HOPE Hope Bancorp Inc - 10-K

Item 1A. RISK FACTORS

In the course of conducting our business operations, we are exposed to a variety of risks, some of which are inherent in the financial services industry and others of which are more specific to our own business. The following discussion addresses the most significant risks that could affect our business, financial condition, liquidity, results of operations, and capital position. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs, our business, financial condition and results of operations may be materially and adversely affected. In that event, the market price for our common stock would likely decline.

Risks Related to our Business

Economic conditions in the markets in which we operate may adversely affect our loan portfolio and reduce the demand for our services . Adverse economic conditions in our market areas could potentially have a material adverse impact on the quality of our business. An economic slowdown in the markets in which we operate, or may do so in the future, may have any or all of the following consequences, any of which may reduce our net income and adversely affect our financial condition:

• loan delinquencies may increase;

• problem assets and foreclosures may increase;

• the level and duration of deposits may decline;

• demand for our products and services may decline; and

• collateral for loans may decline in value below the principal amount owed by the borrower.

We have a high level of loans secured by real estate collateral. A downturn in the real estate market may seriously impair our loan portfolio . As of December 31, 2025, approximately 58% of our loan portfolio consisted of loans secured by various types of commercial real estate (excluding 1-4 family residential mortgage loans). A slowdown in the economy is often accompanied by declines in the value of real estate, which may have a material and adverse effect on our net income and capital levels.

Our commercial loan and commercial real estate loan portfolios expose us to risks. Charge-offs on commercial and commercial real estate loans may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios. The payment experience on commercial real estate loans that are secured by income producing properties are typically dependent on the successful operation of the related property tenants and thus, may subject us to adverse conditions in the real estate market or to the general economy. The collateral securing these loans typically cannot be liquidated as easily as residential real estate. If we foreclose on these loans, our holding period for the collateral typically is longer than for residential properties because there are fewer potential purchasers of the collateral.

Unexpected deterioration in the credit quality of our commercial or commercial real estate loan portfolios would require us to increase our provision for credit losses, which would reduce our profitability and could materially adversely affect our business, financial condition, results of operations and prospects.

In addition, with respect to commercial real estate loans, federal and state banking regulators have expressed concerns about weakness in the commercial real estate market. As a result, banking regulators are examining commercial real estate lending activity with heightened scrutiny and may require banks with higher levels of commercial real estate loan growth or exposure to implement more stringent underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for losses and capital levels. Because a significant portion of our loan portfolio is comprised of commercial real estate loans, the banking regulators may require us to maintain higher levels of capital than we would otherwise be expected to maintain, which could limit our ability to leverage our capital and have a material adverse effect on our business, financial condition, results of operations and prospects.

Our allowance for credit losses may not cover our actual loan losses . As a lender, we are exposed to the risk that the principal of, or interest on, a loan will not be paid timely, or at all, or that the value of any collateral supporting a loan will be insufficient to cover our outstanding exposure. In accordance with generally accepted accounting principles in the United States of America (“GAAP”), we maintain an allowance for credit losses to provide for loan defaults and non-performance. If our actual credit losses exceed the amount we have allocated for estimated current expected credit losses, our business will be adversely affected. We attempt to limit the risk that borrowers will fail to repay loans by carefully underwriting our loans, but losses nevertheless occur in the ordinary course of business operations. We create allowances for estimated credit losses through provisions that are recorded as reductions in income in our accounting records. We base these allowances on estimates of the following:

• historical experience with our loans;

• evaluation of current economic conditions and other factors;

• reviews of the quality, mix and size of the overall loan portfolio;

• reviews of delinquencies; and

• the quality of the collateral underlying our loans.

If our allowance estimates are inadequate, we may incur losses, our financial condition may be materially and adversely affected, and we may be required to try and raise additional capital to enhance our capital position. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the adequacy of our allowance. These agencies may require us to establish additional allowances based on their judgment of the information available at the time of their examinations. No assurance can be given that we will not sustain loan losses in excess of present or future levels of the allowance for credit losses or that regulatory agencies will not require us to increase our allowance thereby, impacting our profitability.

An increase in nonperforming assets would reduce our income and increase our expenses . If the level of nonperforming assets increases in the future, it may adversely affect our operating results and financial condition. Nonperforming assets are mainly loans on which the borrowers are not making their required payments. Nonperforming assets also include loans that have been restructured to permit the borrower to make payments, and real estate that has been acquired through foreclosure or deed in lieu of foreclosure of unpaid loans. To the extent that assets are nonperforming, we would have a lower balance of earning assets generating interest income and an increase in credit related expenses, including provisions for credit losses.

Increases in the level of our problem assets, occurrence of operating losses or a failure to comply with requirements of the agencies that regulate us may result in regulatory actions against us, which may materially and adversely affect our business and the market price of our common stock . The DFPI, the FDIC, and the FRB each have authority to take actions to require that we comply with applicable regulatory capital requirements, cease engaging in what they perceive to be unsafe or unsound practices or make other changes in our business. Among others, the corrective measures that such regulatory authorities may take include requiring us to enter into informal or formal agreements regarding our operations, the issuance of cease and desist orders to refrain from engaging in unsafe and unsound practices, removal of officers and directors, or the assessment of civil monetary penalties. See Item 1 “Business – Supervision and Regulation” for a further description of such regulatory powers.

Our use of appraisals in deciding whether to make loans secured by real property does not ensure that the value of the real property collateral will be sufficient to repay our loans . In considering whether to make a loan secured by real property, we require an appraisal of the property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made and requires the exercise of a considerable degree of judgment. If the appraisal does not accurately reflect the amount that may be obtained upon sale or foreclosure of the property, whether due to a decline in property value after the date of the original appraisal or defective preparation of the appraisal, we may not realize an amount equal to the indebtedness secured by the property and as a result, we may suffer losses.

Changes in interest rates affect our profitability . The interest rate risk inherent in our lending, investing, and deposit taking activities is a significant market risk to us and our business. We derive our income mainly from the difference or “spread” between the interest earned on loans, securities and other interest earning assets, and interest paid on deposits, borrowings and other interest bearing liabilities. In general, the wider the spread, the more net interest income we earn. When market interest rates change, the interest we receive on our assets and the interest we pay on our liabilities will fluctuate. This can cause decreases in our spread and can greatly affect our income. In addition, interest rate fluctuations can affect how much money we may be able to lend. There can be no assurance that we will be successful in minimizing the potentially adverse effects of changes in interest rates.

If we lose key employees, our business may suffer. There is intense competition for experienced and highly qualified personnel in the banking industry. Our future success depends on the continued employment of existing senior management personnel. If we lose key employees temporarily or permanently, it may hurt our business. We may be particularly hurt if our key employees, including any of our executive officers, became employed by our direct competitors.

We are exposed to the risks of natural disasters . A significant portion of our operations are concentrated in Southern California, which is an earthquake and fire prone region. A major earthquake or fire in the Greater Los Angeles Area may result in material loss to us. A significant percentage of our loans are and will be secured by real estate. Our borrowers may suffer uninsured property damage, experience interruption of their businesses or lose their jobs after an earthquake or fire. Those borrowers might not be able to repay their loans, and the collateral for such loans may decline significantly in value. Unlike a bank with operations that are more geographically diversified, we are vulnerable to greater losses if an earthquake, fire, flood, mudslide, or other natural catastrophe occurs in Southern California. The Greater Los Angeles Area fires in early 2025 did not have material impact to the Company or its borrowers.

Changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact our business, financial condition, and results of operations. The current Presidential Administration has imposed tariffs and retaliatory tariffs, and has signaled imposing other trade restrictions, against U.S. trading partners. In response to tariffs, foreign countries have implemented, or may implement, retaliatory tariffs on U.S. goods. Historically, tariffs have led to increased trade and political tensions. Political tensions as a result of trade policies could reduce trade volume, investment, technological exchange, and other economic activities between major international economies, resulting in a material adverse effect on global economic conditions and the stability of global financial markets. It may also cause the prices of our customers’ products to increase, which could reduce demand for such products, or reduce our customers' margins, and adversely impact their revenues, financial results, and ability to service debt. This in turn could adversely affect our financial condition and results of operations. In addition, to the extent changes in the political environment have a negative impact on us, or on the markets in which we operate our business, our results of operations and financial condition could be materially and adversely impacted in the future. On February 20, 2026, the U.S. Supreme Court struck down the Presidential Administration’s imposition of the 2025 tariffs imposed in reliance of the International Emergency Economic Powers Act; however, the administration has signaled that it may pursue alternative channels to maintain or increase such tariffs. At this time, it remains unclear what the U.S. government or foreign governments will or will not do with respect to additional tariffs that may be imposed or international trade agreements and policies.

We may experience adverse effects from acquisitions . We have acquired other banking companies and bank offices in the past, and will consider additional acquisitions as opportunities arise. For example, on April 2, 2025, we completed a merger with Territorial Bancorp Inc. See Item 1 “Business-Business Overview” and Note 19 of our Notes to Consolidated Financial Statements for more information about our merger with Territorial Bancorp Inc. If we do not adequately address the financial and operational risks associated with acquisitions of other companies, we may incur material unexpected costs and disruption of our business. Future acquisitions may increase the degree of such risks.

Risks involved in acquisitions of other companies include:

• the risk of failure to adequately evaluate the asset quality of the acquired company;

• difficulty in assimilating the operations, technology, and personnel of the acquired company;

• diversion of management’s attention from other important business activities;

• costs and unpredictability of stockholder litigation in connection with acquisitions;

• difficulty in maintaining good relations with the loan and deposit customers of the acquired company;

• inability to maintain uniform and effective operating standards, controls, procedures, and policies;

• potentially dilutive issuances of equity securities or the incurrence of debt and contingent liabilities; and

• amortization of expenses related to acquired intangible assets that have finite lives.

Liquidity risks may impair our ability to fund operations and jeopardize our financial condition . Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans, and other sources may have a material adverse effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities may be impaired by factors that affect us specifically or the financial services industry in general. Factors that may detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to a market downturn or adverse regulatory action against us. Our ability to acquire deposits or borrow may also be impaired by factors that are not specific to us, such as a disruption of the financial markets or negative views and expectations about the prospects for the banking industry or the general financial services industry as a whole.

Fraudulent activity or breaches or failures of our information system controls, including those related to cybersecurity incidents, could have a material adverse effect on our business. As a financial institution, we are susceptible to fraudulent activity and security breaches, including those related to cybersecurity incidents, that may materially and adversely affect us or our clients or our third-party service providers. Fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, social engineering, and other dishonest acts. Information system breaches and other cybersecurity threats may include fraudulent or unauthorized access to systems used by us or our clients, denial or degradation of service attacks, and ransomware or other cyber-attacks. There continues to be a rise in electronic fraudulent activity, security breaches, and cyber-attacks within the financial services industry, especially in the commercial banking sector due to cyber criminals targeting commercial bank accounts. Consistent with industry trends, we have also experienced an increase in attempted electronic fraudulent activity and information system breaches in recent periods.

As a financial institution, we receive and maintain the business and personal information of our customers on a daily basis. Information pertaining to us and our clients is maintained, and transactions are executed, on the networks and information systems owned or used by us, our clients and certain of our third-party service providers, such as our online banking or reporting systems. The secure maintenance and transmission of confidential information, as well as execution of transactions over these information systems, are essential to protect us and our clients against fraud and security breaches and to maintain our clients’ confidence. We face the risk that this information may be fraudulently or otherwise improperly accessed, used, or disclosed in a cyber-attack or other security breach of the information systems we rely upon. Large corporations, including financial institutions and retail companies, have increasingly suffered major cybersecurity incidents relating to information system breaches, in some cases exposing not only confidential and proprietary corporate information, but also sensitive financial and other personal information of their customers and employees and subjecting them to potential fraudulent activity. In the ordinary course of our business, we have experienced and expect to continue to experience cyber-based attacks and other cybersecurity threats that may compromise our information systems, the consequences of which could be material and adverse.

Our inability to anticipate or adequately mitigate against fraudulent activity, cybersecurity incidents and other security breaches may result in financial losses, litigation, increased regulatory scrutiny or supervisory actions and/or damage to our reputation, any of which may be material.

We rely on technology and information systems that may be disrupted, which would pose operational risks. Our business depends on the continuous operation of our information and data processing systems and related operational infrastructure, some of which are provided by third party vendors. We rely on these systems for, among other things, communications, processing customer transactions, recordkeeping, and financial controls. The failure of any of these resources, including but not limited to failures due to cybersecurity incidents, operational or systems failures, interruptions of client service operations or interruptions in third party data processing or other vendor support, may cause material disruptions in our business, impairment of customer relations, exposure to our customers for liability, reputational harm, and action by bank regulatory authorities. Breaches of the information systems owned or used by us also may occur, and on occasion have occurred, through intentional or unintentional acts by those having access to our systems or our clients’ or counterparties’ confidential information, including employees. In addition, increases in criminal activity, and the levels and sophistication of the same, advances in computer capabilities, vulnerabilities in third-party technologies (including browsers and operating systems), and other developments could result in a compromise or breach of the technology, processes and controls that we use in the operation of our business, which could have a material and adverse effect on our business, results of operation and financial condition.

