31, 2024: Year Ending December 31, 2025 2026 2027 GDP Growth* 2.1% 2.0% 2.0% Unemployment Rate 4.4% 4.2% 4.1% CRE Price Index Growth* (0.4)% 4.3% 7.7% 10 Year Treasury Rate 4.2% 4.1% 3.8% __________________________________ * Represents year over year growth rates.
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.
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. 62 Net cash inflows from operating activities totaled $116.7 million, $473.8 million, and $485.5 million during 2024, 2023, and 2022, respectively.
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.
This contributed to a decrease in our allowance for credit losses estimated loss rates at December 31, 2024, compared with December 31, 2023. Changes in the key macroeconomic variables are presented in the tables below.
The decrease in net income for 2023 compared with 2022 was primarily due to increases in interest expense, provision for credit losses and noninterest expense.
The decrease in net income for 2024 compared with 2023 was primarily due to decreases in net interest income, offset partially by decreases in provision for credit losses and noninterest expense. The decrease in net income for 2023 compared with 2022 was primarily due to increases in interest expense, provision for credit losses and noninterest expense.
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.
OREO OREO consists of real estate properties acquired through foreclosure or similar means. OREO is recorded at fair value, less estimated selling costs. At December 31, 2024 and 2023, OREO, net, totaled $0 and $63 thousand, respectively. The number of OREO properties held at December 31, 2024 and 2023, was zero and one, respectively.
The repurchased notes were immediately cancelled subsequent to repurchase. On May 15, 2023, most holders of our convertible notes exercised their right to put their notes and therefore we paid off $197.1 million of convertible note principal in cash. During the years ended December 31, 2022 and 2021, there were no repurchases or put options.
On May 15, 2023, most holders of our convertible notes exercised their right to put their notes and therefore we paid off $197.1 million of convertible note principal in cash. There were no repurchases or put options exercised for the years ended December 31, 2024 and 2022.
Certain key macroeconomic variable inputs used in the calculation of our allowance for credit losses experienced a weakening between projections as of December 31, 2022 versus projections as of December 31, 2023, particularly projected GDP growth and CRE Price Index growth rates.
Certain key macroeconomic variable inputs used in the calculation of our allowance for credit losses experienced a change between projections as of December 31, 2023 versus projections as of December 31, 2024, particularly projected GDP growth which had improved projections and CRE Price Index growth rates, which had declining projections.
In 2021, we sold $251.0 million in loans with elevated credit risk comprising $182.6 million in substandard loans and $68.4 million in special mention loans. 53 The following table shows the provision for credit losses, the amount of loans charged off, and recoveries on loans previously charged off together with the balance in the allowance for credit losses at the beginning and end of each year, the amount of average and total loans outstanding as well as other pertinent ratios at the dates and for the years indicated: At or For The Year Ended December 31, 2023 2022 2021 2020 2019 (Dollars in thousands) LOANS: Average loans: CRE loans $ 9,172,818 $ 9,371,641 $ 8,877,324 $ 8,693,105 $ 8,631,923 C&I loans 