HOPE BANCORP INC

Previous wording

The following table presents selected financial and other data for each of the years in the five-year period ended December 31, 2024. The information below should be read in conjunction with, the more detailed information included elsewhere herein, including our Audited Consolidated Financial Statements and Notes thereto.

Current wording

The following table presents selected financial and other data for each of the years in the five-year period ended December 31, 2025. The information below should be read in conjunction with the more detailed information included elsewhere herein, including our Audited Consolidated Financial Statements and Notes thereto. The comparability of our operating results for the year ended December 31, 2025, with past performance was impacted by acquisition accounting adjustments and merger-related expenses associated with the acquisition of Territorial Bancorp Inc. and the loss on securities sold as a result of repositioning of a portion of our investment securities. The Company has provided supplemental non-GAAP information to facilitate a better understanding of financial performance, identifying certain items as “notable”. There were no notable items for the years ended December 31, 2022 and 2021.

Previous wording

(1)Net income divided by average assets.

Current wording

(2) Net income divided by average assets.

Previous wording

(2)Net income divided by average stockholders’ equity.

Current wording

(3) Net income divided by average stockholders’ equity.

Previous wording

(3)Net interest income divided by average interest earning assets.

Current wording

(4) Net interest income divided by average interest earning assets.

Previous wording

(5)Interest expense divided by average interest bearing liabilities.

Current wording

(6) Interest expense divided by average interest bearing liabilities.

Previous wording

(6)Noninterest expense divided by the sum of net interest income plus noninterest income.

Current wording

(7) Noninterest expense divided by the sum of net interest income plus noninterest income.

Previous wording

(7)Excludes delinquent SBA loans that are guaranteed and currently in liquidation.

Current wording

(9) Excludes delinquent SBA loans that are guaranteed and currently in liquidation.

Previous wording

(8)The Company adopted ASU 2022-02 on January 1, 2023, which eliminated the concept of TDR loans from GAAP. Prior to January 1, 2023,

Current wording

(10) We 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.

Previous wording

(9)Nonperforming assets consist of nonperforming loans and OREO. Prior to January 1, 2023, nonperforming loans included accruing TDR loans.

Current wording

(11) Nonperforming assets consist of nonperforming loans and OREO. Prior to January 1, 2023, nonperforming loans included accruing TDR loans.

Previous wording

We provide certain non‑GAAP financial measures that we believe provide investors with meaningful supplemental information that is useful in understanding our financial performance and position. The methodologies for determining non-GAAP measures may differ among companies. The following table reconciles non-GAAP financial measures used to the most comparable GAAP performance measures:

Current wording

We provide certain non-GAAP financial measures that we believe provide investors with meaningful supplemental information that is useful in understanding our operating results and financial condition. The methodologies for calculating non-GAAP measures may differ among companies. The following tables reconcile the non-GAAP financial measures used in this Form 10-K to the most comparable GAAP performance measures. The non-GAAP financial measures provide information that may be useful to investors in understanding our operating performance and trends and assist in comparing our results with the performance of our peers.

Previous wording

Subjective Estimates and Judgments - Significant judgment is involved in determining when an investment securities AFS decline in fair value is credit impaired. Investment securities AFS in unrealized loss positions are first assessed as to whether we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If one of the criteria is met, the security’s amortized cost basis is written down to fair value through current earnings. We then apply a zero credit loss assumption to investment securities issued by the U.S. government or government-sponsored enterprises. For other securities that do not meet these criteria, we evaluate whether the decline in fair value resulted from credit losses or other factors. In evaluating whether a credit loss exists, we set up an initial filter for impairment triggers. Once the quantitative filters have been triggered, the securities are placed on a watch list and an additional assessment is performed to identify whether a credit impairment exists. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors.

Current wording

Subjective Estimates and Judgments - Significant judgment is involved in determining when an investment securities AFS decline in fair value is credit impaired. Investment securities AFS in unrealized loss positions are first assessed as to whether we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If one of the criteria is met, the security’s amortized cost basis is written down to fair value through current earnings. We then apply a zero credit loss assumption to investment securities issued by the U.S. government or government-sponsored enterprises. For other securities that do not meet these criteria, we evaluate whether the decline in fair value resulted from credit losses or other factors. In evaluating whether a credit loss exists, we set up an initial filter for impairment triggers. Once the quantitative filters have been triggered, the securities are placed on a watch list and an additional assessment is performed to identify whether credit impairment exists. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors.