The development and use of artificial intelligence (“AI”) presents risks and challenges that may adversely impact the Company’s business. The Company may develop or incorporate AI technology in certain business processes, services, or products in the future. In addition, the Company’s third-party (or fourth-party) vendors, clients, or counterparties may have developed or in the future may develop AI technology in certain business processes, services, or products. The development and use of AI presents a number of risks and challenges to the Company’s business. The legal and regulatory environment relating to AI is uncertain and rapidly evolving, both in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI. These evolving laws and regulations could require changes in the Company’s implementation of AI technology and increase the Company’s compliance costs and the risk of non-compliance. AI models, particularly generative AI models, may produce output or take action that is incorrect, that reflects biases included in the data on which they are trained, that results in the release of private, confidential, or proprietary information, that infringes on the intellectual property rights of others, or that is otherwise harmful. In addition, the complexity of many AI models makes it difficult to understand why they are generating particular outputs. This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding, and monitoring the capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made. Further, the Company may rely on AI models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which the Company may have limited visibility. Any of these risks could expose the Company to liability or adverse legal or regulatory consequences and harm the Company’s reputation and the public perception of its business or the effectiveness of its security measures.

Diverse views, increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks. Companies are facing increasing scrutiny from customers, regulators, investors, investor advocacy groups, and other stakeholders related to their ESG practices and disclosure, especially as they relate to the environment, health and safety, diversity, labor conditions, and human rights. Increased ESG related compliance costs could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our financial condition and results of operations. In addition, views about ESG are diverse and rapidly changing. In recent years, "anti-ESG" sentiment has gained momentum across the U.S., with several states and Congress having proposed or enacted "anti-ESG" policies, legislation, or initiatives. Recently an executive order was issued that opposes diversity and inclusion ("DEI") initiatives in the private sector. Institutional investors and proxy advisory firms have also updated or are in the process of updating their guidelines and expectations with respect to ESG and DEI initiatives. New and changing state or federal government regulations could result in additional compliance obligations, expand mandatory and voluntary reporting, diligence, and disclosure, and could result in our sustaining reputational harm, which could adversely impact our financial condition and results of operations and could have an adverse effect on the trading price of our common stock. Additionally, concerns over the long-term impacts of climate change have led and could continue to lead to governmental efforts around the world to mitigate those impacts. Consumers and businesses also may change their behavior on their own as a result of these concerns. We, along with our customers, will need to respond to new or changing laws and regulations as well as consumer and business preferences resulting from climate change concerns. We may also face cost increases, asset value reductions, and operating process changes, among other impacts. In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans.

Our business reputation is important and any damage to it may have a material adverse effect on our business . Our reputation is very important for our business, as we rely on our relationships with our current, former, and potential clients and stockholders in the communities we serve. Any damage to our reputation, whether arising from regulatory, supervisory or enforcement actions, matters affecting our financial reporting or compliance with SEC and exchange listing requirements, negative publicity, our conduct of our business or otherwise may have a material adverse effect on our business.

As we expand outside our traditional geographic markets, we may encounter additional risks that may adversely affect us . Currently, the majority of our offices are located in California and Hawaii, but we also have branches or loan production offices in the greater New York City area, Chicago, Houston, Dallas, Tampa, and Seattle metropolitan areas, New Jersey, Colorado, Georgia, and Alabama. Over time, we may seek to establish offices in other parts of the United States as well. We may encounter significant risks, including unfamiliarity with the characteristics and business dynamics of new markets, increased marketing and administrative expenses and operational difficulties arising from our efforts to attract business in new markets, manage operations in noncontiguous geographic markets, comply with local laws and regulations and effectively, and consistently manage our non-California personnel and business. If we are unable to manage these risks, our operations may be materially and adversely affected.

Adverse conditions in South Korea or globally may adversely affect our business . A substantial number of our customers have economic and cultural ties to South Korea and, as a result, we are likely to feel the effects of adverse economic and political conditions there. If economic or political conditions in South Korea deteriorate, we may, among other things, be exposed to economic and transfer risk, and may experience an outflow of deposits by our customers with connections to South Korea. Transfer risk may result when an entity is unable to obtain the foreign exchange needed to meet its obligations or to provide liquidity. This may materially and adversely impact the recoverability of investments in or loans made to such entities. Adverse economic conditions in South Korea may also negatively impact asset values and the profitability and liquidity of our customers who operate in this region. In addition, a general overall decline in global economic conditions may materially and adversely affect our profitability and overall results of operations.

Legal and Regulatory Risks

Governmental regulation and regulatory actions against us may further impair our operations or restrict our growth. We are subject to significant governmental supervision and regulation. These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations, and policies for possible changes. Statutes and regulations affecting our business may be changed at any time and the interpretation of these statutes and regulations by examining authorities may also change. In addition, regulations may be adopted which increase our deposit insurance premiums and enact special assessments which could increase expenses associated with running our business and adversely affect our earnings.

There can be no assurance that such statutes and regulations, any changes thereto or to their interpretation will not adversely affect our business. In particular, these statutes and regulations, and any changes thereto, could subject us to additional costs (including legal and compliance costs), limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. In addition to governmental supervision and regulation, we are subject to changes in other federal and state laws, including changes in tax laws, which could materially affect us and the banking industry generally. We are subject to the rules, regulations of, and examination by the FRB, the FDIC, the DFPI, and the CFPB. In addition, we are subject to the rules and regulation of the Nasdaq Stock Market and the SEC and are subject to enforcement actions and other punitive actions by these agencies. If we fail to comply with federal and state regulations, the regulators may limit our activities or growth, impose fines on us or in the case of our bank regulators, ultimately require our bank to cease its operations. Bank regulations can hinder our ability to compete with financial services companies that are not regulated in the same manner or are less regulated. Federal and state bank regulatory agencies regulate many aspects of our operations. These areas include:

• the capital that must be maintained;

• the kinds of activities that can be engaged in;

• the kinds and amounts of investments that can be made;

• the locations of offices;

• insurance of deposits and the premiums that we must pay for this insurance;

• procedures and policies we must adopt;

• conditions and restrictions on our executive compensation; and

• how much cash we must set aside as reserves for deposits.

In addition, bank regulatory authorities have the authority to bring enforcement actions against banks and bank holding companies, including the Bank and Hope Bancorp, for unsafe or unsound practices in the conduct of their businesses or for violations of any law, rule or regulation, any condition imposed in writing by the appropriate bank regulatory agency or any written agreement with the authority. Enforcement actions against us could include a federal conservatorship or receivership for the bank, the issuance of additional orders that could be judicially enforced, the imposition of civil monetary penalties, the issuance of directives to enter into a strategic transaction, whether by merger or otherwise, with a third party, the termination of insurance of deposits, the issuance of removal and prohibition orders against institution-affiliated parties, and the enforcement of such actions through injunctions or restraining orders. In addition, as we are over $10 billion in assets, we are subject to enhanced CFPB examination and required to perform more comprehensive stress-testing on our business and operations.

We cannot predict whether or in what form any other proposed regulations or statutes will be adopted or the extent to which our business may be affected by any new regulation or statute. These changes become less predictable, yet more likely to occur, following the transition of power from one presidential administration to another. Any such changes could subject our business to additional costs, limit the types of financial services and products we may offer and increase the ability of non-banks to offer competing financial services and products, among other things. Moreover, the turnover of the presidential administration is expected to result in certain changes in the leadership and senior staffs of the federal banking agencies. Such changes are likely to impact the rulemaking, supervision, examination and enforcement priorities and policies of the agencies. In addition, changes in key personnel at the agencies that regulate such banking organizations, including the federal banking agencies, may result in differing interpretations of existing rules and guidelines and potentially different enforcement priorities than previously. The potential impact of any changes in agency personnel, policies, priorities, and interpretations on the financial services sector, including us, cannot be predicted.

We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations. The BSA, the USA PATRIOT Act of 2001, the Anti-Money Laundering Act of 2020, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue Service. We are also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control and compliance with the Foreign Corrupt Practices Act. If our policies, procedures, and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, on our ability to engage in expansionary activities, such as mergers and acquisitions, and restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could materially and adversely affect our business, financial condition, and results of operations.

SBA lending is an important part of our business. Our SBA lending program is dependent upon the federal government, and we face specific risks associated with originating SBA loans. Our SBA lending program is dependent upon the federal government. As an SBA Preferred Lender, we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process required for lenders that are not SBA Preferred Lenders. The SBA periodically reviews the lending operations of participating lenders to assess, among other things, whether the lender exhibits prudent risk management. When weaknesses are identified, the SBA may request corrective actions or impose enforcement actions, including revocation of the lender’s Preferred Lender status. If we lose our status as a Preferred Lender, we may lose some or all of our customers to lenders who are SBA Preferred Lenders, and as a result we could experience a material adverse effect to our financial results. Any changes to the SBA program, including changes to the level of guarantee provided by the federal government on SBA loans, may also have a material adverse effect on our business.

The sales of SBA 7(a) loans result in both premium income at the time of sale and a stream of future servicing income. We may not be able to continue originating these loans or selling them in the secondary market. Furthermore, even if we are able to continue originating and selling SBA 7(a) loans in the secondary market, we might not continue to realize premiums upon the sale of the guaranteed portion of these loans. When we sell the guaranteed portion of our SBA 7(a) loans, we incur credit risk on the non-guaranteed portion of the loans, and if a customer defaults on the non-guaranteed portion of a loan, we share any loss and recovery related to the loan pro-rata with the SBA. If the SBA establishes that a loss on an SBA guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was originated, funded or serviced by us, the SBA may seek recovery of the principal loss related to the deficiency from us, which could materially adversely affect our business, financial condition, results of operations, and prospects.

The laws, regulations and standard operating procedures that are applicable to SBA loan products may change in the future. We cannot predict the effects of these changes on our business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies and especially our organization, changes in the laws, regulations and procedures applicable to SBA loans could adversely affect our ability to operate profitably .

Environmental laws may force us to pay for environmental problems . The cost of cleaning up or paying damages and penalties associated with environmental problems may increase our operating expenses. When a borrower defaults on a loan secured by real property, we often purchase the property in foreclosure or accept a deed to the property surrendered by the borrower. We may also take over the management of commercial properties whose owners have defaulted on loans. We also lease premises where our branches and other facilities are located, all where environmental problems may exist. Although we have lending, foreclosure and facilities guidelines that are intended to exclude properties with an unreasonable risk of contamination, hazardous substances may exist on some of the properties that we own, lease, manage or occupy. We may face the risk that environmental laws may force us to clean up the properties at our expense. The cost of cleaning up a property may exceed the value of the property. We may also be liable for pollution generated by a borrower’s operations if we take a role in managing those operations after a default. We may find it difficult or impossible to sell contaminated properties.

Changes in accounting standards may affect how we record and report our financial condition and results of operations . Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time, the Financial Accounting Standards Board and SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes and their impacts on us can be hard to predict and may result in unexpected and materially adverse impacts on our reported financial condition and results of operations.

Financial and Market Risks

We may reduce or discontinue the payment of dividends on common stock. Our stockholders are only entitled to receive such dividends as our board of directors (the “Board”) may declare out of funds legally available for such payments. Although we have historically declared cash dividends on our common stock, we are not required to do so and may need to reduce or eliminate our common stock dividend in the future. Our ability to pay dividends to our stockholders is subject to the restrictions set forth in Delaware law, by the FRB, and by certain covenants contained in our subordinated debentures. Notification to the FRB is also required prior to our declaring and paying a cash dividend to our stockholders during any period in which our quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. We may not pay a dividend if the FRB objects or until such time as we receive approval from the FRB or we no longer need to provide notice under applicable regulations. In addition, we often rely on cash distributions from the Bank to fund dividends to our stockholders. The Bank’s ability to make cash distributions to Hope Bancorp is subject to the restrictions set forth under the California Financial Code and would also be subject to prior approval or restriction by the DFPI if the distribution by the Bank exceeds the lesser of (a) the retained earnings of the Bank or (b) three fiscal years net income, less distributions made by the Bank during such period. We cannot provide assurance that the Bank will be able to continue making cash distributions to Hope Bancorp, which could in turn, affect our ability to continue paying dividends on our common stock. The Bank may not be able to distribute cash to us if the DFPI objects or until such time as the Bank receives approval from the DFPI or the Bank no longer needs to obtain approval under applicable regulations. Further, the Bank may be restricted by applicable law or regulation or actions taken by its regulators, now or in the future, from making cash distributions to Hope Bancorp, which could, in turn, adversely impact our ability to pay dividends to our stockholders. Likewise, we may be restricted by applicable law or regulation or actions taken by our regulators, now or in the future, from paying dividends to our stockholders. Lastly, we cannot provide assurance that we will continue paying dividends on our common stock at current levels or at all. A reduction or discontinuation of dividends on our common stock could have a material adverse effect on our business, including the market price of our common stock.

The value of our securities in our investment portfolio may decline in the future. The fair value of our investment securities may be adversely affected by market conditions, including changes in interest rates, implied credit spreads, and the occurrence of any events adversely affecting the issuer of particular securities in our investments portfolio or any given market segment or industry in which we are invested. We analyze our securities available for sale on a quarterly basis to determine if there is a requirement to recognize current expected credit losses. The process for determining current expected credit losses usually requires complex, subjective judgments about the future financial performance of the issuer in order to assess the probability of receiving all contractual principal and interest payments sufficient to recover our amortized cost of the security. Because of changing economic and market conditions affecting issuers, we may be required to recognize credit losses in future periods, which could have a material adverse effect on our business, financial condition, or results of operations.

If we fail to maintain an effective system of internal controls and disclosure controls and procedures, we may not be able to accurately report our financial results or prevent fraud . Effective internal control over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial reports, effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and business would be harmed. In addition, failure in our internal control over financial reporting and disclosure controls and procedures could cause us to fail to meet the continued listing requirements of the Nasdaq Global Select Market and, as a result, adversely impact the liquidity and trading price of our securities.