4,636,083 4,468,498 3,871,726 3,226,423 2,413,066 Residential mortgage loans 889,488 752,020 552,999 729,432 902,287 Consumer and other loans 33,777 42,468 41,382 49,563 51,399 Average loans, including loans held for sale $ 14,732,166 $ 14,634,627 $ 13,343,431 $ 12,698,523 $ 11,998,675 Total loans, excluding loans held for sale $ 13,853,619 $ 15,403,540 $ 13,952,743 $ 13,563,213 $ 12,276,007 ALLOWANCE: Balance - beginning of year 162,359 140,550 206,741 94,144 92,557 Loans charged off: CRE loans (2,947) (6,803) (57,427) (8,658) (1,803) C&I loans (34,203) (5,160) (3,558) (6,157) (5,086) Residential mortgage loans — (22) (923) — — Consumer and other loans (370) (404) (328) (1,211) (1,220) Total loans charged off (37,520) (12,389) (62,236) (16,026) (8,109) Less recoveries: CRE loans 3,285 21,698 5,722 1,851 2,104 C&I loans 1,815 2,861 2,196 5,526 1,596 Residential mortgage loans — — — — — Consumer and other loans 62 39 327 46 36 Total loan recoveries 5,162 24,598 8,245 7,423 3,736 Net loan (charge offs) recoveries (32,358) 12,209 (53,991) (8,603) (4,373) Adoption of CECL — — — 26,200 — Adoption of ASU 2022-02 (407) — — — — Provision (credit) for credit losses 29,100 9,600 (12,200) 95,000 7,300 PCI allowance adjustment — — — — (1,340) Balance - end of year $ 158,694 $ 162,359 $ 140,550 $ 206,741 $ 94,144 RATIOS: Net loan charge offs (recoveries) to average loans 0.22 % (0.08) % 0.40 % 0.07 % 0.04 % Allowance for credit losses to total loans receivable 1.15 % 1.05 % 1.01 % 1.52 % 0.77 % Net loan charge offs (recoveries) to allowance for credit losses 20.39 % (7.52) % 38.41 % 4.16 % 4.65 % Allowance for credit losses to nonperforming loans 349.05 % 242.26 % 128.75 % 167.80 % 96.03 % ALLOWANCE FOR UNFUNDED COMMITMENTS: Allowance for unfunded commitments $ 3,843 $ 1,351 $ 1,101 $ 1,296 $ 636 Provision (credit) for unfunded commitments 2,492 250 (195) 660 (100) 54 The following table presents net loan charge offs (recoveries) to average loans by loan category for the years indicated: Year Ended December 31, 2023 2022 2021 2020 2019 (Dollars in thousands) Loan Type CRE loans — % (0.16) % 0.58 % 0.08 % — % C&I loans 0.70 % 0.05 % 0.04 % 0.02 % 0.14 % Residential mortgage loans — % — % 0.17 % — % — % Consumer and other loans 0.91 % 0.86 % — % 2.35 % 2.30 % Net loan charge offs (recoveries) to average loans 0.22 % (0.08) % 0.40 % 0.07 % 0.04 % The following table reflects our allocation of the allowance for credit losses by loan category and the ratio of each loan category to total loans at the dates indicated: December 31, 2023 2022 2021 2020 2019 Amount of allowance for credit losses ACL Coverage Ratio Amount of allowance for credit losses ACL Coverage Ratio Amount of allowance for credit losses ACL Coverage Ratio Amount of allowance for loan losses ACL Coverage Ratio Amount of allowance for loan losses ALLL Coverage Ratio (Dollars in thousands) Loan Type CRE loans $ 93,940 1.07 % $ 95,884 1.02 % $ 108,440 1.19 % $ 162,196 1.85 % $ 53,593 0.62 % C&I loans 51,291 1.24 % 56,872 1.11 % 27,811 0.66 % 39,155 0.94 % 33,032 1.21 % Residential mortgage loans 12,838 1.45 % 8,920 1.05 % 3,316 0.57 % 4,227 0.73 % 5,925 0.71 % Consumer and other loans 625 1.69 % 683 2.05 % 983 1.68 % 1,163 2.28 % 1,594 2.89 % Total $ 158,694 1.15 % $ 162,359 1.05 % $ 140,550 1.01 % $ 206,741 1.52 % $ 94,144 0.77 % The adequacy of the allowance for credit losses is determined upon an evaluation and review of the credit quality of the loan portfolio, taking into consideration economic forecasts, historical loan loss experience, relevant internal and external factors that affect the collection of a loan, and other pertinent factors.