Previous wording

Impact if Actual Results Differ From Estimates and Judgments - Changes in management’s assessment of the factors used to determine if an investment security is credit impaired could lead to additional impairment charges. Additionally, a security that had no apparent risk could be affected by a sudden or acute market condition and necessitate an impairment charge.

Current wording

Impact if Actual Results Differ From Estimates and Judgments - Changes in management’s assessment of the factors used to determine if an investment security is credit impaired could lead to additional impairment charges. Additionally, a security that had no apparent risk could be affected by a sudden or acute change in market condition and necessitate an impairment charge.

Previous wording

Certain key macroeconomic variable inputs used in the calculation of our allowance for credit losses experienced a change between projections as of December 31, 2023 versus projections as of December 31, 2024, particularly projected GDP growth which had improved projections and CRE Price Index growth rates, which had declining projections. This contributed to a decrease in our allowance for credit losses estimated loss rates at December 31, 2024, compared with December 31, 2023. Changes in the key macroeconomic variables are presented in the tables below.

Current wording

Certain key macroeconomic variable inputs used in the calculation of our allowance for credit losses experienced a change between projections as of December 31, 2024 versus projections as of December 31, 2025. While GDP growth rates remained relatively flat, unemployment rates showed a slight increase and the CRE price index growth rates showed a decline at December 31, 2025, compared with December 31, 2024. Changes in the key macroeconomic variables are presented in the tables below.

Previous wording

In addition to an estimate of quantitatively derived losses, our allowance for credit losses also includes an estimate of qualitatively derived losses to account for risks not fully captured by the quantitative calculation of estimated credit losses. At December 31, 2024, the qualitative portion of our allowance for credit losses totaled $50.1 million compared with $35.7 million at December 31, 2023. The qualitative portion of our allowance for credit losses is determined by management and takes into consideration factors related to changes to lending policies, changes in the nature and volume of loans, risks related to lending management, changes to the volume and severity of past due and nonaccrual loans, changes in the quality of loan review, concentrations of credit, and other external factors. Some of these factors are more subjective than others and require significant judgment from management to determine estimated losses.

Current wording

In addition to an estimate of quantitatively derived losses, our allowance for credit losses also includes an estimate of qualitatively derived losses to account for risks not fully captured by the quantitative calculation of estimated credit losses. At December 31, 2025, the qualitative portion of our allowance for credit losses totaled $32.0 million compared with $50.1 million at December 31, 2024. The qualitative portion of our allowance for credit losses is determined by management and takes into consideration factors related to changes to lending policies, changes in the nature and volume of loans, risks related to lending management, changes to the volume and severity of past due and nonaccrual loans, changes in the quality of loan review, concentrations of credit, and other external factors. Some of these factors are more subjective than others and require significant judgment from management to determine estimated losses.

Previous wording

Moody’s consensus forecast assumes that the probability that the economy will perform better than the consensus estimates is equal to the probability that it will perform worse. A sensitivity analysis of our allowance for credit losses was performed by estimating credit losses using the Moody’s S2 scenario as of December 31, 2024, which has a more negative outlook on the economy compared with the Moody’s consensus scenario. The S2 scenario includes assumptions including elevated market interest rates, which weakens credit sensitive spending more than anticipated. In addition, the combination of tariffs, rising inflation, deportations, global political unrest and tensions, and reduced credit availability causes the economy to fall into a mild recession in 2025. Incorporating key macroeconomic inputs from Moody’s S2 projected scenario in our calculation of the allowance for credit losses resulted in additional allowance for credit losses of approximately $28.5 million compared with the results using the Moody’s consensus forecast as of December 31, 2024. Management reviews the results using the comparison scenario for sensitivity analysis and considered the results when evaluating the qualitative factor adjustments.

Current wording

Moody’s consensus forecast assumes that the probability that the economy will perform better than the consensus estimates is equal to the probability that it will perform worse. A sensitivity analysis of our allowance for credit losses was performed by estimating credit losses using the Moody’s S2 scenario as of December 31, 2025, which has a more negative outlook on the economy compared with the Moody’s consensus scenario. The S2 scenario includes assumptions including worse than expected impact to the economy from the Trump’s administration’s tariffs and deportations, increased concerns over Russia’s invasion of Ukraine and China’s blockage of the Taiwan Strait, decline in the U.S. stock market, and declines in European economies. 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 $30.4 million compared with the results using the Moody’s consensus forecast as of December 31, 2025. Management reviews the results using the comparison scenario for sensitivity analysis and considered the results when evaluating the qualitative factor adjustments.