Anti-takeover provisions in our charter documents and applicable federal and state law may limit the ability of another party to acquire us, which could cause our stock price to decline. Various provisions of our charter documents could delay or prevent a third-party from acquiring us, even if doing so might be beneficial to our stockholders. These include, among other things, advance notice requirements to submit stockholder proposals at stockholder meetings and the authorization to issue “blank check” preferred stock by action of the Board acting alone, thus without obtaining stockholder approval. In addition, applicable provisions of federal and state banking law require regulatory approval in connection with certain acquisitions of our common stock and supermajority voting provisions in connection with certain transactions. In particular, both federal and state law limit the acquisition of ownership of, generally, 10% or more of our common stock without providing prior notice to the regulatory agencies and obtaining prior regulatory approval or non-objection or being able to rely on an exemption from such requirement. We are also subject to Section 203 of the Delaware General Corporation Law that, subject to exceptions, prohibits us from engaging in any business combinations with any interested stockholder, as defined in that section, for a period of three years following the date on which that stockholder became an interested stockholder. Collectively, these provisions of our charter documents and applicable federal and state law may prevent a merger or acquisition that would be attractive to stockholders and could limit the price investors would be willing to pay in the future for our common stock.

Our common stock is not insured and you could lose the value of your entire investment. An investment in our common stock is not a deposit and is not insured against loss by any government agency.

General Risk Factors

Our common stock is equity and therefore is subordinate to indebtedness and preferred stock. Our common stock constitutes equity interests and does not constitute indebtedness. As such, common stock will rank junior to all current and future indebtedness and other non-equity claims on us with respect to assets available to satisfy claims against us, including in the event of our liquidation. We may, and the Bank and our other subsidiaries may also, incur additional indebtedness from time to time and may increase our aggregate level of outstanding indebtedness. Additionally, holders of common stock are subject to the prior dividend and liquidation rights of any holders of our preferred stock that may be outstanding from time to time. The Board is authorized to cause us to issue additional classes or series of preferred stock without any action on the part of our stockholders. If we issue preferred shares in the future that have a preference over our common stock with respect to the payment of dividends or upon liquidation, or if we issue preferred shares with voting rights that dilute the voting power of the common stock, then the rights of holders of our common stock or the market price of our common stock could be materially adversely affected.

We may raise additional capital, which could have a dilutive effect on the existing holders of our common stock and adversely affect the market price of our common stock. We periodically evaluate opportunities to access capital markets, taking into account our financial condition, regulatory capital ratios, business strategies, anticipated asset growth and other relevant considerations. It is possible that future acquisitions, organic growth, or changes in regulatory capital requirements could require us to increase the amount or change the composition of our current capital, including our common equity. For all of these reasons and others, and always subject to market conditions, we may issue additional shares of common stock or other capital securities in public or private transactions.

The issuance of additional common stock, debt, or securities convertible into or exchangeable for our common stock or that represent the right to receive common stock, or the exercise of such securities, could be substantially dilutive to holders of our common stock. Holders of our common stock have no preemptive or other rights that would entitle them to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in dilution of the ownership interests of our stockholders.

Climate change concerns could adversely affect our business and our customers. Concerns over the long-term impacts of climate change have led and could continue to lead to governmental efforts around the world to mitigate those impacts. Climate change presents multi-faceted risks, including operational risk from the physical effects of climate events on us; credit risk from borrowers with significant exposure to climate risk; transition risks associated with the transition to a less carbon-dependent economy; and reputational risk from stakeholder concerns about our practices related to climate change. Consumers and businesses are changing their behavior and business preferences as a result of these concerns. New governmental regulations or guidance relating to climate change, as well as changes in consumers’ and businesses’ behaviors and business preferences, may affect whether and on what terms and conditions we will engage in certain activities or offer certain products or services. The governmental and supervisory focus on climate change could also result in our becoming subject to new or heightened regulatory requirements relating to climate change, such as requirements relating to operational resiliency or stress testing for various climate stress scenarios. Any such new or heightened requirements could result in increased regulatory, compliance or other costs or higher capital requirements. In connection with the transition to a low carbon economy, legislative or public policy changes and changes in consumer sentiment could negatively impact the businesses and financial condition of our clients, which may decrease revenues from those clients and increase the credit risk associated with loans and other credit exposures to those clients. Our business, reputation, and ability to attract and retain employees may also be harmed if our response to climate change is perceived to be ineffective or insufficient.

We may be adversely affected by the lack of soundness of other financial institutions. The failures of some depository institutions in 2023 have raised concerns among depositors that their deposits may be at risk. While we believe the Bank is operated in a safe and sound manner, a market-wide loss of depositor confidence caused by the failures, or the perceived unsoundness, of other depository institutions could lead to deposit outflows at the Bank, potentially at levels that could materially and adversely affect our business, financial condition, results of operations and stock price.

Our ability to engage in routine funding transactions could be adversely affected by the actions and lack of soundness of other financial institutions. Financial services companies may be interrelated as a result of trading, clearing, counterparty, and other relationships. We have exposure to different industries and counterparties, and through transactions with counterparties in the financial services industry, including broker-dealers, commercial banks, investment banks, and other financial intermediaries. As a result, defaults by declines in the financial condition of, or even rumors or questions about, one or more financial services companies, or the financial services industry in general, could lead to market-wide liquidity problems and losses or defaults by financial institutions. These losses could have a material and adverse effect on our business, financial condition, results of operations and stock price.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our Consolidated Financial Statements and accompanying notes presented elsewhere in this Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under Item 1A “Risk Factors” and elsewhere in this Report. Please see the “Forward Looking Information” immediately preceding Part I of this Report.

Overview

Our principal business involves earning interest on loans and investment securities that are funded primarily by customer deposits, wholesale deposits, and other borrowings. Our operating income and net income are derived primarily from the difference between interest income received from interest earning assets and interest expense paid on interest bearing liabilities and, to a lesser extent, from fees received in connection with servicing loan and deposit accounts and income from the sale of loans. Our major expenses are the interest we pay on deposits and borrowings, provisions for credit losses, and general operating expenses, which primarily consist of salaries and employee benefits, occupancy costs, and other operating expenses. Interest rates are highly sensitive to many factors that are beyond our control, such as changes in the national economy and in the related monetary policies of the FRB, inflation, unemployment, consumer spending, and political changes and events. We cannot predict the impact that these factors and future changes in domestic and foreign economic and political conditions might have on our performance.

Our results are affected by economic conditions in our markets and to a lesser degree in South Korea. A decline in economic and business conditions in our market areas or in South Korea may have a material adverse impact on the quality of our loan portfolio or the demand for our products and services, which in turn may have a material adverse effect on our financial condition and results of operations.

The Company completed its acquisition of Honolulu-based Territorial, the holding company of Territorial Savings Bank, effective April 2, 2025. With the acquisition of Territorial Savings, a division of Bank of Hope, the Company became the largest regional bank catering to multicultural customers across the continental United States and Hawaii.

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, 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.

As of or For The Year Ended December 31,

(Dollars in thousands, except share and per share data)

Income Statement Data:

Interest income

Interest expense

Net interest income

Provision (credit) for credit losses

Net interest income after provision (credit) for credit losses

Noninterest income

Noninterest expense

Income before income tax provision

Income tax provision

Net income

Net income, excluding notable items (1)

Per Common Share Data:

Earnings — basic

Earnings — diluted

Earnings — diluted, excluding notable items (1)

Cash dividends declared

Book value (period end)

Tangible common equity (“TCE”) per share (period end) (1)

Number of common shares outstanding (period end)

Balance Sheet Data—At Period End:

Total assets

Interest earning cash and deposits at other banks

Investment securities AFS and HTM

Loans receivable, net of unearned loan fees and discounts (excludes loans held for sale)

Deposits

FHLB and FRB borrowings

Convertible notes, net

Subordinated debentures

Stockholders’ equity

Average Balance Sheet Data:

Total assets

Interest earning cash and deposits at other banks

Investment securities AFS and HTM

Loans receivable and loans held for sale

Deposits

FHLB and FRB borrowings

Stockholders’ equity

As of or For The Year Ended December 31,

(Dollars in thousands)

Selected Performance Ratios:

Return on average assets (“ROA”) (2)

Return on average stockholders’ equity (“ROE”) (3)

Return on average tangible common equity (“ROTCE”) (1)

Dividend payout ratio

Net interest margin (4)

Yield on interest earning assets (5)

Cost of interest bearing liabilities (6)

Efficiency ratio (7)

ROA excluding notable items (1)

ROE excluding notable items (1)

ROTCE excluding notable items (1)

Efficiency ratio excluding notable items (1) (7)

Regulatory Capital Ratios:

Tangible common equity (“TCE”) ratio (1)

Hope Bancorp: (8)

Common equity tier 1

Tier 1 capital

Total capital

Tier 1 leverage

Bank of Hope:

Common equity tier 1

Tier 1 capital

Total capital

Tier 1 leverage

As of or For The Year Ended December 31,

(Dollars in thousands)

Asset Quality Data:

Nonaccrual loans (9)

Accruing delinquent loans past due 90 days or more

Accruing troubled debt restructured loans (10)

Total nonperforming loans

Other real estate owned

Total nonperforming assets (11)

Asset Quality Ratios:

Nonaccrual loans to loans receivable

Nonperforming assets to total assets (11)

Allowance for credit losses to loans receivable

Allowance for credit losses to nonaccrual loans

Net charge-offs (recoveries) to average loans receivable

(1)     Net income excluding notable items, earnings per common share - diluted excluding notable items, TCE per share, ROTCE, ROA excluding notable items, ROE excluding notable items, ROTCE excluding notable items, efficiency ratio excluding notable items, and TCE ratio are non-GAAP financial measures that we believe provide investors with information useful in understanding our operating results and financial condition. A quantitative reconciliation of the most directly comparable GAAP to non-GAAP financial measures is provided on the following pages.

(2)     Net income divided by average assets.

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

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

(5)     Interest income divided by average interest earning assets.

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

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

(8)     The ratios generally required to meet the definition of a “well-capitalized” financial institution under certain banking regulations are 5.0% leverage capital ratio, 6.5% common equity tier 1 capital ratio, 8.0% tier 1 capital ratio, and 10.0% total capital ratio.

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

(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.

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

Non-GAAP Financial Measurements

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.

Tangible book value per common share is calculated by subtracting goodwill and core deposit intangible assets from total stockholders’ equity, then dividing the difference by the number of shares of common stock outstanding. TCE ratio is calculated by subtracting goodwill and core deposit intangible assets from total stockholders’ equity, then dividing the difference by total assets after subtracting goodwill and core deposit intangible assets.

December 31,

(Dollars in thousands, except share data)

Total stockholders’ equity

Less: Goodwill and CDI, net

TCE (1)

Total assets

Less: Goodwill and CDI, net

Tangible assets (1)

Common shares outstanding

Tangible book value per common share (1)

TCE ratio (1)

Return on average tangible common equity is calculated by dividing net income for the period by average stockholders’ equity for the period after subtracting average goodwill and core deposit intangible assets for the period from average stockholders’ equity.

Year Ended December 31,

(Dollars in thousands)

Net income

Average stockholders’ equity

Less: Average goodwill and CDI, net

Average TCE (1)

ROTCE (1)

(1) Non-GAAP financial measures.

During the years ended December 31, 2025, 2024 and 2023, our operating results included certain notable items as a result of the Merger with Territorial, our investment securities repositioning, strategic restructuring, the change in the California state tax apportionment rate, and other items. The following table summarizes the impact of non-core notable items recorded for the periods indicated and reconciles them to the most directly comparable GAAP financial measure. There were no notable items for the years ended December 31, 2022 and 2021.

Year Ended December 31,

(Dollars in thousands)

Net income

Notable items:

Merger-related provision for credit losses

Loss on investment portfolio repositioning

Net gain on branch sales

FDIC special assessment (reversal) expense

Merger and restructuring-related costs

Total notable items included in pre-tax income

Tax effect on notable items in pre-tax income

Notable impact from California state tax apportionment law change

Total notable items, net of tax

Net income excluding notable items (1)

Diluted common shares

EPS excluding notable items (1)

Average assets

ROA excluding notable items (1)

Average equity

ROE excluding notable items (1)

Average TCE (1)

ROTCE excluding notable items (1)

Year Ended December 31,

(Dollars in thousands)

Noninterest expense

Notable items:

FDIC special assessment reversal (expense)

Merger and restructuring-related costs

Noninterest expense excluding notable items (1)

Revenue (net interest income before provision for credit losses and noninterest income)

Notable items:

Loss on investment portfolio repositioning

Net gain on branch sales

Revenue excluding notable items (1)

Efficiency ratio excluding notable items (1)

(1) Non-GAAP financial measures.

Critical Accounting Policies

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and generally accepted practices within the banking industry. The financial information contained within these statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred. All of our significant accounting policies are described in Note 1 of our Notes to Consolidated Financial Statements presented elsewhere in this Report and are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may materially and adversely differ from these estimates under different assumptions or conditions.

The following is a summary of the more subjective and complex accounting estimates and judgments affecting the financial condition and results reported in our financial statements. In each area, we have identified the variables we believe to be the most important in the estimation process. We use the best information available to us to make the estimations necessary to value the related assets and liabilities in each of these areas. Management has reviewed these critical accounting estimates and related disclosures with our Audit Committee.

Investment Securities

Description - We evaluate investment securities AFS and HTM for impairment related to credit losses on at least a quarterly basis. Based on our evaluation, we do not believe that we had any investment securities AFS or HTM with a credit loss impairment as of December 31, 2025. Investment securities are discussed in more detail under “Financial Condition - Investment Securities Portfolio.”

