[10-Q] Hope Bancorp, Inc. Quarterly Earnings Report
Filing Impact
Filing Sentiment
Form Type
10-Q
Hope Bancorp completed its April 2, 2025 merger with Territorial, which materially increased balance sheet scale: total assets grew to $18.55 billion from $17.05 billion and loans receivable (net) rose to $14.29 billion from $13.47 billion. Deposits increased to $15.94 billion from $14.33 billion, and cash and cash equivalents rose to $689.7 million from $458.2 million, reflecting merger-related funding and repositioning.
The company recorded a net loss of $27.9 million for the three months ended June 30, 2025 versus net income of $25.3 million a year ago, driven primarily by $38.9 million of realized losses from sales of available-for-sale investment securities as part of a strategic repositioning and higher merger-related costs of $17.3 million. Provision for credit losses and net charge-offs increased, while noninterest expense rose to $109.5 million from $81.0 million. Goodwill and core deposit intangibles increased following the merger, with goodwill at $478.1 million and core deposit intangibles of $47.3 million.
Hope Bancorp ha completato il 2 aprile 2025 la fusione con Territorial, che ha aumentato significativamente la dimensione del bilancio: le attività totali sono salite a $18.55 miliardi da $17.05 miliardi e i crediti verso la clientela (netti) sono aumentati a $14.29 miliardi da $13.47 miliardi. I depositi sono cresciuti a $15.94 miliardi da $14.33 miliardi e la liquidità e le disponibilità liquide sono salite a $689.7 milioni da $458.2 milioni, riflettendo finanziamenti e riposizionamenti legati alla fusione.
L'azienda ha registrato una perdita netta di $27.9 milioni per i tre mesi chiusi il 30 giugno 2025 contro un utile netto di $25.3 milioni un anno prima, principalmente a causa di $38.9 milioni di perdite realizzate dalla vendita di titoli disponibili per la vendita nell'ambito di un riposizionamento strategico e di maggiori costi legati alla fusione pari a $17.3 milioni. Sono aumentate le rettifiche per perdite su crediti e le cancellazioni nette, mentre le spese non d'interesse sono salite a $109.5 milioni da $81.0 milioni. L'avviamento e gli intangibili legati ai depositi core sono aumentati dopo la fusione, con avviamento a $478.1 milioni e intangibili per depositi core pari a $47.3 milioni.
Hope Bancorp completó el 2 de abril de 2025 su fusión con Territorial, lo que incrementó de forma significativa el tamaño del balance: los activos totales crecieron a $18.55 mil millones desde $17.05 mil millones y los préstamos por cobrar (netos) aumentaron a $14.29 mil millones desde $13.47 mil millones. Los depósitos subieron a $15.94 mil millones desde $14.33 mil millones, y el efectivo y equivalentes de efectivo aumentaron a $689.7 millones desde $458.2 millones, reflejando financiamiento y reposicionamiento relacionados con la fusión.
La compañía registró una pérdida neta de $27.9 millones en los tres meses cerrados el 30 de junio de 2025 frente a una utilidad neta de $25.3 millones un año antes, impulsada principalmente por $38.9 millones en pérdidas realizadas por ventas de valores disponibles para la venta como parte de un reposicionamiento estratégico y mayores costos relacionados con la fusión por $17.3 millones. Aumentaron la provisión para pérdidas crediticias y las cancelaciones netas, mientras que los gastos no relacionados con intereses subieron a $109.5 millones desde $81.0 millones. El fondo de comercio y los intangibles por depósitos core se incrementaron tras la fusión, con fondo de comercio en $478.1 millones e intangibles por depósitos core de $47.3 millones.
Hope Bancorp는 2025년 4월 2일 Territorial과의 합병을 완료했으며, 이로 인해 대차대조표 규모가 크게 확대되었습니다: 총자산은 $17.05 billion에서 $18.55 billion로 증가했고, 대손충당금을 제외한 순수취대출금(순액)은 $13.47 billion에서 $14.29 billion로 늘었습니다. 예금은 $14.33 billion에서 $15.94 billion로 증가했으며, 현금 및 현금성자산은 합병 관련 자금조달 및 재배치의 영향으로 $458.2 million에서 $689.7 million로 증가했습니다.