In 2022, we sold $77.0 million in loans with elevated credit risk comprising $76.6 million in classified loans and $400 thousand in special mention loans. 55 The following table shows the provision for credit losses, the amount of loans charged off, and recoveries on loans previously charged off together with the balance in the allowance for credit losses at the beginning and end of each year, the amount of average and total loans outstanding, as well as other pertinent ratios at the dates and for the years indicated: At or For The Year Ended December 31, 2024 2023 2022 2021 2020 (Dollars in thousands) LOANS: Average loans: CRE loans $ 8,672,549 $ 9,172,818 $ 9,371,641 $ 8,877,324 $ 8,693,105 C&I loans 3,919,592 4,636,083 4,468,498 3,871,726 3,226,423 Residential mortgage loans 1,005,803 889,488 752,020 552,999 729,432 Consumer and other loans 36,784 33,777 42,468 41,382 49,563 Average loans, including loans held for sale $ 13,634,728 $ 14,732,166 $ 14,634,627 $ 13,343,431 $ 12,698,523 Total loans, excluding loans held for sale $ 13,618,272 $ 13,853,619 $ 15,403,540 $ 13,952,743 $ 13,563,213 ALLOWANCE: Balance - beginning of year 158,694 162,359 140,550 206,741 94,144 Loans charged off: CRE loans (1,108) (2,947) (6,803) (57,427) (8,658) C&I loans (29,662) (34,203) (5,160) (3,558) (6,157) Residential mortgage loans — — (22) (923) — Consumer and other loans (318) (370) (404) (328) (1,211) Total loans charged off (31,088) (37,520) (12,389) (62,236) (16,026) Less recoveries: CRE loans 563 3,285 21,698 5,722 1,851 C&I loans 3,796 1,815 2,861 2,196 5,526 Residential mortgage loans — — — — — Consumer and other loans 162 62 39 327 46 Total loan recoveries 4,521 5,162 24,598 8,245 7,423 Net loan (charge offs) recoveries (26,567) (32,358) 12,209 (53,991) (8,603) Adoption of CECL — — — — 26,200 Adoption of ASU 2022-02 — (407) — — — Provision (credit) for credit losses 18,400 29,100 9,600 (12,200) 95,000 Balance - end of year $ 150,527 $ 158,694 $ 162,359 $ 140,550 $ 206,741 RATIOS: Net loan charge offs (recoveries) to average loans 0.19 % 0.22 % (0.08) % 0.40 % 0.07 % Allowance for credit losses to total loans receivable 1.11 % 1.15 % 1.05 % 1.01 % 1.52 % Net loan charge offs (recoveries) to average loans 0.19 % 0.22 % (0.08) % 0.40 % 0.07 % Allowance for credit losses to nonperforming loans 165.79 % 349.05 % 242.26 % 128.75 % 167.80 % ALLOWANCE FOR UNFUNDED COMMITMENTS: Allowance for unfunded commitments $ 2,723 $ 3,843 $ 1,351 $ 1,101 $ 1,296 Provision (credit) for unfunded commitments (1,120) 2,492 250 (195) 660 56 The following table presents net loan charge offs (recoveries) to average loans by loan category for the years indicated: Year Ended December 31, 2024 2023 2022 2021 2020 (Dollars in thousands) Loan Type CRE loans 0.01 % — % (0.16) % 0.58 % 0.08 % C&I loans 0.66 % 0.70 % 0.05 % 0.04 % 0.02 % Residential mortgage loans — % — % — % 0.17 % — % Consumer and other loans 0.42 % 0.91 % 0.86 % — % 2.35 % Net loan charge offs (recoveries) to average loans 0.19 % 0.22 % (0.08) % 0.40 % 0.07 % The following table reflects our allocation of the allowance for credit losses by loan category and the ratio of each loan category to total loans at the dates indicated: December 31, 2024 2023 2022 2021 2020 Amount of allowance for credit losses ACL Coverage Ratio Amount of allowance for credit losses ACL Coverage Ratio Amount of allowance for credit losses ACL Coverage Ratio Amount of allowance for loan losses ACL Coverage Ratio Amount of allowance for loan losses ALLL Coverage Ratio (Dollars in thousands) Loan Type CRE loans $ 88,374 1.04 % $ 93,940 1.07 % $ 95,884 1.02 % $ 108,440 1.19 % $ 162,196 1.85 % C&I loans 57,243 1.44 % 51,291 1.24 % 56,872 1.11 % 27,811 0.66 % 39,155 0.94 % Residential mortgage loans 4,438 0.41 % 12,838 1.45 % 8,920 1.05 % 3,316 0.57 % 4,227 0.73 % Consumer and other loans 472 1.15 % 625 1.69 % 683 2.05 % 983 1.68 % 1,163 2.28 % Total $ 150,527 1.11 % $ 158,694 1.15 % $ 162,359 1.05 % $ 140,550 1.01 % $ 206,741 1.52 % The adequacy of the allowance for credit losses is determined upon an evaluation and review of the credit quality of the loan portfolio, taking into consideration economic forecasts, historical loan loss experience, relevant internal and external factors that affect the collection of a loan, and other pertinent factors.
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.