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

The investment securities HTM as of December 31, 2025, were all issued by the U.S. government or government-sponsored enterprises and therefore the Company applied a zero credit loss assumption.

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

Allowance for Credit Losses

Description - The allowance for credit losses is maintained at a level believed to be adequate by management to absorb expected lifetime credit losses in the loan portfolio as of the date of the consolidated financial statements. The adequacy of the allowance for credit losses is determined by management based upon an evaluation and review of the credit quality of the loan portfolio, consideration of current and projected economic conditions and variables, historical loss experience, relevant internal and external factors that affect the collection of a loan, and other pertinent factors.

The allowance for credit losses is discussed in more detail under “Financial Condition - Allowance for Credit Losses.”

Subjective Estimates and Judgments - We determine the adequacy of the allowance for credit losses by analyzing and estimating lifetime expected credit losses in the loan portfolio. The allowance for credit losses is determined utilizing quantitative and qualitative loss factors.

Included in the quantitative portion of our analysis of the allowance for credit losses are key inputs including borrowers’ net operating income, debt coverage ratios, and real estate collateral values, as well as key inputs that are more subjective or require management’s judgment including key macroeconomic variables from Moody’s forecast scenarios including GDP, unemployment rates, interest rates, and commercial real estate prices. These key inputs are utilized in our models to develop probability of default (“PD”) and loss given default (“LGD”) assumptions used in the calculation of estimated quantitative losses. The key macroeconomic variables were derived from Moody’s consensus scenario as of December 31, 2025 and 2024.

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.

Moody's consensus projected key macroeconomic variable inputs as of December 31, 2025:

Year Ending December 31,

GDP Growth*

Unemployment Rate

CRE Price Index Growth*

10 Year Treasury Rate

* Represents year over year growth rates.

Moody's consensus projected key macroeconomic variable inputs as of December 31, 2024:

Year Ending December 31,

GDP Growth*

Unemployment Rate

CRE Price Index Growth*

10 Year Treasury Rate

* Represents year over year growth rates.

In addition to an estimate of quantitatively derived losses, our allowance for credit losses also includes an estimate of qualitatively derived losses to account for risks not fully captured by the quantitative calculation of estimated credit losses. At December 31, 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.

Impact if Actual Results Differ From Estimates and Judgments - Adverse changes in management’s assessment of the assumptions and key inputs used to determine the allowance for credit losses could lead to increases in the allowance for credit losses through additional provisions for credit losses. If actual losses and conditions differ materially from the assumptions used to determine the allowance for credit losses, our actual credit losses could differ materially from management’s estimates.

Moody’s consensus forecast assumes that the probability that the economy will perform better than the consensus estimates is equal to the probability that it will perform worse. A sensitivity analysis of our allowance for credit losses was performed by estimating credit losses using the Moody’s S2 scenario as of December 31, 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.

While management believes that it has established adequate allowances for lifetime credit losses on loans, actual results may prove different, and the differences could be material.

Goodwill

Description - Goodwill is generally determined as the excess of the fair value of the consideration paid over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill recorded in a purchase business combination is determined to have an indefinite useful life and is not amortized but tested for impairment at least annually. Goodwill may also be tested for impairment on an interim basis if circumstances change or an event occurs between annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The Company is managed as a single combined operating segment. An impairment loss must be recognized for any excess of carrying value over fair value of the goodwill.

Subjective Estimates and Judgments - Before applying the goodwill impairment test, in accordance with ASC 350 “Intangibles - Goodwill and Other”, we perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, we do not perform Step 1 of the impairment analysis. We assess certain qualitative factors to determine whether impairment is likely including: our market capitalization, capital adequacy, continued performance compared to peers, and continued improvement in asset quality trends, among others. This qualitative assessment can be subjective in nature and includes a certain amount of management judgment in determining whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount.

In the event we perform an impairment test, the determination of fair value is based on a combination of valuation techniques which include the income approach using the discounted cash flow method and market approach using the guideline public company method and guideline transaction method. These valuation approaches incorporate management assumptions and estimates including developing cash flow projections, selecting appropriate discount rates, calculation of a terminal growth rate, minimum target capitalization levels, identifying relevant market comparables, incorporating current and projected economic conditions, and selecting an appropriate control premium.

Impact if Actual Results Differ From Estimates and Judgments - Changes in qualitative factors assessed, changes to assumptions used in the impairment test, selection and weighting of the various fair value techniques, and downturns in economic or business conditions, could have a significant adverse impact on the carrying value of goodwill and could result in impairment losses which could have a material impact in our financial condition and earnings. We 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.

Goodwill is discussed in more detail in Note 6 to our Notes to Consolidated Financial Statements presented in this Report.

Income Taxes

Description - We use the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of our asset and liabilities. The realization of the net deferred tax asset generally depends upon future levels of taxable income and the existence of prior years’ taxable income, to which “carry back” refund claims could be made. A valuation allowance is maintained, when necessary, to reduce deferred tax assets that management estimates are more likely than not to be unrealizable based on available evidence at the time the estimate is made. Furthermore, tax positions that could be deemed uncertain are required to be disclosed and reserved for if it is more likely than not that the position would not be sustained upon audit examination. Taxes are discussed in more detail in Note 18 to our Notes to Consolidated Financial Statements presented in this Report.

Subjective Estimates and Judgments - Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities. Some judgments are subjective and involve estimates and assumptions about matters that are inherently uncertain. In determining the valuation allowance, we use historical and forecasted future operating results. In determining the level of reserve needed for uncertain tax positions, we consider relevant current legislation and court rulings, among other authoritative items, to determine the level of exposure inherent in our tax positions. Management believes that the accounting estimate related to the valuation allowance and uncertain tax positions are a critical accounting estimate because the underlying assumptions can change from period to period.

Impact if Actual Results Differ From Estimates and Judgments - Although management believes that the judgments and estimates used are reasonable, should actual factors and conditions differ materially from those considered by management, the actual realization of the net deferred tax asset and tax positions taken could differ materially from the amounts recorded in the financial statements. If we are not able to realize all or part of our net deferred tax asset in the future or if a tax position is overturned by a taxing authority, an adjustment to the deferred tax asset valuation allowance would be charged to income tax expense in the period such determination was made which could have a material impact on our earnings.

Business Combinations

Description - We account for business combinations using the purchase method of accounting in accordance with FASB ASC Topic 805, Business Combinations, which requires assets acquired and liabilities assumed to be recognized at fair value as of the acquisition date. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Significant estimates and judgments are involved in the fair valuation process. Loans acquired through business combinations have historically comprised the majority of purchase accounting adjustments in arriving at the fair values of acquired assets and liabilities. Loans acquired in a business combination are recorded at fair value with no carry-over of any allowance for credit losses. With our early adoption of ASU 2025-08 in 2025, loans are categorized as Purchase Credit Deteriorated (“PCD”) or Purchased Seasoned Loans (“PSL”). PCD loans are defined as loans that have experienced more than insignificant credit deterioration since origination and PSL loans are defined as non-PCD loans that are 1) are obtained in an asset acquisition or upon consolidation of a variable interest entity that is not a business and 2) are acquired more than 90 days after their origination date by a transferee that was not involved in their origination. All other acquired loans are categorized as non-PCD loans.

Subjective Estimates and Judgments - Significant judgment is involved in determining the fair value of loans acquired in a business combination. Determining the fair value of acquired loans involves estimating the principal and interest cash flows expected to be collected and discounting the cash flows at a market rate of interest. Management considers a number of factors in evaluating the fair value of acquired loans including the remaining life of the acquired loans, current and historical delinquency status, probability of default, estimated prepayments, foreclosure lag, risk rating, estimated value of the underlying collateral, and interest rate environment.

Impact if Actual Results Differ From Estimates and Judgments - Changes in management’s assumptions can have a material impact on the estimated fair value of acquired loans, and as a result, goodwill or bargain purchase gain recorded in a business combination.

Business Combinations is discussed in more detail in Note 19 to our Notes to Consolidated Financial Statements presented in this Report.

Results of Operations

Operations Summary

Our most significant source of income is net interest income, which is the difference between our interest income and our interest expense. Generally, interest income is generated from the loans we extend to our customers, our investments and interest earning cash, and interest expense is generated from interest bearing deposits our customers have with us and from our borrowings or debt. Our ability to generate profitable levels of net interest income is largely dependent on our ability to manage the levels of interest earning assets and interest bearing liabilities, and the rates received or paid on them, as well as our ability to maintain sound asset quality and appropriate levels of capital and liquidity. As mentioned above, interest income and interest expense may fluctuate based on factors beyond our control, such as economic or political conditions and policies.

We attempt to minimize the effect of interest rate fluctuations on net interest margin by monitoring our interest sensitive assets and our interest sensitive liabilities. Net interest income can be affected by a change in the composition of assets and liabilities, such as replacing higher yielding loans with a like amount of lower yielding investment securities. Changes in the level of nonaccrual loans and changes in volume and interest rates can also affect net interest income.

Our other source of income is noninterest income, including service charges and fees on deposit accounts, net gains on sale of loans that were held for sale and investment securities AFS, and other income and fees.

Our expenses consist of interest expense, the provisions for credit losses, and noninterest expenses, which are primarily salaries and benefits and occupancy expense. The following table presents our Condensed Consolidated Statements of Income and the changes year over year.

Year Ended December 31, 2025

Increase

(Decrease)

Year Ended December 31, 2024

Increase

(Decrease)

Year Ended December 31, 2023

Amount

Amount

(Dollars in thousands)

Interest income

Interest expense

Net interest income

Provision for credit losses

Noninterest income

Noninterest expense

Income before income tax provision

Income tax provision

Net income

Net Income

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.

See the “Overview” section of this MD&A for a reconciliation of GAAP to non-GAAP financial measures.

Net Interest Margin and Net Interest Rate Spread

We analyze our earnings performance using, among other measures, net interest spread and net interest margin. The net interest spread represents the difference between the weighted average yield earned on interest earning assets and the weighted average rate paid on interest bearing liabilities. Net interest income, when expressed as a percentage of average total interest earning assets, is referred to as the net interest margin. Our net interest margin is affected by changes in the yields earned on assets and rates paid on liabilities, as well as the ratio of the amounts of interest earning assets to interest bearing liabilities.

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

The following tables present our consolidated daily average balance of major assets and liabilities, together with interest rates earned and paid on the various sources and uses of funds for the periods indicated:

Year Ended December 31,

Average

Balance

Interest

Income/

Expense

Average

Yield/

Rate

Average

Balance

Interest

Income/

Expense

Average

Yield/

Rate

Average

Balance

Interest

Income/

Expense

Average

Yield/

Rate

(Dollars in thousands)

INTEREST EARNING ASSETS:

Loans (1) (2)

Investment securities AFS and HTM  (3)

Interest earning cash and deposits at other banks

FHLB stock and other investments

Total interest earning assets

Total noninterest earning assets

Total assets

INTEREST BEARING LIABILITIES:

Deposits:

Money market, interest bearing demand and savings deposits

Time deposits

Total interest bearing deposits

FHLB and FRB borrowings

Convertible notes, net

Subordinated debentures, net

Total interest bearing liabilities

Noninterest bearing liabilities and equity:

Noninterest bearing demand deposits

Other liabilities

Stockholders’ equity

Total liabilities and stockholders’ equity

Net interest income

Net interest margin

Net interest spread (4)

Cost of funds (5)

Cost of deposits

(1)     Interest income on loans includes accretion of net deferred loan origination fees and costs, prepayment fees received on loan payoffs and accretion of discounts on acquired loans. See the table below for detail.

(2)     Average balances of loans are net of deferred loan origination fees and costs and include nonaccrual loans and loans held for sale.

(3)     Interest income and yields are not presented on a tax-equivalent basis.

(4)     Yield on interest earning assets minus cost of interest bearing liabilities.

(5)     Cost on interest bearing liabilities and noninterest bearing deposits.

The following table presents net loan origination fees, loan prepayment fee income, interest reversed for nonaccrual loans, and discount accretion income included as part of loan interest income for the years indicated:

Year Ended December 31,

Net Loan Origination Fees (Costs)

Loan Prepayment Fee Income

Interest Reversed for Nonaccrual Loans, Net of Income Recognized

Accretion of Discounts on Acquired Loans

(Dollars in thousands)

The following table summarizes the accretion and amortization adjustments resulting from the Merger with Territorial that were included in net interest income for the twelve months ended months ended December 31, 2025 and 2024:

Year Ended December 31,

(Dollars in thousands)

Accretion of discount on acquired loans

Amortization of net premium on assumed time deposits

Accretion of discount on assumed FHLB advances

Total

Net Interest Income

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.

Year Ended December 31,

2025 Compared with 2024

2024 Compared with 2023

Net Increase (Decrease)

Change due to

Net Increase (Decrease)

Change due to

Rate

Volume

Rate

Volume

(Dollars in thousands)

INTEREST INCOME:

Loans, including fees

Investment securities AFS and HTM

Interest earning cash and deposits at other banks

FHLB stock and other investments

TOTAL INTEREST INCOME

INTEREST EXPENSE:

Money market, interest bearing demand and savings deposits

Time deposits

FHLB and FRB borrowings

Convertible notes, net

Subordinated debentures, net

TOTAL INTEREST EXPENSE

NET INTEREST INCOME

Net interest income before provision for credit losses increased by $44.4 million, or 10%, for 2025 compared with 2024. The increase in net interest income was primarily driven by a lower cost of funds and an increase in the average balance of loans, partially offset by a lower yield on loans and an increase in the average balance of deposits. As of December 31, 2025, the Federal Funds target rate was cut by an aggregate 175 basis points since September 2024, impacting average yields and rates for 2025 compared with 2024.