Previous wording

Impact if Actual Results Differ From Estimates and Judgments - Changes in qualitative factors assessed, changes to assumptions used in the impairment test, selection and weighting of the various fair value techniques, and downturns in economic or business conditions, could have a significant adverse impact on the carrying value of goodwill and could result in impairment losses which could have a material impact in our financial condition and earnings. We performed a goodwill impairment quantitative test as of September 30, 2023, and based on this analysis we concluded the fair value of the Company exceeded the carrying value by 15.4%, using a discount rate of 13.6% for the income approach. Management performed a sensitivity analysis of the discount rate used in the income approach of the goodwill impairment analysis, and a 50 basis point increase to the discount rate would result in the fair value of the Company exceeding the carrying amount by 10.9%. We did not perform a quantitative test for the year ended December 31, 2024, as we performed a qualitative analysis that indicated that goodwill was more than likely not impaired.

Current wording

Impact if Actual Results Differ From Estimates and Judgments - Changes in qualitative factors assessed, changes to assumptions used in the impairment test, selection and weighting of the various fair value techniques, and downturns in economic or business conditions, could have a significant adverse impact on the carrying value of goodwill and could result in impairment losses which could have a material impact in our financial condition and earnings. We did not perform a quantitative test for the year ended December 31, 2025, as we performed a qualitative analysis that indicated that goodwill was more than likely not impaired.

Previous wording

Our net income was $99.6 million for 2024 compared with $133.7 million for 2023 and $218.3 million for 2022. Our diluted earnings per common share totaled $0.82, $1.11, and $1.81 for the years 2024, 2023, and 2022, respectively. The return on average assets was 0.56%, 0.67%, and 1.20% and the return on average stockholders’ equity was 4.68%, 6.48%, and 10.73% for the years 2024, 2023, and 2022, respectively. The decrease in net income for 2024 compared with 2023 was primarily due to decreases in net interest income, offset partially by decreases in provision for credit losses and noninterest expense. The decrease in net income for 2023 compared with 2022 was primarily due to increases in interest expense, provision for credit losses and noninterest expense.

Current wording

Our net income was $61.6 million for 2025 compared with $99.6 million for 2024 and $133.7 million for 2023. Our diluted earnings per common share totaled $0.49, $0.82, and $1.11 for the years 2025, 2024, and 2023, respectively. The return on average assets was 0.34%, 0.56%, and 0.67% and the return on average stockholders’ equity was 2.77%, 4.68%, and 6.48% for the years 2025, 2024, and 2023, respectively. 2025’s results included an aggregate $51.8 million of notable items, net of taxes, that impacted the comparability of the Company’s operating results with past performance. Notable items for the year ended December 31, 2025, included a net loss on sales of securities from an investment securities repositioning, merger-related items, and income tax expense from the change in California’s state tax apportionment law. Net income, excluding notable items for 2025 was $113.3 million, or $0.89 per diluted common share, compared with net income of $103.4 million, or $0.85 per diluted share, for 2024. The decrease in net income for 2024 compared with 2023 was primarily due to a decrease in net interest income, offset partially by decreases in provision for credit losses and noninterest expense.

Previous wording

Interest rates charged on our loans are affected principally by the demand for such loans, the supply of money available for lending purposes, the interest rate environment, and other competitive factors. These factors are in turn affected by general economic conditions and other factors beyond our control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and the actions of the FRB.

Current wording

Interest rates charged on our loans are affected principally by the demand for such loans, the supply of money available for lending purposes, the interest rate environment, and other competitive factors. These factors are in turn affected by general economic conditions and other factors beyond our control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, government budgetary matters, and the actions of the FRB.

Previous wording

Net interest income was $427.9 million for 2024, compared with $525.9 million for 2023 and $578.4 million for 2022. Changes in net interest income are a function of changes in interest rates and volumes of interest earning assets and interest bearing liabilities. The table below sets forth information regarding the changes in interest income and interest expense for the periods indicated. The total change for each category of interest earning assets and interest bearing liabilities is segmented into the change attributable to variations in volume (changes in volume multiplied by the old rate) and the change attributable to variations in interest rates (changes in rates multiplied by the old volume). Nonaccrual loans are included in average loans used to compute this table.