We amortize the initial cost of the investments in affordable housing partnerships. This amortization expense is more than offset by both tax credits received, which reduce our tax provision expense dollar for dollar, and the tax benefits related to any tax losses generated through the affordable housing project’s expenditures.
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.
If the fair value of the collateral is less than the amortized balance of the loan, we recognize an ACL with a corresponding charge to the provision for credit losses. Individually evaluated loans at December 31, 2024, were $90.4 million, a net increase of $45.2 million from $45.2 million at December 31, 2023.
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.
At December 31, 2024 and 2023, the Trusts are not reported on a consolidated basis pursuant to ASC 810, Consolidation. Therefore, the capital securities of $126.0 million are not presented on the Consolidated Statements of Financial Condition.
The increase in net charge offs for 2023 was largely due to an idiosyncratic full charge off of $23.4 million related to a borrower that entered into Chapter 7 liquidation in August 2023.
The decrease in net charge offs for 2024 was due to a large idiosyncratic full charge off of $23.4 million in 2023, related to a borrower that entered into Chapter 7 liquidation.
The 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.
The following table shows our loan commitments and letters of credit outstanding at the dates indicated: December 31, 2024 2023 2022 2021 2020 (Dollars in thousands) Unfunded commitments to extend credit $ 2,255,785 $ 2,274,239 $ 2,856,263 $ 2,329,421 $ 2,137,178 Standby letters of credit 134,548 132,132 132,538 126,137 108,834 Other letters of credit 22,874 51,983 22,376 56,333 40,508 Total $ 2,413,207 $ 2,458,354 $ 3,011,177 $ 2,511,891 $ 2,286,520 52 Nonperforming Assets Nonperforming assets consist of nonaccrual loans, accruing loans that are 90 days or more past due, accruing restructured loans, and OREO.
(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.
(5) Cost on interest bearing liabilities and noninterest bearing deposits. 38 The following table presents net loan origination fees, loan prepayment fee income, interest reversed for nonaccrual loans, and discount accretion income included as part of loan interest income for the years indicated: Year Ended December 31, Net Loan Origination Fees (Costs) Loan Prepayment Fee Income Interest Reversed for Nonaccrual Loans, Net of Income Recognized Accretion of Discounts on Acquired Loans (Dollars in thousands) 2024 $ 6,292 $ 1,539 $ (5,799) $ 2,376 2023 $ 8,657 $ 2,313 $ (2,926) $ 2,789 2022 $ 9,990 $ 5,350 $ (2,523) $ 2,630 Net Interest Income Net interest income was $427.9 million for 2024, compared with $525.9 million for 2023 and $578.4 million for 2022.
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.
Equity investments at December 31, 2024 included $4.3 million in equity investments with readily determinable fair values and $35.6 million in equity investments without readily determinable fair values. Equity investments with readily determinable fair values at December 31, 2024, consisted of mutual funds totaling $4.3 million.
Consumer and Other Loans Consumer loans comprise less than 1% of the total loan portfolio, and includes automobile loans, home equity lines and loans, signature term loans and lines of credit, and credit card loans. Consumer loans totaled $37.0 million at December 31, 2023, an increase of $3.7 million, or 11%, from $33.3 million at December 31, 2022.
Consumer and Other Loans Consumer loans comprise less than 1% of the total loan portfolio, and include automobile loans, home equity lines and loans, signature term loans and lines of credit, and credit card loans. Consumer loans totaled $41.2 million at December 31, 2024, an increase of $4.2 million, or 11%, from $37.0 million at December 31, 2023.
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.
At December 31, 2024, our ratio of common equity to total assets was 12.52% compared with 11.09% at December 31, 2023, and our tangible common equity represented 10.05% of tangible assets at December 31, 2024, compared with 8.86% of tangible assets at December 31, 2023.
Net cash inflows from investing activities during 2023 were primarily from a net decrease in loans receivable, proceeds from investment securities AFS and investment securities HTM that were paid down during the year, and proceeds received from sales of loans. These inflows were partially offset by purchases of investment securities.
Net cash inflows from investing activities during 2024 were primarily from proceeds from investment securities AFS and investment securities HTM that were paid down during the year, and proceeds received from sales of investment securities AFS and loans held for sale. These inflows were partially offset by purchases of investment securities.