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.

Interest Income

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 .

Comparison of 2025 with 2024

The decrease in interest income of $12.8 million, or 1.3%, for 2025 compared with 2024 was primarily driven by a lower yield on loans and a lower average balance and yield on cash and deposits at other banks, partially offset by an increase in the average balance of loans and a higher yield on investment securities. The decreases in yields on loans and cash and deposits at other banks were driven by a decline in market interest rates during the period. The increase in yield on investment securities was a result of a strategic repositioning we executed in June 2025, wherein part of the investment securities portfolio was sold and the funds reinvested in higher yielding investment securities.

Comparison of 2024 with 2023

The decrease in interest income of $94.9 million, or 9.0%, for 2024 compared with 2023 was primarily driven by lower average balances of loans and cash and deposits at other banks, offset partially by expanding yields of interest earnings assets.

Interest Expense

Deposits

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.

Comparison of 2025 with 2024

The decrease in interest expense on total deposits of $38.2 million, or 8%, for 2025 compared with 2024 was due to a lower cost of interest bearing deposits, and a lower average balance and rate on FHLB and FRB borrowings. The decrease in the cost of funds was driven by a decline in market interest rates during the period.

Comparison of 2024 with 2023

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

FHLB and FRB Borrowings

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.

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.

Convertible Notes

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.

During the year ended December 31, 2023, we repurchased our notes in the aggregate principal amount of $19.9 million and recorded a gain on debt extinguishment of $405 thousand. The repurchased notes were immediately cancelled subsequent to repurchase. On May 15, 2023, most holders of our convertible notes exercised their right to put their notes and therefore we paid off $197.1 million of convertible note principal in cash. There were no repurchases or put options exercised for the years ended December 31, 2025 and 2024.

Subordinated Debentures

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.

Provision for Credit Losse s

The provision for credit losses reflects management’s assessment of the current period cost associated with credit risk inherent in the loan portfolio. The provision for credit losses for each period includes provision for credit losses on loans and provision for unfunded loan commitments. Provision for credit losses on loans is dependent upon many factors, including loan growth, net charge offs, changes in the composition of the loan portfolio, delinquencies, assessments by management, examinations of the loan portfolio, the value of the underlying collateral on problem loans, the general economic conditions in our market areas, and future projections of the economy. Specifically, the provision for credit losses on loans represents the amount charged against current period earnings to achieve an allowance for credit losses that, in management’s judgment, is adequate to absorb probable lifetime losses inherent in the loan portfolio. Provision for unfunded loan commitments is based on the estimated future funding of loan commitments. Periodic fluctuations in the provision for credit losses result from management’s assessment of the adequacy of the allowance for credit losses and allowance for unfunded loan commitments, and actual credit losses may vary in material respects from current estimates. If the allowances for credit losses are inadequate, we may be required to record additional provisions, which may have a material and adverse effect on business, financial condition, and results of operations .

Comparison of 2025 with 2024

The provision for credit losses on loans was $31.2 million for 2025, an increase of $12.8 million from $18.4 million for 2024. The increase in provision for credit losses was primarily due to an $11.0 million increase in provision for credit loss on loans for residential mortgage loans for the year ended December 31, 2025 compared to the year ended December 31, 2024. Provision for credit loss on residential mortgage loans increased in 2025 compared to 2024 due to ACL model enhancements made in 2024 which resulted in an $8.4 million reversal of provision for credit loss on residential mortgage loans for the year ended December 31, 2024 compared to $2.6 million in provision or credit loss on residential mortgage loans for the year ended December 31, 2025. The allowance for credit losses coverage ratio was 1.07% of loans receivable at December 31, 2025, compared with 1.11% at December 31, 2024.

Comparison of 2024 with 2023

The provision for credit losses on loans was $18.4 million for 2024, a decrease of $10.7 million from $29.1 million for 2023. The decrease in provision for credit losses was primarily due to a decrease of $12.3 million in provision for credit loss on loans on residential mortgage loans and a decrease of $2.7 million in provision for credit losses on CRE loans, offset partially by an increase of $4.6 million in provision for credit loss on loans on C&I loans. The decline in provision for credit loss on loans for residential mortgage loans was due to ACL model enhancements made during the second quarter of 2024, which contributed to the reversal of provision for credit loss on loans of $8.4 million for residential mortgage loans for the year ended December 31, 2024. The increase in provision for credit loss on loans for C&I loans was due to an increase in criticized C&I loans as of December 31, 2024, compared with December 31, 2023. The allowance for credit losses coverage ratio was 1.11% of loans receivable at December 31, 2024, compared with 1.15% at December 31, 2023.

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 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.

A breakdown of noninterest income by category is shown below:

Year Ended December 31, 2025

Increase (Decrease)

Year Ended December 31, 2024

Increase (Decrease)

Year Ended December 31, 2023

Amount

Amount

(Dollars in thousands)

Service fees on deposit accounts

International service fees

Wire transfer and foreign currency fees

Swap fees

Net gains on sales of SBA loans

Net (losses) gains on sales of investment securities AFS

Net gain on branch sales

Other income and fees

Total noninterest income

Comparison of 2025 with 2024

The decrease in noninterest income for 2025 compared with 2024 was primarily attributable to net losses on sales of investment securities AFS, due to a securities portfolio repositioning in June 2025, partially offset by higher net gains on sales of SBA loans, swap fee income, and other income and fees. Noninterest income for 2025 included $38.9 million of losses on investment securities AFS related to the securities portfolio repositioning, which we consider a notable item. See the “Overview” section of this MD&A for a reconciliation of GAAP to non-GAAP financial measures.

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.

The net losses on sales of investment securities AFS for 2025 were primarily attributable to the strategic repositioning of a part of our investment securities AFS portfolio in June 2025. We sold securities AFS with a fair value of $417.9 million, consisting of lower-yielding collateralized mortgage obligations, mortgage-backed, corporate, and municipal securities, and recorded realized losses of $38.9 million. Net proceeds from these sales were redeployed to purchase higher-yielding investment securities. During the year ended December 31, 2024, we sold $276.3 million in fair value of investment securities AFS at a net gain of $936 thousand.

Other income and fees increased for 2025 compared with 2024, primarily due to increases in earnings from BOLI, fair value adjustments on equity investments, and net gains on sale of other loans.

Comparison of 2024 with 2023

The increase in noninterest income for 2024 compared with 2023 was primarily attributable to higher net gains on sales of SBA loans, net gain on branch sales and gains on sales of securities AFS and service fees on deposit accounts, and partially offset by a decrease in other income and fees.

Service fees on deposit accounts increased for 2024 compared with 2023 due to increases in business analysis fees and non-sufficient funds fees.

During the year ended December 31, 2024, we sold $119.6 million in SBA guaranteed loans and recorded $7.8 million in net gains on sale of SBA loans. During the year ended December 31, 2023, we sold $79.1 million in SBA guaranteed loans and recorded $4.1 million in net gains on sale of SBA loans. The Bank resumed the sales of SBA guaranteed loans in the second quarter of 2024 due to improved premiums in the secondary markets, after retaining loan production on balance sheet starting in the second half of 2023.

During the year ended December 31, 2024, we sold $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.

During the year ended December 31, 2024, we recorded a net gain on branch sales of $1.0 million related to the sale of our two branches in Virginia, which closed on October 1, 2024. There were no gains on branch sales during 2023.

Other income and fees decreased for 2024 compared with 2023, primarily due to a $5.8 million gain from a cash distribution from an investment in an affordable housing partnership, which was recorded in 2023. There were no gains from cash distributions for investments in affordable housing partnerships in 2024.

Noninterest Expense

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.

A breakdown of noninterest expense by category is provided below:

Year Ended December 31, 2025

Increase (Decrease)

Year Ended December 31, 2024

Increase (Decrease)

Year Ended December 31, 2023

Amount

Amount

(Dollars in thousands)

Salaries and employee benefits

Occupancy

Furniture, equipment and software

Data processing and item processing

Professional fees

Amortization of investments in affordable housing partnerships

FDIC assessments

FDIC special assessment (reversal) expense

Earned interest credit

Merger and restructuring-related costs

Other noninterest expense

Total noninterest expense

Comparison of 2025 with 2024

The increase in noninterest expense for 2025 compared with 2024 was primarily driven by increases in salaries and employee benefits, merger and restructuring-related costs, furniture, equipment and software expense, occupancy expense, and other noninterest expense, partially offset by a decrease in earned interest credits expense. We closed the acquisition of Territorial on April 2, 2025, and 2025’s results included three quarters of operating expenses related to the Territorial franchise.

Salaries and employee benefits expense increased by $36.3 million, or 20.4%, for 2025 compared with 2024. The year-over-year increase in salaries and employee benefits was primarily due to an increase in headcount following the Territorial acquisition. The number of full-time equivalent employees was 1,434 at December 31, 2025, compared with 1,244 at both December 31, 2024 and 2023.

Occupancy expense increased by $6.7 million, or 24.5%, for 2025 compared with 2024. The increase in occupancy expense was primarily due to the increased number of Bank locations resulting from the Territorial acquisition. The Company acquired 29 branches in Hawaii from its Merger with Territorial.

Furniture, equipment and software expense increased by $8.1 million, or 33.6%, for 2025 compared with 2024. The increase in furniture, equipment and software expense was primarily due to increased depreciation expense on furniture, software and equipment as a result of the Territorial acquisition.

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.

Merger and restructuring-related costs increased by $15.9 million, or 282.7%, for 2025 compared with 2024. Merger and restructuring-related costs were mainly related to change-in-control and employee severance and retention expenses related to the Territorial acquisition, which was completed on April 2, 2025. See Note 1 9 “Business Combinations” of the Notes to Consolidated Financial Statements for additional information regarding the Merger.

Other noninterest expense increased by $5.8 million, or 21.3%, for 2025 compared with 2024. The increase was primarily attributable to an increase in core deposit intangible amortization expense related to acquired deposits from Territorial.

Comparison of 2024 with 2023

The decrease in noninterest expense for 2024 compared with 2023 was primarily driven by decreases in salaries and employee benefits, restructuring costs, and lower FDIC assessments, partially offset by increases in merger-related expenses, professional fees, and earned interest credit expense.

Salaries and employee benefits expense decreased by $30.0 million, or 14.4%, for 2024 compared with 2023. The year-over-year decrease in salaries and employee 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%.

Professional fees increased by $2.5 million, or 39%, for 2024 compared with 2023. The year-over-year increase in professional fees was due overall increase in legal fees and other professional services.

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

Earned interest credits are provided to certain commercial depositors in the residential mortgage industry to help offset deposit service charges incurred. The earned interest credits are tied to short-term interest rates and have increased with the increases in the federal funds rates since mid-2022. Earned interest credit expense increased $1.0 million for 2024 compared with 2023, reflecting the changes in the federal funds rates as well as changes in the average balances of the underlying deposits.

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.

Income Tax Provision

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.

On June 27, 2025, California Senate Bill 132 was signed into law, requiring that banks and financial companies transition from an equally weighted three-factor apportionment formula to a single-sales-factor apportionment formula, effective for tax years beginning in 2025. As a result of the change in the California tax apportionment rate effective beginning of 2025, we recorded an income tax expense of $4.8 million in 2025, related to the remeasurement of the deferred tax asset. This item is included in the reconciliation of GAAP to non-GAAP financial measures in the “Overview” section of this MD&A.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, the restoration of favorable tax treatment for certain business provisions, and accelerated phase outs to the Inflation Reduction Act energy tax credits. We continue to assess any potential impact to our Consolidated Financial Statements but for fiscal year 2025, OBBBA did not have a material impact.

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.

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.

Financial Condition

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.

Cash and Cash Equivalents

Cash and cash equivalents were $560.1 million at December 31, 2025, an increase of $101.9 million, or 22.2%, from $458.2 million at December 31, 2024.

Investment Securities Portfolio

The main objectives of our investment strategy are to provide sources of liquidity while managing our interest rate risk and generating an adequate level of interest income. Our investment policy permits investments in various types of securities, certificates of deposits, and federal funds sold in compliance with various restrictions in the policy.

Our investment securities AFS totaled $1.83 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.

Investments AFS and HTM of $18.5 million and $516.7 million, respectively, were acquired as part of the Territorial acquisition on April 2, 2025, and, immediately upon acquisition, categorized as AFS according to management’s intent. The investment securities were sold at a market value of $535.2 million, with no gain or loss impact on the Consolidated Statements of Income. See Note 1 9 “Business Combinations” of the Notes to the Consolidated Financial Statements for additional information regarding the Merger.

As part of a strategic repositioning of investment securities in June 2025, we sold a portion of our legacy investment securities portfolio AFS with a fair value of $417.9 million, consisting of lower-yielding collateralized mortgage obligations, mortgage-backed, corporate, and municipal securities, and recorded realized losses of $38.9 million. Net proceeds from the sales were redeployed to purchase higher-yielding investment securities AFS.

At December 31, 2025, $228.9 million in HTM securities were pledged to secure public deposits, or for other purposes required or permitted by law, of which $217.2 million in securities were pledged for time deposits owned by state and local governments in Hawaii, $11.7 million in investment securities HTM were pledged for advances from FHLB Des Moines, and $306 thousand in AFS securities was pledged for other public deposits.