Current wording

Net interest income was $472.2 million for 2025, compared with $427.9 million for 2024 and $525.9 million for 2023. Changes in net interest income are a function of changes in interest rates and volumes of interest earning assets and interest bearing liabilities. The table below sets forth information regarding the changes in interest income and interest expense for the periods indicated. The total change for each category of interest earning assets and interest bearing liabilities is segmented into the change attributable to variations in volume (changes in volume multiplied by the old rate) and the change attributable to variations in interest rates (changes in rates multiplied by the old volume). Nonaccrual loans are included in average loans used to compute this table.

Previous wording

Net interest income before provision for credit losses decreased by $98.0 million, or 19%, for 2024 compared with 2023. The decrease in net interest income was driven by a higher cost of funds and a decrease in the average balance of interest earning assets, partially offset by expanding yields on interest earning assets and a decrease in the average balance of interest bearing liabilities. The expanding interest earning asset yields and higher deposit costs reflected changes in market interest rates during the period. The upper range of the target federal funds rate decreased to 4.50% at December 31, 2024, down from 5.50% at December 31, 2023, but the cuts to the federal funds rate did not begin until September 18, 2024. The year-over-year decrease in the balance of average interest earning cash and deposits in other banks between 2024 and 2023 was primarily due to the payoff of BTFP borrowings in 2024.

Current wording

Net interest income before provision for credit losses decreased by $98.0 million, or 19%, for 2024 compared with 2023. The decrease in net interest income was driven by a higher cost of funds and a decrease in the average balance of interest earning assets, partially offset by expanding yields on interest earning assets and a decrease in the average balance of interest bearing liabilities. The expanding interest earning asset yields and higher deposit costs reflected changes in market interest rates during the period. The upper range of the target federal funds rate decreased to 4.50% at December 31, 2024, down from 5.50% at December 31, 2023, but the cuts to the federal funds rate did not begin until September 2024. The year-over-year decrease in the balance of average interest earning cash and deposits in other banks between 2024 and 2023 was primarily due to the payoff of borrowings under the FRB’s Bank Term Funding Program in 2024.

Previous wording

Interest income was $954.0 million for 2024, compared with $1.05 billion for 2023, and $716.1 million for 2022. The yield on average interest earning assets was 5.69% for 2024, compared with 5.60% for 2023, and 4.16% for 2022.

Current wording

Interest income was $941.2 million for 2025, compared with $954.0 million for 2024, and $1.05 billion for 2023. The yield on average interest earning assets was 5.50% for 2025, compared with 5.69% for 2024, and 5.60% for 2023.

Previous wording

Interest expense on deposits was $495.4 million for 2024, compared with $441.2 million for 2023, and $114.8 million for 2022. The average cost of deposits was 3.38% for 2024, compared with 2.82% for 2023, and 0.76% for 2022. The average cost of interest bearing deposits was 4.51% for 2024, compared with 3.92% for 2023, and 1.20% for 2022.

Current wording

Interest expense on deposits was $457.3 million for 2025, compared with $495.4 million for 2024, and $441.2 million for 2023. The average cost of deposits was 2.94% for 2025, compared with 3.38% for 2024, and 2.82% for 2023. The average cost of interest bearing deposits was 3.77% for 2025, compared with 4.51% for 2024, and 3.92% for 2023.

Previous wording

The increase in interest expense on total deposits of $54.2 million, or 12%, for 2024 compared with 2023 was due to a higher cost of interest bearing deposits. The increase in the cost of deposits was driven by rising interest rates during the period, a remix of deposits into higher-cost categories due to customer preferences for higher rates, and deposit pricing competition.

Current wording

The increase in interest expense on total deposits of $54.2 million, or 12%, for 2024 compared with 2023 was due to a higher cost of interest bearing deposits. The increase in the cost of deposits was driven by rising interest rates during the period, a migration of deposits into higher-cost categories due to customer preferences for higher rates, and deposit pricing competition.

Previous wording

FHLB and FRB borrowings consist of advances from the FHLB and FRB, including the BTFP. As part of our asset-liability management, we utilize FHLB and FRB borrowings to supplement our deposit source of funds. Therefore, there may be fluctuations in these balances depending on the short-term liquidity and longer-term financing needs of the Bank.

Current wording

FHLB and FRB borrowings consist of advances from the FHLB and FRB. As part of our asset-liability management, we utilize FHLB and FRB borrowings to supplement our deposit source of funds. Therefore, there may be fluctuations in these balances depending on the short-term liquidity and longer-term financing needs of the Bank.