FDIC assessments expense increased by $7.0 million, or 112.8%, for 2023 compared with 2022. The FDIC assessment expense utilizes an initial base assessment rate, which is calculated as a percentage of the Bank’s average consolidated total assets less average tangible equity.
Severance costs related to the Company’s restructuring in the fourth quarter of 2023 were accounted for in restructuring-related expenses. FDIC assessments expense increased by $7.0 million, or 112.8%, for 2023 compared with 2022. The FDIC assessment expense utilizes an initial base assessment rate, which is calculated as a percentage of the Bank’s average consolidated total assets less average tangible equity.
Our investment securities AFS totaled $2.15 billion at December 31, 2023, compared with $1.97 billion at December 31, 2022. At December 31, 2023, we had $263.9 million in investment securities HTM compared with $271.1 million at December 31, 2022.
Our investment securities AFS totaled $1.82 billion at December 31, 2024, compared with $2.15 billion at December 31, 2023. At December 31, 2024, we had $252.4 million in investment securities HTM compared with $263.9 million at December 31, 2023.
During 2023, we charged off $37.5 million in loans outstanding and recovered $5.2 million in loans previously charged off compared with $12.4 million in charge offs and $24.6 million in recoveries for 2022.
During 2024, we charged off $31.1 million in loans outstanding and recovered $4.5 million in loans previously charged off compared with $37.5 million in charge offs and $5.2 million in recoveries for 2023.
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.
Our diluted earnings per common share totaled $0.82, $1.11, and $1.81 for the years 2024, 2023, and 2022, respectively. The return on average assets was 0.56%, 0.67%, and 1.20% and the return on average stockholders’ equity was 4.68%, 6.48%, and 10.73% for the years 2024, 2023, and 2022, respectively.
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 December 31, 2024, the maximum amount that we were able to borrow on an overnight basis from the FHLB and the FRB was an aggregate of $5.88 billion, and we had $100.0 million in borrowings from the FHLB and $139.00 million in borrowings outstanding from the FRB.
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.
These outflows were partially offset by proceeds from FRB borrowings and FHLB advances. When we have more funds than required for our reserve requirements or short-term liquidity needs, we sell federal funds to other financial institutions. Conversely, when we have less funds than required, we may purchase federal funds or borrow funds from the FHLB or the FRB’s Discount Window.
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.
The net charge offs for 2024 consisted of smaller loan charge offs from downgraded loans combined with charge offs related to the sale of problem loans. 54 The following table presents total nonaccrual and delinquent loans (loans past due 30+ days) at the dates indicated: December 31, 2024 2023 2022 2021 2020 (Dollars in thousands) CRE loans $ 26,601 $ 36,092 $ 38,030 $ 60,203 $ 83,617 C&I loans 62,224 6,640 9,146 15,576 17,304 Residential mortgage loans 15,186 6,173 11,101 20,188 11,690 Consumer and other loans 627 682 1,103 848 1,414 Total nonaccrual and delinquent loans $ 104,638 $ 49,587 $ 59,380 $ 96,815 $ 114,025 Nonaccrual loans included above $ 90,564 $ 45,204 $ 49,687 $ 54,616 $ 85,238 We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt including but not limited to current financial information, historical payment experience, credit documentation, public information, and current economic trends.
Noninterest income was $45.6 million for 2023 compared with $51.4 million for 2022, and $43.6 million for 2021.
Noninterest income was $47.1 million for 2024 compared with $45.6 million for 2023, and $51.4 million for 2022.
Treasury securities $ 103,691 $ 103,677 $ (14) $ 3,990 $ 3,886 $ (104) U.S. Government agency and U.S.
Treasury securities $ — $ — $ — $ 103,691 $ 103,677 $ (14) U.S. Government agency and U.S.