회사는 2025년 6월 30일로 종료된 분기에 대해 순손실 $27.9 million을 기록했는데, 이는 전년 동기 순이익 $25.3 million에서의 전환입니다. 주된 원인은 전략적 재배치의 일환으로 매각한 매도가능증권에서 발생한 $38.9 million의 실현손실과 합병 관련 비용 증가($17.3 million)입니다. 대손충당금과 순대손상각은 증가했고, 비이자비용은 $81.0 million에서 $109.5 million로 상승했습니다. 합병 이후 영업권과 핵심예금무형자산이 늘어 영업권은 $478.1 million, 핵심예금무형자산은 $47.3 million입니다.
Hope Bancorp a finalisé le 2 avril 2025 sa fusion avec Territorial, ce qui a porté à une augmentation significative de la taille du bilan : l'actif total est passé de $17.05 milliards à $18.55 milliards et les prêts à recevoir (nets) ont augmenté de $13.47 milliards à $14.29 milliards. Les dépôts ont progressé de $14.33 milliards à $15.94 milliards, et la trésorerie et équivalents de trésorerie sont passés de $458.2 millions à $689.7 millions, reflétant des financements et un repositionnement liés à la fusion.
La société a enregistré une perte nette de $27.9 millions pour les trois mois clos le 30 juin 2025, contre un bénéfice net de $25.3 millions un an auparavant, principalement en raison de $38.9 millions de pertes réalisées sur la vente de titres disponibles à la vente dans le cadre d'un repositionnement stratégique et de coûts accrus liés à la fusion à hauteur de $17.3 millions. La provision pour pertes sur crédits et les radiations nettes ont augmenté, tandis que les charges hors intérêts sont passées de $81.0 millions à $109.5 millions. Le goodwill et les actifs incorporels liés aux dépôts de base ont augmenté après la fusion, le goodwill s'élevant à $478.1 millions et les incorporels liés aux dépôts core à $47.3 millions.
Hope Bancorp hat am 2. April 2025 die Fusion mit Territorial abgeschlossen, wodurch die Bilanzgröße deutlich zunahm: die Gesamtaktiva stiegen von $17.05 Milliarden auf $18.55 Milliarden und die Darlehensforderungen (netto) von $13.47 Milliarden auf $14.29 Milliarden. Die Einlagen erhöhten sich von $14.33 Milliarden auf $15.94 Milliarden, und Kassenbestand sowie Zahlungsmitteläquivalente stiegen aufgrund fusionsbedingter Finanzierung und Neupositionierung von $458.2 Millionen auf $689.7 Millionen.
Das Unternehmen verzeichnete für das zum 30. Juni 2025 beendete Quartal einen Nettoverlust von $27.9 Millionen gegenüber einem Jahresgewinn von $25.3 Millionen im Vorjahr. Ursache waren vor allem $38.9 Millionen realisierte Verluste aus dem Verkauf von als verfügbar gehaltenen Wertpapieren im Rahmen einer strategischen Neuausrichtung sowie gestiegene fusionsbedingte Kosten in Höhe von $17.3 Millionen. Die Vorsorge für Kreditverluste und Nettoabschreibungen stiegen, während die Nichtzinsaufwendungen von $81.0 Millionen auf $109.5 Millionen zulegten. Geschäfts- oder Firmenwert und Core-Deposit-Immaterielle Vermögenswerte erhöhten sich nach der Fusion: der Goodwill beträgt $478.1 Millionen und die Core-Deposit-Immaterals $47.3 Millionen.
Positive
- Balance sheet growth: Total assets increased to $18.547 billion from $17.054 billion, and loans receivable grew to $14.434 billion (net $14.285 billion) primarily from the Territorial merger.
- Deposit expansion: Total deposits rose to $15.943 billion from $14.327 billion, an 11.3% increase driven by assumed Territorial deposits.