Previous wording

Average FHLB and FRB borrowings were $531.9 million for 2024, compared with $1.62 billion in 2023, and $528.3 million in 2022. Interest expense on FHLB and FRB borrowings was $19.9 million for 2024 compared with $69.4 million for 2023, and $11.5 million for 2022. The average cost of FHLB and FRB borrowings was 3.73% for 2024, compared with 4.29% for 2023, and 2.18% for 2022. The year-over-year decrease in the cost of FHLB and FRB borrowings for 2024 compared to 2023 primarily reflected the payoff of $1.70 billion in FRB BTFP borrowings, which had a weighted average rate of 4.47%, and the impact of our cash flow hedges which reduced interest expense on borrowings starting in the second quarter of 2024.

Current wording

Average FHLB and FRB borrowings were $79.9 million for 2025, compared with $531.9 million in 2024, and $1.62 billion in 2023. Interest expense on FHLB and FRB borrowings was $2.1 million for 2025 compared with $19.9 million for 2024, and $69.4 million for 2023. The average cost of FHLB and FRB borrowings was 2.57% for 2025, compared with 3.73% for 2024, and 4.29% for 2023. The decrease in the cost of FHLB and FRB borrowings for 2025 compared to 2024 was primarily attributable to declining market interest rates.

Previous wording

In 2018, we issued $217.5 million in senior convertible notes. Interest expense on convertible notes was $9 thousand for 2024 compared with $1.9 million and $5.3 million for 2023 and 2022, respectively. The cost of our convertible notes for 2024 was 2.00% compared with 2.47% for 2023 and 2.44% for 2022. The cost of our convertible notes consisted of the 2.00% coupon rate and non-cash interest expense from the capitalization of issuance cost.

Current wording

In 2018, we issued $217.5 million in senior convertible notes. Interest expense on convertible notes was $9 thousand for 2025 compared with $9 thousand and $1.9 million for 2024 and 2023, respectively. The cost of our convertible notes for 2025 was 2.00% compared with 2.00% for 2024 and 2.47% for 2023. The cost of our convertible notes consisted of the 2.00% coupon rate for 2025 and 2024, and also included non-cash interest expense from the capitalization of issuance cost for 2023.

Previous wording

The subordinated debentures bear interest at the 3-month Chicago Mercantile Exchange term Secured Financing Overnight Rate (“SOFR”) rate, plus a designated spread. Prior to LIBOR cessation at June 2023, the interest rate was tied to the 3-month LIBOR rate, plus a designated spread. There were no changes in our balance of subordinated debentures during 2024 or 2023 aside from the increases related to the discount accretion on subordinated debentures acquired from previous acquisitions. Interest expense on subordinated debentures was $10.8 million for 2024 compared with $10.5 million for 2023, and $6.0 million for 2022. The average rate on other borrowings increased to 10.17% for 2024, compared with 10.02% for 2023, and 5.84% for 2022. The change in cost of other borrowings for 2023 and 2022 compared with 2024 was due to changes in the 3-month SOFR and 3-month LIBOR rates.

Current wording

At December 31, 2025, our nine wholly-owned subsidiary grantor trusts had issued $126.0 million of pooled trust preferred securities. Trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in the related indentures. The trusts used the net proceeds from the offering to purchase a like amount of subordinated indentures. The subordinated debentures bear interest at the 3-month Chicago Mercantile Exchange term Secured Financing Overnight Rate (“SOFR”) rate, plus a designated spread. Prior to LIBOR cessation at June 2023, the interest rate was tied to the 3-month LIBOR rate, plus a designated spread. There were no changes in our balance of subordinated debentures during 2025 or 2024, aside from the increases related to the discount accretion on subordinated debentures acquired from previous acquisitions. Interest expense on subordinated debentures was $9.6 million for 2025 compared with $10.8 million for 2024, and $10.5 million for 2023. The average rate on other borrowings decreased to 8.96% for 2025, compared with 10.17% for 2024, and 10.02% for 2023. The change in cost of other borrowings, or subordinated debentures, for 2023, compared with 2025 and 2024, was due to changes in the 3-month SOFR and 3-month LIBOR rates.

Previous wording

Noninterest income is primarily comprised of service fees on deposit accounts, international service fees (fees received on trade finance letters of credit), wire transfer fees, swap fee income, net gains on sales of loans, net gain on branch sales, and other income and fees, which included loan servicing fees, earnings on bank owned life insurance, changes in the fair value of our equity investments with readily determinable fair value, and other miscellaneous income. Noninterest income was $47.1 million for 2024 compared with $45.6 million for 2023, and $51.4 million for 2022.