The following table summarizes our outstanding Debentures related to the Trust Preferred Securities at December 31, 2023: Trust Name Issuance Date Amount Carry Value of Subordinated Debentures Maturity Date Coupon Rate Current Rate Interest Distribution and Callable Date (Dollars in thousands) Nara Capital Trust III 06/05/2003 $ 5,000 $ 5,155 06/15/2033 3M SOFR + 0.26% + 3.15% 8.80% Every 15 th of Mar, Jun, Sep, and Dec Nara Statutory Trust IV 12/22/2003 5,000 5,155 01/07/2034 3M SOFR + 0.26% + 2.85% 8.51% Every 7 th of Jan, Apr, Jul and Oct Nara Statutory Trust V 12/17/2003 10,000 10,310 12/17/2033 3M SOFR + 0.26% + 2.95% 8.59% Every 17 th of Mar, Jun, Sep and Dec Nara Statutory Trust VI 03/22/2007 8,000 8,248 06/15/2037 3M SOFR + 0.26% + 1.65% 7.30% Every 15 th of Mar, Jun, Sep and Dec Center Capital Trust I 12/30/2003 18,000 15,197 01/07/2034 3M SOFR + 0.26% + 2.85% 8.51% Every 7 th of Jan, Apr, Jul, and Oct Wilshire Statutory Trust II 03/17/2005 20,000 16,681 03/17/2035 3M SOFR + 0.26% + 1.79% 7.43% Every 17 th of Mar, Jun, Sep, and Dec Wilshire Statutory Trust III 09/15/2005 15,000 11,931 09/15/2035 3M SOFR + 0.26% + 1.40% 7.05% Every 15 th of Mar, Jun, Sep, and Dec Wilshire Statutory Trust IV 07/10/2007 25,000 19,245 09/15/2037 3M SOFR + 0.26% + 1.38% 7.03% Every 15 th of Mar, Jun, Sep, and Dec Saehan Capital Trust I 03/30/2007 20,000 15,903 06/30/2037 3M SOFR + 0.26% + 1.62% 7.21% Every 30 th of Mar, Jun, Sep, and Dec Total Trust $ 126,000 $ 107,825 58 Capital Resources Historically, our primary source of capital has been the retention of earnings, net of interest payments on debentures and convertible notes and dividend payments to stockholders and share repurchases.
The following table summarizes our outstanding Debentures related to the Trust Preferred Securities at December 31, 2024: Trust Name Issuance Date Amount Carry Value of Subordinated Debentures Maturity Date Coupon Rate Current Rate Interest Distribution and Callable Date (Dollars in thousands) Nara Capital Trust III 06/05/2003 $ 5,000 $ 5,155 06/15/2033 3M SOFR + 3.41% 7.77% Every 15 th of Mar, Jun, Sep, and Dec Nara Statutory Trust IV 12/22/2003 5,000 5,155 01/07/2034 3M SOFR + 3.11% 7.77% Every 7 th of Jan, Apr, Jul, and Oct Nara Statutory Trust V 12/17/2003 10,000 10,310 12/17/2033 3M SOFR + 3.21% 7.56% Every 17 th of Mar, Jun, Sep, and Dec Nara Statutory Trust VI 03/22/2007 8,000 8,248 06/15/2037 3M SOFR +1.91% 6.27% Every 15 th of Mar, Jun, Sep, and Dec Center Capital Trust I 12/30/2003 18,000 15,473 01/07/2034 3M SOFR + 3.11% 7.77% Every 7 th of Jan, Apr, Jul, and Oct Wilshire Statutory Trust II 03/17/2005 20,000 16,937 03/17/2035 3M SOFR + 2.05% 6.40% Every 17 th of Mar, Jun, Sep, and Dec Wilshire Statutory Trust III 09/15/2005 15,000 12,148 09/15/2035 3M SOFR + 1.66% 6.02% Every 15 th of Mar, Jun, Sep, and Dec Wilshire Statutory Trust IV 07/10/2007 25,000 19,570 09/15/2037 3M SOFR + 1.64% 6.00% Every 15 th of Mar, Jun, Sep, and Dec Saehan Capital Trust I 03/30/2007 20,000 16,144 06/30/2037 3M SOFR + 1.88% 6.21% Every 30 th of Mar, Jun, Sep, and Dec Total Trusts $ 126,000 $ 109,140 60 Capital Resources Historically, our primary source of capital has been the retention of earnings, net of interest payments on debentures and convertible notes and dividend payments to stockholders and share repurchases.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+15 added−16 removed7 unchanged
Biggest changeHowever, 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.