- Improved liquidity position: Cash and cash equivalents increased to $689.7 million from $458.2 million; net cash provided by operating activities was $36.0 million for six months.
- Strategic acquisition completed: The April 2, 2025 merger with Territorial added scale, goodwill ($13.7 million recorded) and core deposit intangibles ($46.5 million).
Negative
- Quarterly net loss: Net loss of $27.881 million for Q2 2025 versus net income of $25.270 million in Q2 2024.
- Realized securities losses: $38.856 million loss on sales of available-for-sale investment securities in Q2 2025 related to portfolio repositioning.
- Rising expenses and merger costs: Noninterest expense increased to $109.473 million (Q2 2025) from $80.987 million (Q2 2024), including $17.281 million of merger and restructuring costs.
- Credit deterioration indicators: Provision for credit losses increased to $15.0 million (Q2 2025) from $1.4 million a year earlier; six-month charge-offs totaled $23.362 million.
- Significant unrealized AFS losses: Gross unrealized losses on AFS securities were $221.0 million at June 30, 2025 (net of tax $151.6 million in AOCI).
Insights
TL;DR: Quarterly loss reflects one-time securities sales and merger costs; core lending and deposit growth expanded balance sheet.
Hope Bancorp's Q2 results show a material noninterest income swing driven by $38.9 million of realized AFS security losses tied to a portfolio repositioning and sizable merger and restructuring costs of $17.3 million. Those items, largely nonrecurring, produced a quarterly net loss of $27.9 million despite continued loan growth to $14.29 billion and deposit growth to $15.94 billion. The balance sheet scale improved via the Territorial acquisition, adding loans, deposits, goodwill ($13.7 million recorded in the quarter) and a $46.5 million core deposit intangible. Operating trends show rising noninterest expense and elevated provisioning versus year-ago periods.
TL;DR: Credit and liquidity metrics warrant attention: higher charge-offs and reserves, increased nonaccruals, and concentrated AFS unrealized losses.
Provision for credit losses increased to $15.0 million for the quarter (vs. $1.4 million prior year), and six-month charge-offs totaled $23.4 million, with nonaccrual loans rising to $110.7 million. Investment securities AFS showed substantial unrealized losses (gross unrealized losses $221.0 million at June 30, 2025), and the company recorded $38.9 million realized losses after selling lower-yielding securities. While liquidity metrics improved via higher cash balances and deposit inflows from the merger, the company reduced short-term borrowings markedly. These credit and market exposures represent materially negative near-term risk drivers.
Hope Bancorp ha completato il 2 aprile 2025 la fusione con Territorial, che ha aumentato significativamente la dimensione del bilancio: le attività totali sono salite a $18.55 miliardi da $17.05 miliardi e i crediti verso la clientela (netti) sono aumentati a $14.29 miliardi da $13.47 miliardi. I depositi sono cresciuti a $15.94 miliardi da $14.33 miliardi e la liquidità e le disponibilità liquide sono salite a $689.7 milioni da $458.2 milioni, riflettendo finanziamenti e riposizionamenti legati alla fusione.
L'azienda ha registrato una perdita netta di $27.9 milioni per i tre mesi chiusi il 30 giugno 2025 contro un utile netto di $25.3 milioni un anno prima, principalmente a causa di $38.9 milioni di perdite realizzate dalla vendita di titoli disponibili per la vendita nell'ambito di un riposizionamento strategico e di maggiori costi legati alla fusione pari a $17.3 milioni. Sono aumentate le rettifiche per perdite su crediti e le cancellazioni nette, mentre le spese non d'interesse sono salite a $109.5 milioni da $81.0 milioni. L'avviamento e gli intangibili legati ai depositi core sono aumentati dopo la fusione, con avviamento a $478.1 milioni e intangibili per depositi core pari a $47.3 milioni.