Current wording

Noninterest income is primarily comprised of service fees on deposit accounts, international service fees (fees received on trade finance letters of credit), wire transfer and foreign currency fees, swap fee income, net gains on sales of loans, net gains or losses on sales of investment securities AFS, net gain on branch sales, and other income and fees, which included loan servicing fees, earnings on bank owned life insurance, changes in the fair value of our equity investments with readily determinable fair value, and other miscellaneous income. Noninterest income was $26.5 million for 2025 compared with $47.1 million for 2024, and $45.6 million for 2023.

Previous wording

During the year ended December 31, 2023, we sold $79.1 million in SBA guaranteed loans and recorded $4.1 million in net gains on sale of SBA loans. During the year ended December 31, 2022, we sold $227.3 million in SBA guaranteed loans and recorded $16.3 million in net gains on sale of SBA loans. We elected to not sell any SBA 7(a) loans during the second half of 2023, retaining loan production on our balance sheet instead.

Current wording

During the year ended December 31, 2025, we sold $211.4 million in SBA guaranteed loans and recorded $12.5 million in net gains on sale of SBA loans. During the year ended December 31, 2024, we sold $119.6 million in SBA guaranteed loans and recorded $7.8 million in net gains on sale of SBA loans.

Previous wording

During the year ended December 31, 2024, we sold $275.3 million of investment securities AFS and recorded $936 thousand in net gains on sales of investment securities AFS. There were no investment securities AFS sold during 2023.

Current wording

During the year ended December 31, 2024, we sold $276.3 million in fair value of investment securities AFS and recorded $936 thousand in net gains on sales of investment securities AFS. There were no investment securities AFS sold during 2023.

Previous wording

Noninterest expense was $324.7 million for 2024, compared with $362.0 million for 2023, and $323.9 million for 2022. The decrease in noninterest expense was $37.3 million, or 10%, for 2024 compared with 2023, and an increase of $38.0 million, or 12%, for 2023 compared with 2022. Noninterest expense as a percentage of average assets for 2024 was 1.83%, compared with 1.83% for 2023 and 1.78% for 2022.

Current wording

Noninterest expense was $389.6 million for 2025, compared with $324.7 million for 2024, and $362.0 million for 2023. The increase in noninterest expense was $64.9 million, or 20%, for 2025 compared with 2024, and a decrease of $37.3 million, or 10%, for 2024 compared with 2023. Noninterest expense included merger and restructuring-related costs, which the Company considers a notable item. Excluding notable items, noninterest expense for 2025 was $368.8 million, compared with $318.4 million for 2024, and $346.4 million for 2023. See the “Overview” section of this MD&A for a reconciliation of GAAP to non-GAAP financial measures. Noninterest expense as a percentage of average assets for 2025 was 2.14%, compared with 1.83% for both 2024 and 2023.

Previous wording

Earned interest credits are provided to certain commercial depositors in the residential mortgage industry to help offset deposit service charges incurred. The earned interest credits are tied to short-term interest rates and have increased with the increases in the federal funds rate since mid-2022. Earned interest credit expenses increased $11.4 million for 2023 compared with 2022, reflecting the changes in the federal funds rate.

Current wording

Earned interest credits are provided to certain commercial depositors to help offset deposit service charges incurred. The earned interest credits are tied to short-term interest rates, and accordingly, earned interest credit expense decreased with the declines in the Federal Funds rate since September 2024. Earned interest credit expense decreased $10.5 million for 2025 compared with 2024, reflecting the changes in the federal funds rates.

Previous wording

Salaries and employee benefits expense decreased by $30.0 million, or 14.4%, for 2024 compared with 2023. The year-over-year decrease in salaries and employee was due to lower average number of employees for the years ended 2024 compared to 2023. The number of full-time equivalent employees was 1,244 at both December 31, 2024 and December 31, 2023, compared to 1,549 at December 31, 2022. During the fourth quarter of 2023, we had a headcount reduction related to our restructuring in which we reduced our workforce by 13%. In the first quarter of 2023, a staffing rationalization reduced our headcount by 5%.