Biggest changeHowever, actual earnings may not increase or decrease as expected based on the cumulative gap as there are other factors that impact earnings. 66 The following table illustrates our combined asset and liability contractual repricing as of December 31, 2024: 0 - 3 Months Over 3 Months to 1 Year Over 1 Year to 5 Years Over 5 Years Total (Dollars in thousands) Rate Sensitive Assets: Interest earning cash $ 235,541 $ — $ — $ — $ 235,541 Investment securities AFS 360 20,779 586,344 1,215,760 1,823,243 Investment securities HTM — 2,191 69,341 180,853 252,385 Equity investments 39,946 — — — 39,946 Loans outstanding (1) 5,891,667 1,482,023 5,734,471 524,602 13,632,763 Total rate sensitive assets $ 6,167,514 $ 1,504,993 $ 6,390,156 $ 1,921,215 $ 15,983,878 Rate Sensitive Liabilities: Money market and NOW $ 4,515,251 $ — $ — $ — 4,515,251 Savings deposits 590,801 41,315 28,368 — 660,484 Time deposits 2,149,977 3,487,267 136,560 — 5,773,804 FHLB and FRB borrowings 239,000 — — — 239,000 Convertible notes 444 — — — 444 Subordinated debentures 109,140 — — — 109,140 Total rate sensitive liabilities $ 7,604,613 $ 3,528,582 $ 164,928 $ — $ 11,298,123 Net Gap Position $ (1,437,099) $ (2,023,589) $ 6,225,228 $ 1,921,215 Cumulative Gap Position $ (1,437,099) $ (3,460,688) $ 2,764,540 $ 4,685,755 ___________________ (1) Includes nonaccrual loans of $90.6 million and loans held for sale of $14.5 million.
While traditional gap analysis provides a simple picture of the interest rate risk embedded in the statement of financial condition, it provides only a static view of interest rate sensitivity at a specific point in time and does not measure the potential volatility in forecasted results relating to changes in market interest rates over time.
While traditional gap analysis provides a simple picture of the interest rate risk embedded in the Consolidated Statements of Financial Condition, it provides only a static view of interest rate sensitivity at a specific point in time and does not measure the potential volatility in forecasted results relating to changes in market interest rates over time.
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.
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 expected maturities of various assets or liabilities may shorten or lengthen as interest rates change. Management considers the anticipated effects of these factors when implementing interest rate risk management objectives.
The expected maturities of various assets or liabilities may shorten or lengthen as interest rates change. Management considers the anticipated effects of these factors when implementing interest rate risk management objectives. The Company’s interest rate risk sensitivity simulations apply various behavior models and assumptions to account for customer tendencies stemming from interest rate risk changes.
ALM 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.
The fundamental objective of the ALM is to manage exposure to interest rate fluctuations while maintaining adequate levels of liquidity and capital. ALM meets regularly to monitor the Company’s interest rate risk, balance sheet activities, on- and off-balance sheet composition, earnings, capital, and market trends. Overall, the Company aims to reduce the sensitivity of earnings to interest rate fluctuations.
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.
The Company’s interest rate risk management is governed by policies reviewed and approved annually by the Board of Directors. The Board delegates responsibility for interest rate risk management to the Board Risk Committee and to the Asset and Liability Management Committee (“ALM”), which is composed of the Bank’s senior executives and other designated officers.
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.
Internal analyses are performed to measure, evaluate, and monitor liquidity and interest rate risk. Interest Rate Risk Interest rate risk is the most significant market risk impacting the Company. Interest rate risk, which is inherent in the banking industry, is measured by potential changes in net interest income (“NII”) and the economic value of equity (“EVE”).
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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.
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The primary forms of interest rate risk consist of repricing risk, basis risk, yield curve risk, and options risk. • Repricing Risk: The risk that interest rate sensitive assets and liabilities do not reprice simultaneously and/or in equal volumes. • Basis Risk: The risk that different indices with the same repricing frequency do not move in unison due to asymmetrical changes in interest rate indices. • Yield Curve Risk: The risk from non-parallel changes in the slope of the yield curve. • Options Risk: The risk that cash flows change due to embedded options (e.g., prepayment / extension, call options, deposit runoff, time deposit early withdrawal).
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Derivative Activity As part of our asset and liability management strategy, we may enter into derivative financial instruments, such as interest rate swaps, risk participation agreements, foreign exchange contracts, caps, floors, collars, interest rate lock commitments, and forward sales commitments, with the overall goal of minimizing the impact of interest rate fluctuations on our net interest margin.