Our investment portfolio consisted of government sponsored enterprise (“GSE”) bonds, mortgage-backed securities (“MBS”), collateralized mortgage obligations (“CMOs”), asset-backed securities, corporate securities, and municipal securities.

Our investment securities portfolio is primarily invested in residential CMOs and residential and commercial MBS, which combined to represent 87% and 85% of our total investment securities portfolio at December 31, 2025 and 2024, respectively. At December 31, 2025 and 2024, all of our CMOs and MBS were issued by the Government National Mortgage Association (“GNMA”), Fannie Mae (“FNMA”), or Freddie Mac (“FHLMC”), which guarantee the contractual cash flows of these investments. All of our corporate, asset-backed, and municipal securities at December 31, 2025, were rated as investment grade aside from one municipal bond which is not rated and tied to the repayment of the underlying collateral of a loan with the Company. The underlying loan is currently in good standing with the Company.

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, 2025

December 31, 2024

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. Government agency and U.S. Government sponsored enterprises:

Agency securities

CMOs

MBS:

Residential

Commercial

Asset-backed securities

Corporate securities

Municipal securities

Total investment securities AFS

Debt securities HTM:

U.S. Government agency and U.S. Government sponsored enterprises:

MBS:

Residential

Commercial

Total investment securities HTM

The following table summarizes the maturity of securities based on carrying value and their related weighted average yield (non-tax equivalent) at December 31, 2025:

Within One Year

After One But

Within Five Years

After Five But

Within Ten Years

After Ten Years

Total

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

(Dollars in thousands)

Debt securities AFS:

U.S. Government agency and U.S. Government sponsored enterprises:

CMOs

MBS:

Residential

Commercial

Asset-backed securities

Corporate securities

Municipal securities

Total securities AFS

Debt securities HTM:

U.S. Government agency and U.S. Government sponsored enterprises:

MBS:

Residential

Commercial

Total securities HTM

The following table shows the Company’s AFS investments’ gross unrealized losses and estimated fair values, aggregated by investment category and the length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2025. The length of time that the individual investment securities AFS have been in a continuous unrealized loss position is not a factor in determining credit impairment with the adoption of CECL.

December 31, 2025

Less than 12 months

12 months or longer

Total

Description of

Securities AFS

Number

Securities

Fair

Value

Gross

Unrealized

Losses

Number

Securities

Fair

Value

Gross

Unrealized

Losses

Number

Securities

Fair

Value

Gross

Unrealized

Losses

(Dollars in thousands)

U.S. Government agency and U.S. Government sponsored enterprises:

CMOs

MBS:

Residential

Commercial

Asset-backed securities

Corporate securities

Municipal securities

Total

We performed an analysis on our investment securities portfolio at December 31, 2025 and 2024, and determined that an allowance for credit losses was not required for investment securities AFS or HTM. The majority of our investment portfolio consisted of securities issued by U.S. Government agencies or U.S. Government sponsored enterprises, which were determined to have a zero loss expectation. At December 31, 2025, we also had one asset-backed security, five corporate securities, and 28 municipal bonds not issued by U.S. Government agencies or U.S. Government sponsored enterprises that were in unrealized loss positions. Based on our analysis of these investment securities, we concluded a credit loss did not exist due to the strength of the issuers, high bond ratings, and because we expect full payment of principal and interest.

Equity Investments

At December 31, 2025, equity investments totaled $42.5 million compared with $39.9 million at December 31, 2024. For the year ended December 31, 2025, we recorded an increase in equity investments due to purchases of $48.3 million and change in fair value of $1.5 million, partially offset by redemptions of $47.3 million. Equity investments at December 31, 2025 included $4.5 million in equity investments with readily determinable fair values and $38.0 million in equity investments without readily determinable fair values.

Equity investments with readily determinable fair values at December 31, 2025, consisted of mutual funds totaling $4.5 million. Changes to the fair value of equity investments with readily determinable fair values are recorded in other noninterest income. Equity investments without readily determinable fair values at December 31, 2025, included $36.6 million in CRA investments, $1.0 million in Community Development Financial Institutions investments, and $370 thousand in correspondent bank stock. Equity investments without readily determinable fair values are carried at cost, less impairment, and adjustments are made to the carrying balance based on observable price changes. There were no impairments or observable price changes for these investments during the year ended December 31, 2025.

Loans Held For Sale

Loans held for sale at December 31, 2025, totaled $86.9 million compared with $14.5 million at December 31, 2024, representing an increase of $72.4 million. Loans held for sale at December 31, 2025, consisted of $82.9 million in C&I loans and $4.0 million in residential mortgage loans, compared with $13.8 million in C&I loans and $646 thousand in residential mortgage loans at December 31, 2024.

Loan Portfolio

We offer a variety of products designed to meet the credit needs of our borrowers. Our lending activities primarily consist of CRE loans, C&I loans, residential mortgage loans, and consumer and other loans. CRE loans as a percentage to total loans were 58% at December 31, 2025, compared with 63% at December 31, 2024.

Gross loans receivable increased by $1.08 billion to $14.70 billion at December 31, 2025, from $13.62 billion at December 31, 2024. The increase in our total loans receivable was primarily due to the $1.07 billion in loans acquired from Territorial, consisting mostly of residential mortgage loans, as well as an increase in residential mortgage loan originations in 2025. See Note 19 “Business Combinations” of the Notes to the Consolidated Financial Statements for additional information regarding the Merger. Net purchase discount on loans increased to $192.8 million at December 31, 2025, from $2.6 million at December 31, 2024, primarily due to the Territorial acquisition.

Approximately 42% of our total loans were variable rate loans at December 31, 2025, compared with 46% at December 31, 2024. The rates of interest charged on variable rate loans are set at specified spreads based on the prime lending rate, SOFR rates and other indices, and vary as the rate indices reprice.

With certain exceptions, we are permitted under applicable law to make unsecured loans to single borrowers (including certain related persons and entities) in aggregate amounts of up to 15% of the sum of our total capital, our allowance for credit losses (as defined for regulatory purposes) at the Bank level, and certain capital notes and debentures issued by us. At December 31, 2025, our lending limit was approximately $378.5 million per borrower for unsecured loans. For lending limit purposes, a secured loan is defined as a loan secured by collateral having a current fair value of at least 100% of the amount of the loan or extension of credit at all times and satisfying certain other requirements. In addition to unsecured loans, we are permitted to make such collateral-secured loans in an additional amount up to 10% (for a total of 25%) of our total capital and the allowance for credit losses for a total limit of approximately $630.8 million to one borrower at December 31, 2025. The largest aggregate amount of loans that the Bank had outstanding to any one borrower and related entities was $107.9 million, of which the entire amount was performing and in good standing at December 31, 2025.

The following table shows the composition of our loan portfolio by type of loan on the dates indicated:

December 31,

Amount

Amount

Amount

Amount

Amount

(Dollars in thousands)

Loan portfolio composition:

CRE loans

C&I loans

Residential mortgage loans

Consumer and other loans

Total loans outstanding

Less: allowance for credit losses

Loans receivable, net

Commercial Real Estate Loans

Our CRE loans consist primarily of loans secured by deeds of trust on commercial real estate, including SBA loans secured by commercial real estate. It is our general policy to restrict commercial real estate loan amounts to 75% of the appraised value of the property at the time of loan funding. We offer both fixed and floating interest rate loans. The maturities on such loans are generally up to seven years (with payments determined on the basis of principal amortization schedules of up to 25 years and a balloon payment due at maturity). CRE loans secured by non-consumer residential real estate comprise less than 1% of the total loan portfolio (consumer residential mortgage loans are classified separately and included in residential mortgage loans). Construction loans are also a small portion of the total real estate portfolio, totaling $123.9 million and comprising 1% of total loans outstanding as of December 31, 2025. CRE loans totaled $8.49 billion at December 31, 2025, compared with $8.53 billion at December 31, 2024.

We also have a granular and geographically diverse set of lending relationships. In the tables below, we show the segmentation and geographic dispersion of our largest loan segment, CRE loans, as of December 31, 2025 and 2024.

December 31,

Amount

Average Loan Size

Weighted Average LTV (1)

Amount

Average Loan Size

Weighted Average LTV (1)

(Dollars in thousands)

Multi-tenant retail

Industrial warehouses

Multifamily

Gas stations and car washes

Hotels/motels

Mixed-use facilities

Single-tenant retail

Office

All other

Total CRE loans

CRE loans owner occupied

CRE loans non-owner occupied

(1)     Weighted average loan-to-value (“LTV”): LTVs are based on collateral value which utilizes the most recent available appraisal and property-specific data, including submarket appreciation or depreciation, and changes to vacancy, debt service coverage or rent per square foot.

December 31,

Amount

Amount

(Dollars in thousands)

CRE loans by geography

Southern California

Northern California

California

New York

Texas

New Jersey

Washington

Illinois

Other states

Total

Commercial and Industrial Loans

C&I loans include term loans to businesses, lines of credit, trade finance facilities, asset-based lending, and commercial SBA loans. C&I loans also include loans, mostly leveraged and non-leveraged loans, which represent revolving or term loans that are mostly deals for middle market companies. Business term loans are generally provided to finance business acquisitions, working capital, and/or equipment purchases and are at times done through participating in syndicated facilities. Lines of credit are generally provided to finance short-term working capital needs. Trade finance facilities are generally provided to finance import and export activities. SBA loans are provided to small businesses under the U.S. SBA guarantee program. Short-term credit facilities (payable within one year) typically provide for periodic interest payments, with principal payable at maturity. Term loans (usually 5 to 7 years) normally provide for monthly payments of both principal and interest. SBA commercial loans usually have a longer maturity (7 to 10 years). These credits are reviewed on a periodic basis, and most loans are secured by business assets and/or real estate. C&I loans totaled $3.71 billion at December 31, 2025, a decrease of $255.7 million, or 6%, from $3.97 billion at December 31, 2024. Within our C&I loan portfolio, the largest industry concentrations are finance and insurance (22%), retail trade (16%), manufacturing (15%), and wholesale trade (13%).

Residential Mortgage Loans

The residential mortgage portfolio totaled $2.44 billion at December 31, 2025, an increase of $1.36 billion, or 125%, from $1.08 billion at December 31, 2024. The Territorial acquisition contributed $1.03 billion of residential mortgage loans at the close of the Merger. Year over year, residential mortgage loans increased to 17% from 8% of the total loan portfolio.

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. In 2025, we exited our consumer credit cards line of business. Consumer loans totaled $54.2 million at December 31, 2025, an increase of $13.0 million, or 31%, from $41.2 million at December 31, 2024.

Loan Commitments

We provide lines of credit to business customers usually on an annual renewal basis.

The following table shows our loan commitments and letters of credit outstanding at the dates indicated:

December 31,

(Dollars in thousands)

Unfunded commitments to extend credit

Standby letters of credit

Other letters of credit

Total

Nonperforming Assets

Nonperforming assets consist of nonaccrual loans, accruing loans that are 90 days or more past due, accruing restructured loans, and OREO.

Loans are placed on nonaccrual status when they become 90 days or more past due, unless the loan is both well-secured and in the process of collection. Loans may be placed on nonaccrual status earlier if the full and timely collection of principal or interest becomes uncertain. When a loan is placed on nonaccrual status, unpaid accrued interest is charged against interest income. Loans are charged off when collection of the loan is determined to be unlikely. Loans are restructured when, for economic or legal reasons related to the borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. OREO consists of real estate acquired by the Bank through foreclosure or similar means, including by deed from the owner in lieu of foreclosure, and is held for future sale.

Nonperforming assets were $136.1 million at December 31, 2025, compared with $90.8 million at December 31, 2024. The increase in non-performing assets was largely driven by the migration of a few large CRE loans during the year ended December 31, 2025, compared with December 31, 2024. The following table illustrates the composition of nonperforming assets and nonperforming loans at the dates indicated:

December 31,

(Dollars in thousands)

Nonaccrual loans (1)

Accruing delinquent loans past due 90 days or more

Accruing troubled debt restructured loans (2)

Total nonperforming loans

OREO

Total nonperforming assets

(1)     Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation.

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

Maturity of Loans

The following table illustrates the maturity distribution intervals of loans outstanding at December 31, 2025.

December 31, 2025

Loans Maturing

One Year or Less

After One to

Five Years

After Five to Fifteen Years

After Fifteen Years

Total Loans

Outstanding

(Dollars in thousands)

CRE loans

C&I loans

Residential mortgage loans

Consumer and other loans

Total loans outstanding

Fixed interest rate (1)

Variable interest rate

Total loans outstanding

(1)     Includes hybrid loans (loans with fixed interest rates for a specified period and then convert to variable interest rates) in fixed interest rate periods at December 31, 2025.

The following table presents the loans outstanding due after one year at December 31, 2025.

December 31, 2025

Fixed Interest Rate (1)

Variable Interest Rate

Total Loans Due After One Year

(Dollars in thousands)

CRE loans

C&I loans

Residential mortgage loans

Consumer and other loans

Total loans outstanding

(1)     Includes hybrid loans (loans with fixed interest rates for a specified period and then convert to variable interest rates) in fixed interest rate periods at December 31, 2025.

At December 31, 2025, we had $43.5 million in loan accrued interest receivable compared with $43.0 million at December 31, 2024.