Current wording

Salaries and employee benefits expense decreased by $30.0 million, or 14.4%, for 2024 compared with 2023. The year-over-year decrease in salaries and employee benefits was due to lower average number of employees for the years ended 2024 compared to 2023. The number of full-time equivalent employees was 1,244 at both December 31, 2024 and December 31, 2023, compared to 1,549 at December 31, 2022. During the fourth quarter of 2023, we had a headcount reduction related to our restructuring in which we reduced our workforce by 13%. In the first quarter of 2023, a staffing rationalization reduced our headcount by 5%.

Previous wording

FDIC assessments expense decreased by $2.5 million, or 18.7%, for 2024 compared with 2023. The FDIC assessment expense utilizes an initial base assessment rate, which is calculated as a percentage of the Bank’s average consolidated total assets less average tangible equity. In addition to the initial assessment base, adjustments are added based upon the Bank’s regulatory rating and on other financial measures. In 2023, the FDIC annual base assessment rate increased by two basis points industry-wide. In addition, in November 2023, the FDIC approved a special assessment at the rate of approximately 13.4 basis points per year, paid in eight quarterly installments beginning in the first quarter of 2024. This rate was applied to an assessment base of the insured depository institution’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits. In February 2024, the FDIC informed banks of an increase from the original estimate related to this special assessment. This additional amount was paid in two additional quarterly installments, at a rate of approximately 9.4 basis points per year on the same adjusted assessment base. The decrease in FDIC assessments expense for the year ended December 31, 2024, compared with the same period in 2023, was due primarily to lower average consolidated total assets and a lower assessment base.

Current wording

FDIC assessments expense decreased by $2.5 million, or 18.7%, for 2024 compared with 2023. The FDIC assessment expense utilizes an initial base assessment rate, which is calculated as a percentage of the Bank’s average consolidated total assets less average tangible equity. In addition to the initial assessment base, adjustments are added based upon the Bank’s regulatory rating and on other financial measures. In 2023, the FDIC annual base assessment rate increased by two basis points industry-wide. In addition, in November 2023, the FDIC approved a special assessment at the rate of approximately 13.4 basis points per year, paid in eight quarterly installments beginning in the first quarter of 2024. This rate was applied to an assessment base of the insured depository institution’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits. In February 2024, the FDIC informed banks of an increase from the original estimate related to this special assessment. This additional amount was paid in two additional quarterly installments, at a rate of approximately 9.4 basis points per year on the same adjusted assessment base. The decrease in FDIC assessments expense for the year ended December 31, 2024, compared with the same period in 2023, was primarily due to lower average consolidated total assets and a lower assessment base.

Previous wording

Restructuring-related costs totaled $1.0 million in 2024, and were related to the Company’s strategic reorganization announced in October 2023. Restructuring-related costs for the year ended December 31, 2023, totaled $11.6 million. Restructuring costs primarily comprised severance costs, planned branch closure charges and professional fees. As part of the restructuring, the Company reduced its workforce by 13% in October 2023, and consolidated certain branches in the first half of 2024.

Current wording

Merger-related costs of $4.6 million for the year ended December 31, 2024, were primarily professional fees related to the Merger with Territorial. See Note 19 “Business Combinations” to the Notes to Consolidated Financial Statements for additional information regarding the merger. There were no merger-related costs for the year ended December 31, 2023. Restructuring-related costs totaled $1.0 million in 2024, and were related to the Company’s strategic reorganization announced in October 2023. Restructuring-related costs for the year ended December 31, 2023, totaled $11.6 million. Restructuring costs primarily comprised severance costs, planned branch closure charges and professional fees. As part of the restructuring, the Company reduced its workforce by 13% in October 2023, and consolidated certain branches in the first half of 2024.

Previous wording

The provision for income taxes for 2024 was $33.3 million, compared with $44.2 million in 2023 and $77.8 million in 2022. The effective income tax rate was 25.07% for 2024 compared with 24.86% for 2023 and 26.27% for 2022. The increase in effective tax rate for 2024 compared with 2023 was primarily due to adjustments made with the filings of the tax returns.

Current wording

The provision for income taxes for 2025 was $15.7 million, compared with $33.3 million in 2024 and $44.2 million in 2023. The effective income tax rate was 20.30% for 2025 compared with 25.07% for 2024 and 24.86% for 2023. The decrease in effective tax rate for 2025 compared with 2024 was primarily due to the positive impact from renewable energy tax credit investments and investments in affordable housing partnership that the Company realized in 2025. In addition, income tax expense and the effective tax rate were impacted by a change in California’s state tax apportionment law that was signed on June 27, 2025, and which became effective for tax years beginning on or after January 1, 2025.