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The key behavior models and assumptions incorporated in the EVE and NII simulations impact deposit pricing, deposit runoff, time deposit early withdrawal, and prepayments on loans and investments. The deposit pricing model is one of the most significant of these assumptions and determines to what degree our deposit rates change when benchmark interest rates change.
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Our simulation model provides our ALM with the ability to simulate our net interest income under various scenarios.
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The deposit runoff model reflects the increased attrition rate observed in noninterest bearing deposits in higher rate scenarios as customers migrate to interest bearing deposits and/or alternative investments. The time deposit early withdrawal model incorporates the customer’s ability to early terminate time deposits and reprice higher.
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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.
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The prepayment models applied to loans and investments reflects the incentive borrowers have to refinance when market rates are low while conversely slowing down their payments in higher rate environments. Each of the models and assumptions are tailored to the specific interest rate environment and validated on a regular basis.
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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.
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However, assumptions and models are inherently uncertain and actual results may differ from those derived in simulation analysis for multiple reasons, which may include actual balance sheet composition differences, timing, magnitude and frequency of interest rate changes, deviations from projected customer behavioral assumptions, and changes in market conditions or management strategies. 65 Net Interest Income Sensitivity Simulation Net interest income sensitivity simulations are used by management to measure the risk and impact to earnings over various time horizons, using a variety of interest rate scenarios.
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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.
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The following table presents the Company’s net interest income sensitivity profile over a gradual 12-month “ramp” scenario applied to the base implied forward curve. The “ramp” scenario is a parallel shift applied gradually over the 12 months of the forecast on a pro rata basis.
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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.
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The scenarios are applied to an adjusted balance sheet that incorporates assumptions related to asset prepayments, time deposit withdrawal speeds, noninterest bearing deposit migration, and estimated deposit betas; these assumptions differ in rising or falling interest rate scenarios and are anchored in historical performance.
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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.
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Deposit betas represent the change in the rates paid on deposits against a change in benchmark interest indices. The net interest income simulation model does not represent a forecast of the Company’s net interest income but is a tool utilized to assess the impact of changing market interest rates across a range of market interest rate environments.
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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.
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The following table presents the Company’s net interest income sensitivity related to a 12-month parallel ramp of 100, 200 and 300 bps applied in year 1 on implied forward market interest rates as of December 31, 2024, and December 31, 2023, on a balance sheet assuming static balances on assets and liabilities with deposit balances modeled to migrate from noninterest bearing deposits to interest bearing deposits as rates move.
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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”).
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Net Interest Income Sensitivity Interest Rate Change (basis points) - 300 . - 200 . - 100 . + 100 . + 200 . + 300 .
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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.
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December 31, 2024 (4.82)% (3.41)% (1.69)% 1.65% 3.22% 3.76% December 31, 2023 (8.04)% (5.49)% (2.82)% 2.20% 3.30% 3.65% The year-over-year changes in earnings sensitivity is primarily due to the decrease in cash balances, offset by reduction in FHLB balances and termination of $400.0 million of receive-fixed swaps in 2024 compared to no terminations in 2023.
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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.
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Economic Value of Equity Sensitivity EVE is used by management to measure the impact of interest rate changes on the net present value of assets and liabilities, including off-balance sheet instruments. EVE complements net interest income sensitivity simulations whereas it estimates the risk exposure for a longer time horizon, or more specifically, the expected life of the current balance sheet.
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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.
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EVE does not incorporate any assumptions related to new originations or renewal activities used in the net interest income sensitivity analysis. The following table presents the Company’s EVE profile applied to immediate parallel shock scenarios.
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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.
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Economic Value of Equity Sensitivity Interest Rate Change (basis points) - 300 . - 200 . - 100 . + 100 . + 200 . + 300 .
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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.
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December 31, 2024 7.72% 6.87% 4.12% (4.88)% (10.59)% (16.87)% December 31, 2023 1.29% 3.29% 2.47% (5.45)% (11.94)% (18.96)% The year-over-year changes in EVE sensitivity was primarily driven by an update to the Company’s deposit pricing model. The improved model incorporates the non-linear observations the Company experienced during the recent rapid increase in federal policy rate and subsequent rate decrease. 67
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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

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