Allowance for Credit Losses

The Bank has implemented a multi-faceted process to identify, manage, and mitigate the credit risks that are inherent in the loan portfolio. For new loans, each loan application package is fully analyzed by experienced reviewers and approvers. In accordance with current lending approval authority guidelines, a majority of loans are approved by the Management Loan Committee (“MLC”), and the largest loans are subject to additional review and approval by the Directors Loan Committee (“DLC”). For existing loans, the Bank maintains a systematic loan review program, which includes internally conducted reviews and periodic reviews by external loan review consultants. Based on these reviews, loans are graded as to their overall credit quality, which is measured based on: payment capacity and collateral documentation; proper lien perfection; proper approval by loan committee(s); adherence to any loan agreement covenants; compliance with internal policies and procedures, and with laws and regulations; adequacy and strength of repayment sources including borrower or collateral generated cash flow; payment performance; and liquidation value of the collateral. We closely monitor loans that management has determined require further supervision because of the loan size, loan structure, and/or specific circumstances of the borrower.

When principal or interest on a loan is 90 days or more past due, a loan is generally placed on nonaccrual status unless it is considered to be both well-secured and in the process of collection. Further, a loan is considered a loss in whole or in part when (1) it appears that loss exposure on the loan exceeds the collateral value for the loan, (2) servicing of the unsecured portion has been discontinued, or (3) collection is not anticipated due to the borrower’s financial condition and general economic conditions in the borrower’s industry. Any loan or portion of a loan judged by management to be uncollectible is charged against the allowance for credit losses, while any recoveries are credited to the allowance.

The allowance for credit losses (“ACL”) was $156.7 million at December 31, 2025, compared with $150.5 million at December 31, 2024. The year-over-year increase in ACL was primarily due to an increase in ACL for residential mortgage loans, which was primarily driven by higher residential mortgage loan balances as a result of the $1.03 billion of residential mortgage loans assumed at the close of the acquisition of Territorial. Meanwhile, ACL for CRE loans experienced declines in 2025 due to decrease in balances of CRE loans, as well as from updates to historical loss and prepayment assumptions during 2025, which outweighed the impact of updated forecasted macroeconomic conditions. The decrease in ACL for CRE loans was mostly offset by increases in ACL for C&I loans in 2025 due to an overall increase in C&I net loan charge offs. The third-party economic forecast used in the calculation at December 31, 2025, projected slightly lower GDP growth and slightly higher unemployment rates, as well as a decline in projected CRE price index growth relative to the forecast used at December 31, 2024. The ACL was 1.07% of loans receivable at December 31, 2025, and 1.11% of loans receivable at December 31, 2024. The year-to-date change in the ACL coverage ratio largely reflected the impact of the residential mortgage loans acquired in the Merger with Territorial. ACL on individually evaluated loans increased to $15.2 million at December 31, 2025, from $6.1 million at December 31, 2024. In addition to allowance for credit losses, we had $3.3 million in allowance for unfunded loan commitments at December 31, 2025, compared with $2.7 million at December 31, 2024.

We recorded a provision for credit loss on loans receivable of $31.2 million in 2025 compared with $18.4 million in 2024 and $29.1 million in 2023. During 2025, we charged off $35.3 million in loans outstanding and recovered $6.3 million in loans previously charged off, compared with $31.1 million in charge offs and $4.5 million in recoveries for 2024. The increase in net charge offs for 2025 was due to an increase in net charge offs for C&I loans. The net charge offs for 2024 consisted of smaller loan charge offs from downgraded loans combined with charge offs related to the sale of problem loans.

The following table presents total nonaccrual and delinquent loans (loans past due 30+ days) at the dates indicated:

December 31,

(Dollars in thousands)

CRE loans

C&I loans

Residential mortgage loans

Consumer and other loans

Total nonaccrual and delinquent loans

Nonaccrual loans included above

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt including but not limited to current financial information, historical payment experience, credit documentation, public information, and current economic trends. We analyze loans individually by classifying the loans as to credit risk. This analysis includes all non-homogeneous loans. Homogeneous loans are not risk rated and credit risk is analyzed largely by the number of days past due.

This analysis is performed on at least a quarterly basis. We use the following definitions for risk ratings:

• Pass: Loans that meet a preponderance or more of our underwriting criteria and evidence an acceptable level of risk.

• Special Mention: Loans that have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

• Substandard: Loans that are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Substandard loans are further subcategorized into those still accruing interest and those on nonaccrual status.

• Doubtful/Loss: Loans that have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Total criticized loans, or loans rated special mention, substandard, doubtful, or loss, at December 31, 2025, totaled $351.1 million, compared with $450.0 million at December 31, 2024. Loans assigned a risk rating of Special Mention, Substandard, Doubtful, or Loss are referred to as Criticized Loans and loans assigned a risk rating of Substandard, Doubtful, or Loss are separately referred to as Classified Loans. The following table provides the detail of Criticized Loans by risk rating at the dates indicated:

December 31,

(Dollars in thousands)

Special Mention

Classified

Total Criticized Loans

In 2025, we sold $50.8 million in loans with elevated credit risk comprising $29.0 million in classified loans and $21.8 million in special mention loans. In 2024, we sold $102.3 million in loans with elevated credit risk comprising mostly $99.3 million in classified loans. In 2023, we sold $172.1 million in loans with elevated credit risk comprising $147.5 million in classified loans and $24.6 million in special mention loans.

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,

(Dollars in thousands)

LOANS:

Average loans:

CRE loans

C&I loans

Residential mortgage loans

Consumer and other loans

Average loans, including loans held for sale

Total loans, excluding loans held for sale

ALLOWANCE:

Balance - beginning of year

Loans charged off:

CRE loans

C&I loans

Residential mortgage loans

Consumer and other loans

Total loans charged off

Less recoveries:

CRE loans

C&I loans

Residential mortgage loans

Consumer and other loans

Total loan recoveries

Net loan (charge offs) recoveries

Adoption of ASU 2022-02

Initial allowance for PSL and PCD loans acquired

Provision (credit) for credit losses

Balance - end of year

RATIOS:

Net loan charge offs (recoveries) to average loans

Allowance for credit losses to total loans receivable

Allowance for credit losses to nonperforming loans

ALLOWANCE FOR UNFUNDED COMMITMENTS:

Allowance for unfunded commitments

Provision (credit) for unfunded commitments

The following table presents net loan charge offs (recoveries) to average loans by loan category for the years indicated:

Year Ended December 31,

(Dollars in thousands)

Loan Type

CRE loans

C&I loans

Residential mortgage loans

Consumer and other loans

Net loan charge offs (recoveries) to average loans

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,

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

ACL Coverage Ratio

(Dollars in thousands)

Loan Type

CRE loans

C&I loans

Residential mortgage loans

Consumer and other loans

Total

The adequacy of the allowance for credit losses is determined upon an evaluation and review of the credit quality of the loan portfolio, taking into consideration economic forecasts, historical loan loss experience, relevant internal and external factors that affect the collection of a loan, and other pertinent factors. We use a combination of a modeled and non-modeled approach that incorporates current and future economic conditions to estimate lifetime expected losses on a collective basis. We incorporate in our modeled approach, Probability of Default (“PD”), Loss Given Default (“LGD”), and Exposure at Default (“EAD”) methodologies. For non-modeled loans, the allowance for credit losses is largely based on historical loss experience. Both approaches are combined with other quantitative factors and qualitative considerations in calculation of the allowance for credit losses for collectively assessed loans with similar risk characteristics.

For loans that do not share similar risk characteristics such as nonaccrual loans above $1.0 million, we evaluate these loans on an individual basis in accordance with ASC 326. These nonaccrual loans are considered to have different risk profiles than performing loans and therefore are evaluated separately. We collectively assess nonaccrual loans with balances below $1.0 million along with the performing and accrual loans in order to reduce the operational burden of individually assessing small nonaccrual loans with immaterial balances. For individually assessed loans, the ACL is measured using either (1) the present value of future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral, if the loan is collateral dependent. For the collateral dependent loans, we obtain new appraisals to determine the fair value of collateral. The appraisals are based on an “as-is” valuation. To ensure that appraised values remain current, we either obtain updated appraisals every twelve months from a qualified independent appraiser or an internal evaluation of the collateral is performed by qualified personnel. If the third-party market data indicates that the value of the collateral property has declined since the most recent valuation date, management adjusts the value of the property downward to reflect current market conditions. If the fair value of the collateral is less than the amortized balance of the loan, we recognize an ACL with a corresponding charge to the provision for credit losses.

Individually evaluated loans at December 31, 2025, were $131.7 million, a net increase of $41.3 million from $90.4 million at December 31, 2024. The net increase in individually evaluated loans was due to the increase in nonaccrual loans and loans downgraded to substandard risk rating in 2025.

We maintain a separate ACL for our off-balance sheet unfunded loan commitments. We utilize a funding rate to allocate the allowance to undrawn exposures. This funding rate is used as a credit conversion factor to capture how much undrawn can potentially become drawn at any point. The funding rate is determined based on a lookback period of eight quarters. Credit loss is not estimated for off-balance sheet credit exposures that are unconditionally cancellable by us at the time of measurement.

Deferred Tax Assets, Net

At December 31, 2025, we had $184.4 million in net deferred tax assets compared with $140.0 million at December 31, 2024. The increase in net deferred tax assets was due to deferred tax assets that resulted from purchase accounting adjustments for the acquisition of Territorial and due to an increase in carry forward deferred tax assets from the sale of investment securities during the year ended December 31, 2025.

Investments in Tax Credit Structures

At December 31, 2025, we had $27.9 million in investments in affordable housing partnerships compared with $32.4 million at December 31, 2024. The decrease in investments in affordable housing partnerships was due to $10.5 million in amortization recorded, partially offset by $6.1 million in contributions during the year ended December 31, 2025. Off-balance sheet commitments to fund investments in affordable housing partnerships totaled $20.5 million and $11.3 million at December 31, 2025 and 2024, respectively. Investments in affordable housing partnerships provide low-income housing tax credits.

At December 31, 2025, we had $12.4 million in investments in renewable energy tax credits on the Consolidated Statements of Financial Condition, compared with $3.4 million at December 31, 2024, which was recorded in other assets. The increase reflects new investments of $46.2 million, partially offset by $36.9 million in amortization recorded during 2025. At December 31, 2025 and 2024, unfunded commitments were $12.4 million and $2.8 million, respectively, which was recorded in other liabilities. The increase in unfunded commitments during 2025 reflected new commitments to invest $46.2 million in renewable energy tax credit investments, partially offset by $36.4 million in cash contributions.

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, 2025 and 2024, OREO, net, totaled $365 thousand and $0, respectively. The number of OREO properties held at December 31, 2025 and 2024, was one and zero, respectively.

The changes in OREO for the years ended December 31, 2025 and 2024, were as follows:

Year Ended December 31,

(Dollars in thousands)

Balance at beginning of period

Additions to OREO

OREO sales

Balance at end of period

Deposits

Deposits are our primary source of funds for loans and investments. We offer a wide variety of deposit account products to commercial and consumer customers. Total deposits increased by $1.28 billion, or 8.9%, to $15.60 billion at December 31, 2025, from $14.33 billion at December 31, 2024. The increase in deposits was primarily due to the $1.67 billion in deposits assumed from the Territorial acquisition during 2025.

At December 31, 2025, we had $902.0 million in brokered deposits and $300.0 million in California State Treasurer deposits compared with $1.06 billion in brokered deposits and $300.0 million in California State Treasurer deposits at December 31, 2024. The California State Treasurer time deposits at December 31, 2025, had original maturities of six months, a weighted average interest rate of 3.80%, and were collateralized with a $330.0 million letter of credit issued by the FHLB. At December 31, 2025, time deposits owned by state and local governments in Hawaii were $193.7 million, and were collateralized by investment securities with an aggregate fair value of $205.5 million.

The following table sets forth the balances of our deposits by category for the periods indicated:

December 31,

Amount

Percent

Amount

Percent

Amount

Percent

(Dollars in thousands)

Demand, noninterest bearing

Money market, interest bearing demand and savings

Time deposits of more than $250,000

Other time deposits

Total deposits

The following table presents the maturity schedules of our time deposits, at dates indicated:

December 31,

Amount

Percent

Amount

Percent

Amount

Percent

(Dollars in thousands)

Three months or less

Over three months through six months

Over six months through twelve months

Over twelve months

Total time deposits

The following table indicates the maturity schedules of our time deposits in amounts of more than $250,000 at December 31, 2025:

Amount

Percent

(Dollars in thousands)

Three months or less

Over three months through six months

Over six months through twelve months

Over twelve months

Total

There is no assurance that we will be able to continue to replace maturing time deposits at competitive rates. However, if we are unable to replace these maturing time deposits with new deposits, we believe that we have adequate liquidity resources to fund these obligations through secured credit lines with the FHLB and FRB, as well as with liquid assets.

At December 31, 2025, total uninsured deposits of the Bank reported by the Bank was approximately $5.98 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.

FHLB and FRB Borrowings and Fed Funds Purchased

We utilize a combination of short-term and long-term borrowings from the FHLB and FRB as well as other sources to help manage our liquidity position. However, borrowings are used as a secondary source of funds and deposits are our main source of funding and liquidity.

Federal Funds Purchased

Federal funds purchased generally mature within one to three business days from the transaction date. We did not have any federal funds purchased at December 31, 2025 and 2024.

FHLB and FRB Borrowings

We may borrow from the FHLB and FRB on a short-term or long-term basis to provide funding for certain loans or investment securities strategies, as well as for asset liability management strategies. At December 31, 2025, borrowings totaled $284.9 million, consisting entirely of FHLB borrowings, compared with $239.0 million in total FHLB and FRB borrowings at December 31, 2024 consisting of $100.0 million in FHLB borrowings and $139.0 million in FRB borrowings. Our FHLB borrowings at December 31, 2025, with average weighted remaining maturities of less than two years included putable borrowings of $275.0 million. At December 31, 2025 and 2024, the average weighted remaining maturity of FHLB and FRB borrowings was approximately 22 months and two months, respectively. The weighted average rate for FHLB borrowings was 3.32% at December 31, 2025, compared with 4.88% and 4.50% for FHLB and FRB borrowings, respectively, at December 31, 2024.