Previous wording

We invest in affordable housing partnerships and receive CRA credits and tax credits that reduce the overall effective tax rate. Amortization of investments in affordable housing partnerships is recorded in noninterest expense based on benefit schedules of individual investment projects under the equity method of accounting. The benefit schedules show tax deductions investors can take each year. We amortize the initial cost of the investments in affordable housing partnerships. This amortization expense is more than offset by both tax credits received, which reduce our tax provision expense dollar for dollar, and the tax benefits related to any tax losses generated through the affordable housing project’s expenditures. Total tax credits related to our investment in affordable housing partnership investment was approximately $8.5 million and $8.6 million for the year ended December 31, 2024 and 2023, respectively. The balance of investments in affordable housing partnerships decreased from $54.5 million at December 31, 2023, to $32.4 million at December 31, 2024.

Current wording

We invest in affordable housing partnerships and receive CRA credits and tax credits that reduce the overall effective tax rate. Amortization of investments in affordable housing partnerships is recorded in noninterest expense based on benefit schedules of individual investment projects under the equity method of accounting. The benefit schedules show tax deductions investors can take each year. We amortize the initial cost of the investments in affordable housing partnerships. This amortization expense is more than offset by both tax credits received, which reduce our tax provision expense dollar for dollar, and the tax benefits related to any tax losses generated through the affordable housing project’s expenditures. Total tax credits related to our investment in affordable housing partnership investment was approximately $12.1 million and $11.1 million for the years ended December 31, 2025 and 2024, respectively. The balance of investments in affordable housing partnerships decreased from $32.4 million at December 31, 2024, to $27.9 million at December 31, 2025.

Previous wording

In addition to affordable housing projects, during the fourth quarter of 2024, we also invested in projects that qualify for renewable energy tax credits. Amortization of investments in renewable energy projects is recorded as a part of the tax expense under the proportional amortization method of accounting and offsets some of the income tax benefits of the renewable energy tax credits. The amortization on the investment was approximately $16.6 million and the total generated renewable energy tax credits and benefits was approximately $18.2 million for the year ended December 31, 2024. There was no amortization on investments in renewable energy projects or tax credits for the years ended December 31, 2023 and 2022.

Current wording

In addition to affordable housing projects, beginning in the fourth quarter of 2024, we began to invest in projects that qualify for renewable energy tax credits. Amortization of investments in renewable energy projects is recorded as a part of the tax expense under the proportional amortization method of accounting and offsets some of the income tax benefits of the renewable energy tax credits. For the years ended December 31, 2025 and 2024, the total generated renewable energy tax credits and benefits were $40.3 million and $18.2 million, respectively. These were partially offset by the amortization on the investments, which was $36.9 million and $16.6 million for 2025 and 2024, respectively. There were no tax credits or amortization on investments in renewable energy projects for 2023.

Previous wording

Our total assets were $17.05 billion at December 31, 2024, compared with $19.13 billion at December 31, 2023, a decrease of $2.08 billion, or 10.9% year over year.

Current wording

Our total assets were $18.53 billion at December 31, 2025, an increase of $1.48 billion, or 8.7%, from $17.05 billion at December 31, 2024.

Previous wording

Our investment securities AFS totaled $1.82 billion at December 31, 2024, compared with $2.15 billion at December 31, 2023. At December 31, 2024, we had $252.4 million in investment securities HTM compared with $263.9 million at December 31, 2023. We have the ability and intent to hold investment securities classified as HTM to maturity. $275.0 million in investment securities were purchased and $167.7 million in investment securities were paid down in 2024. There were $275.3 million sales of investment securities AFS in 2024. At December 31, 2024, $219.4 million in HTM securities were pledged to secure public deposits, or for other purposes required or permitted by law, of which $219.3 million in securities were pledged in the State of California time deposit program, and $129 thousand in AFS securities was pledged for other public deposits.

Current wording

Our investment securities AFS totaled $1.83 billion at December 31, 2025, compared with $1.82 billion at December 31, 2024. At December 31, 2025, we had $239.8 million in investment securities HTM compared with $252.4 million at December 31, 2024. We have the ability and intent to hold investment securities classified as HTM to maturity. In 2025, $777.8 million in investment securities was purchased, $1.13 billion in investment securities was sold, $204.0 million in investment securities was paid down, and $57.1 million in investment securities was called.