Hope Bancorp completó el 2 de abril de 2025 su fusión con Territorial, lo que incrementó de forma significativa el tamaño del balance: los activos totales crecieron a $18.55 mil millones desde $17.05 mil millones y los préstamos por cobrar (netos) aumentaron a $14.29 mil millones desde $13.47 mil millones. Los depósitos subieron a $15.94 mil millones desde $14.33 mil millones, y el efectivo y equivalentes de efectivo aumentaron a $689.7 millones desde $458.2 millones, reflejando financiamiento y reposicionamiento relacionados con la fusión.
La compañía registró una pérdida neta de $27.9 millones en los tres meses cerrados el 30 de junio de 2025 frente a una utilidad neta de $25.3 millones un año antes, impulsada principalmente por $38.9 millones en pérdidas realizadas por ventas de valores disponibles para la venta como parte de un reposicionamiento estratégico y mayores costos relacionados con la fusión por $17.3 millones. Aumentaron la provisión para pérdidas crediticias y las cancelaciones netas, mientras que los gastos no relacionados con intereses subieron a $109.5 millones desde $81.0 millones. El fondo de comercio y los intangibles por depósitos core se incrementaron tras la fusión, con fondo de comercio en $478.1 millones e intangibles por depósitos core de $47.3 millones.
Hope Bancorp는 2025년 4월 2일 Territorial과의 합병을 완료했으며, 이로 인해 대차대조표 규모가 크게 확대되었습니다: 총자산은 $17.05 billion에서 $18.55 billion로 증가했고, 대손충당금을 제외한 순수취대출금(순액)은 $13.47 billion에서 $14.29 billion로 늘었습니다. 예금은 $14.33 billion에서 $15.94 billion로 증가했으며, 현금 및 현금성자산은 합병 관련 자금조달 및 재배치의 영향으로 $458.2 million에서 $689.7 million로 증가했습니다.
회사는 2025년 6월 30일로 종료된 분기에 대해 순손실 $27.9 million을 기록했는데, 이는 전년 동기 순이익 $25.3 million에서의 전환입니다. 주된 원인은 전략적 재배치의 일환으로 매각한 매도가능증권에서 발생한 $38.9 million의 실현손실과 합병 관련 비용 증가($17.3 million)입니다. 대손충당금과 순대손상각은 증가했고, 비이자비용은 $81.0 million에서 $109.5 million로 상승했습니다. 합병 이후 영업권과 핵심예금무형자산이 늘어 영업권은 $478.1 million, 핵심예금무형자산은 $47.3 million입니다.
Hope Bancorp a finalisé le 2 avril 2025 sa fusion avec Territorial, ce qui a porté à une augmentation significative de la taille du bilan : l'actif total est passé de $17.05 milliards à $18.55 milliards et les prêts à recevoir (nets) ont augmenté de $13.47 milliards à $14.29 milliards. Les dépôts ont progressé de $14.33 milliards à $15.94 milliards, et la trésorerie et équivalents de trésorerie sont passés de $458.2 millions à $689.7 millions, reflétant des financements et un repositionnement liés à la fusion.
La société a enregistré une perte nette de $27.9 millions pour les trois mois clos le 30 juin 2025, contre un bénéfice net de $25.3 millions un an auparavant, principalement en raison de $38.9 millions de pertes réalisées sur la vente de titres disponibles à la vente dans le cadre d'un repositionnement stratégique et de coûts accrus liés à la fusion à hauteur de $17.3 millions. La provision pour pertes sur crédits et les radiations nettes ont augmenté, tandis que les charges hors intérêts sont passées de $81.0 millions à $109.5 millions. Le goodwill et les actifs incorporels liés aux dépôts de base ont augmenté après la fusion, le goodwill s'élevant à $478.1 millions et les incorporels liés aux dépôts core à $47.3 millions.
Hope Bancorp hat am 2. April 2025 die Fusion mit Territorial abgeschlossen, wodurch die Bilanzgröße deutlich zunahm: die Gesamtaktiva stiegen von $17.05 Milliarden auf $18.55 Milliarden und die Darlehensforderungen (netto) von $13.47 Milliarden auf $14.29 Milliarden. Die Einlagen erhöhten sich von $14.33 Milliarden auf $15.94 Milliarden, und Kassenbestand sowie Zahlungsmitteläquivalente stiegen aufgrund fusionsbedingter Finanzierung und Neupositionierung von $458.2 Millionen auf $689.7 Millionen.