As part of the 2025 second quarter Territorial acquisition, the Company assumed $160.0 million in face value of FHLB advances, of which $125.0 million was paid off on April 2, 2025, and an additional $25.0 million matured prior to December 31, 2025. The remaining $10.0 million in FHLB advances outstanding at December 31, 2025, mature in June 2026, have a weighted average coupon rate of 1.97%, and were acquired at a discount of $211 thousand, with $78 thousand in discount remaining at December 31, 2025. See Note 1 9 “Business Combinations” of the Notes to the Consolidated Financial Statements for additional information regarding the Merger.

Convertible Notes

In 2018, we issued $217.5 million aggregate principal amount of 2.00% convertible senior notes maturing on May 15, 2038, in a private offering to qualified institutional buyers under Rule 144A of the Securities Act of 1933. The convertible notes were issued as part of our plan to repurchase common stock. The convertible notes pay interest on a semi-annual basis to holders of the notes. The convertible notes can be called by us, in whole or in part, at any time after five years for the original issued amount in cash. Holders of the notes can put the notes for cash on the fifth, tenth, and fifteenth year of the notes.

The net carrying balance of convertible notes at December 31, 2025 and 2024 was $444 thousand.

Subordinated Debentures

At December 31, 2025, our nine wholly-owned subsidiary grantor trusts (“Trusts”) had issued $126.0 million of pooled trust preferred securities (“Trust Preferred Securities”). The Trust Preferred Securities accrue and pay distributions periodically at specified annual rates as provided in the related indentures for the securities. The Trusts used the net proceeds from the offering of the Trust Preferred Securities to purchase a like amount of Hope Bancorp’s subordinated debentures (the “Debentures”). The Debentures are the sole assets of the trusts. Our obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by us of the obligations of the trusts. The Trust Preferred Securities are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the indentures. We have the right to redeem the Debentures in whole (but not in part) on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date. Debentures totaled $110.5 million at December 31, 2025, and $109.1 million at December 31, 2024.

At December 31, 2025 and 2024, the Trusts are not reported on a consolidated basis pursuant to ASC 810, Consolidation. Therefore, the capital securities of $126.0 million are not presented on the Consolidated Statements of Financial Condition. Instead, at December 31, 2025, the long-term subordinated debentures of $110.5 million, net of $19.4 million in discounts, issued by us to the Trusts and the investment in Trusts’ common stock of $3.9 million (included in other assets) are separately reported.

The following table summarizes our outstanding Debentures related to the Trust Preferred Securities at December 31, 2025:

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

3M SOFR + 3.41%

Every 15 th of

Mar, Jun, Sep, and Dec

Nara Statutory Trust IV

3M SOFR + 3.11%

Every 7 th of

Jan, Apr, Jul, and Oct

Nara Statutory Trust V

3M SOFR + 3.21%

Every 17 th of

Mar, Jun, Sep, and Dec

Nara Statutory Trust VI

3M SOFR +1.91%

Every 15 th of

Mar, Jun, Sep, and Dec

Center Capital Trust I

3M SOFR + 3.11%

Every 7 th of

Jan, Apr, Jul, and Oct

Wilshire Statutory Trust II

3M SOFR + 2.05%

Every 17 th of

Mar, Jun, Sep, and Dec

Wilshire Statutory Trust III

3M SOFR + 1.66%

Every 15 th of

Mar, Jun, Sep, and Dec

Wilshire Statutory Trust IV

3M SOFR + 1.64%

Every 15 th of

Mar, Jun, Sep, and Dec

Saehan Capital Trust I

3M SOFR + 1.88%

Every 30 th of

Mar, Jun, Sep, and Dec

Total Trusts

Capital Resources

Historically, our primary source of capital has been the retention of earnings, net of interest payments on debentures and convertible notes and dividend payments to stockholders and share repurchases. We seek to maintain capital at a level sufficient to assure our stockholders, customers, and regulators that Hope Bancorp and the Bank are financially sound. For this purpose, we perform ongoing assessments of capital related risks, components of capital, as well as projected sources and uses of capital in conjunction with projected increases in assets and levels of risk.

Our total stockholders’ equity increased $148.8 million, or 7.0%, to $2.28 billion at December 31, 2025, from $2.13 billion at December 31, 2024. The increase in our stockholders’ equity at December 31, 2025, compared with December 31, 2024, was largely due to an increase in AOCI of $79.6 million, $73.3 million in stock issued as consideration in the Territorial acquisition, net income earned of $61.6 million, and an increase in additional paid-in capital consisting of $5.0 million in stock-based compensation, partially offset by dividends paid of $70.7 million. See Note 19 “Business Combinations” of the Notes to the Consolidated Financial Statements for additional information regarding the Merger. The increase in AOCI from December 31, 2024, to December 31, 2025, was due to the decrease in unrealized losses on our investment securities AFS as a result of changes to market interest rates and sales of investment securities AFS.

At December 31, 2025, our ratio of common equity to total assets was 12.32% compared with 12.52% at December 31, 2024, and our tangible common equity represented 9.76% of tangible assets at December 31, 2025, compared with 10.05% of tangible assets at December 31, 2024. Tangible common equity per share was $13.71 at December 31, 2025, compared with $13.81 at December 31, 2024. 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. See the “Overview” section of this MD&A for a reconciliation of GAAP to non-GAAP financial measures.

The following table compares Hope Bancorp’s and the Bank’s capital ratios at December 31, 2025, to those required by our regulatory agencies to generally be deemed “adequately capitalized” for capital adequacy classification purposes:

December 31, 2025

Actual

Ratio Required To Be Well-Capitalized

Excess Over Well-Capitalized

Amount

Ratio

(Dollars in thousands)

Hope Bancorp

Common equity tier 1 capital

(to risk-weighted assets):

Tier 1 capital

(to risk-weighted assets)

Total capital

(to risk-weighted assets)

Leverage capital

(to average assets)

Bank of Hope

Common equity tier 1 capital

(to risk-weighted assets):

Tier 1 capital

(to risk-weighted assets)

Total capital

(to risk-weighted assets)

Leverage capital

(to average assets)

Capital rules require a capital conservation buffer of 2.50% above the three minimum risked-weighted capital ratios to avoid constraints on dividend payments, stock repurchases, and discretionary bonus payments to executives. Our capital ratios at December 31, 2025 and 2024, exceeded all of the regulatory minimums including the fully-phased in capital conservation buffer.

Liquidity Management

Liquidity risk is the risk of reduction in our earnings or capital that could result if we were not able to meet our obligations when they come due without incurring unacceptable losses. Liquidity risk includes the risk of unplanned decreases or changes in funding sources and changes in market conditions that affect our ability to liquidate assets quickly and with minimum loss of value. Factors considered in liquidity risk management are the stability of the deposit base; the marketability, maturity, and pledging of our investments; the availability of alternative sources of funds; and our demand for credit.

The objective of our liquidity management is to have funds available to meet cash flow requirements arising from fluctuations in deposit levels and the demands of daily operations, which include funding of securities purchases, providing for customers’ credit needs, and ongoing repayment of borrowings.

We manage our liquidity actively on a daily basis and it is reviewed periodically by our management-level Asset/Liability Management Committee (“ALM”) and the Board Risk Committee (“BRC”). This process is intended to ensure the maintenance of sufficient funds to meet our liquidity needs, including adequate cash flow for off-balance-sheet commitments. In general, our liquidity is managed daily by controlling the level of federal funds and the funds provided by cash flow from operations. To meet unexpected demands, lines of credit are maintained with the FHLB, the Federal Reserve Bank, and other correspondent banks. These lines of credit are tested at least annually for funds availability. The sale of investment securities and loans held for sale also serves as a source of funds.

Our primary sources of liquidity are derived from financing activities, which include deposits, federal funds facilities, and borrowings from the FHLB and the FRB’s Discount Window. These funding sources are augmented by payments of principal and interest on loans, proceeds from sale of loans, paydown of investment securities, and the liquidation or sale of securities from our AFS portfolio. Primary uses of funds include withdrawal of and interest payments on deposits, originations of loans, purchases of investment securities, payment of operating expenses, share repurchases, and payment of dividends.

Net cash inflows from operating activities totaled $164.5 million, $116.7 million, and $473.8 million during 2025, 2024, and 2023, respectively. Net cash inflows from operating activities for 2025 was primarily attributable to net income earned and proceeds from sales of loans held for sale, partially offset by originations of loans held for sale.

Net cash inflows from investing activities totaled $525.3 million, $466.5 million, and $1.29 billion during 2025, 2024, 2023, respectively. Net cash inflows from investing activities during 2025 was primarily from proceeds received from sales of investment securities AFS, proceeds received from sales of loans held for sale previously classified as held for investment, net cash received from the Territorial acquisition, and proceeds from investment securities AFS and investment securities HTM that were paid down during the year. These inflows were partially offset by purchases of investment securities, and a net decrease in loans receivable.

Net cash outflows from financing activities totaled $588.0 million, $2.05 billion, and $341.5 million during 2025, 2024, and 2023, respectively. Net cash outflows from financing activities for 2025 was primarily attributable to the repayment of FRB borrowings and FHLB advances, a net decrease in deposits, and dividends paid on common stock. These outflows were partially offset by proceeds from FRB borrowings and FHLB advances.

When we have more funds than required for our reserve requirements or short-term liquidity needs, we sell federal funds to other financial institutions. Conversely, when we have less funds than required, we may purchase federal funds or borrow funds from the FHLB or the FRB’s Discount Window. At December 31, 2025, the maximum amount that we were able to borrow on an overnight basis from the FHLB and the FRB was an aggregate of $5.95 billion, and we had $285.0 million outstanding in borrowings from the FHLB. The FHLB system functions as a line of credit facility for qualifying financial institutions. As a member, we are required to own capital stock in the FHLB and may apply for advances from the FHLB by pledging qualifying loans and certain securities as collateral for these advances.

At times we maintain a portion of our liquid assets in interest earning cash deposits with other banks, overnight federal funds sold to other banks, and in investment securities AFS that are not pledged. Our liquid assets consist of cash and cash equivalents, interest earning cash deposits with other banks, liquid investment securities AFS, and loan repayments within 30 days. Liquid assets totaled $2.22 billion and $2.06 billion at December 31, 2025 and 2024, respectively. Cash and cash equivalents totaled $560.1 million at December 31, 2025, compared with $458.2 million at December 31, 2024.

Because our primary sources and uses of funds are deposits and loans, the relationship between gross loans and total deposits provides one measure of our liquidity. Typically, the closer the ratio of loans to deposits is to, or the more it exceeds, 100%, the more we rely on borrowings and other sources to provide liquidity. Alternative sources of funds such as FHLB advances and FRB borrowings, brokered deposits, and other collateralized borrowings that provide liquidity as needed from diverse liability sources are an important part of our asset/liability management strategy. Our average gross loans to average deposits ratio was 92%, 93% and 94% for years ended 2025, 2024, and 2023, respectively.

We believe our liquidity sources are stable and adequate to meet our day-to-day cash flow requirements. At December 31, 2025, management is not aware of any demands, commitments, trends, events, or uncertainties that will or are reasonably likely to have a material or adverse effect on our liquidity position. At December 31, 2025, we are not aware of any material commitments for capital expenditures in the foreseeable future.

Off-Balance-Sheet Activities and Contractual Obligations

The Bank routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected, in whole or in part, in the Consolidated Financial Statements. These activities are part of our normal course of business and include traditional off-balance-sheet credit-related financial instruments, interest rate swap contracts, operating leases, and interest commitments on our liabilities.

Traditional off-balance-sheet credit-related financial instruments are primarily commitments to extend credit and standby letters of credit. These activities may require us to make cash payments to third parties in the event specified future events occur. The contractual amounts represent the extent of our exposure in these off-balance-sheet activities. However, since certain off-balance-sheet commitments, particularly standby letters of credit, are expected to expire or be only partially used, the total amount of commitments does not necessarily represent future cash requirements. These activities are necessary to meet the financing needs of our customers.

We do not anticipate that our current off-balance-sheet activities will have a material impact on our future results of operations or financial condition. Further information regarding risks from our off-balance-sheet financial instruments can be found in Note 1 1 of the Notes to Consolidated Financial Statements and in Item 7A. - “Quantitative and Qualitative Disclosures about Market Risk.”

We also commit to fund certain affordable housing partnership investments in the future. Funded commitments are presented as investments in affordable housing partnerships in the Consolidated Financial Statements while unfunded commitments are presented as commitments to fund investment in affordable housing partnerships.

The following table summarizes our contractual obligations and commitments to make future payments at December 31, 2025. Payments shown for time deposits, FHLB advances, convertible notes, and subordinated debenture include interest obligations to their respective repricing or next call dates:

Payments Due By Period

Less than 1 year

1-3 years

3-5 years

Over 5 years

Total

(Dollars in thousands)

Contractual Obligations and Commitments

Time deposits

FHLB and FRB borrowings

Convertible notes

Subordinated debentures (1)

Operating leases

Commitments to fund CRA and tax credit investments

Unfunded commitments to extend credit

Standby letters of credit

Other letters of credit

Total

(1)     Interest for variable rate subordinated debentures were calculated using interest rates at December 31, 2025.