Das Unternehmen verzeichnete für das zum 30. Juni 2025 beendete Quartal einen Nettoverlust von $27.9 Millionen gegenüber einem Jahresgewinn von $25.3 Millionen im Vorjahr. Ursache waren vor allem $38.9 Millionen realisierte Verluste aus dem Verkauf von als verfügbar gehaltenen Wertpapieren im Rahmen einer strategischen Neuausrichtung sowie gestiegene fusionsbedingte Kosten in Höhe von $17.3 Millionen. Die Vorsorge für Kreditverluste und Nettoabschreibungen stiegen, während die Nichtzinsaufwendungen von $81.0 Millionen auf $109.5 Millionen zulegten. Geschäfts- oder Firmenwert und Core-Deposit-Immaterielle Vermögenswerte erhöhten sich nach der Fusion: der Goodwill beträgt $478.1 Millionen und die Core-Deposit-Immaterals $47.3 Millionen.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended June 30, 2025
OR
Commission File Number: 000-50245
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
(Address of principal executives offices, including zip code)
(213 ) 639-1700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| (Title of class) | (Trading Symbol) | (Name of exchange on which registered) | ||||||||||||
______________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| ☒ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
At August 1, 2025, there were 128,179,759 shares of Hope Bancorp, Inc. common stock outstanding.
Table of Contents
| Page | ||||||||
PART I - FINANCIAL INFORMATION | ||||||||
| Item 1. | FINANCIAL STATEMENTS | |||||||
| Consolidated Statements of Financial Condition (Unaudited) | 4 | |||||||
| Consolidated Statements of (Loss) Income (Unaudited) | 6 | |||||||
| Consolidated Statements of Comprehensive Income (Unaudited) | 7 | |||||||
| Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) | 8 | |||||||
| Consolidated Statements of Cash Flows (Unaudited) | 10 | |||||||
Notes to Consolidated Financial Statements (Unaudited) | ||||||||
1. Basis of Presentation | 11 | |||||||
2. Investment Securities | 12 | |||||||
3. Equity Investments | 16 | |||||||
4. Loans Receivable and Allowance for Credit Losses | 17 | |||||||
5. Goodwill, Intangible Assets, and Servicing Assets | 28 | |||||||
6. Deposits | 30 | |||||||
7. Borrowings | 31 | |||||||
8. Convertible Notes and Subordinated Debentures | 32 | |||||||
9. Commitments and Contingencies | 34 | |||||||
10. Stockholders’ Equity | 35 | |||||||
11. (Losses) Earnings Per Share (“EPS”) | 36 | |||||||
12. Segment Reporting | 37 | |||||||
13. Revenue Recognition | 38 | |||||||
14. Stock-Based Compensation | 39 | |||||||
15. Income Taxes | 41 | |||||||
16. Business Combinations | 42 | |||||||
17. Derivative Financial Instruments | 46 | |||||||
18. Fair Value Measurements | 49 | |||||||
19. Leases | 57 | |||||||
20. Investments in Tax Credit Structures | 59 | |||||||
21. Regulatory Matters | 60 | |||||||
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 62 | ||||||
| Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 88 | ||||||
| Item 4. | CONTROLS AND PROCEDURES | 90 | ||||||
PART II - OTHER INFORMATION | ||||||||
| Item 1. | LEGAL PROCEEDINGS | 91 | ||||||
| Item 1A. | RISK FACTORS | 91 | ||||||
| Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 92 | ||||||
| Item 3. | DEFAULTS UPON SENIOR SECURITIES | 92 | ||||||
| Item 4. | MINE SAFETY DISCLOSURES | 92 | ||||||
| Item 5. | OTHER INFORMATION | 92 | ||||||
| Item 6. | EXHIBITS | 92 | ||||||
| INDEX TO EXHIBITS | 93 | |||||||
| SIGNATURES | 94 | |||||||
2
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to, among other things, expectations regarding the business environment in which we operate, projections of future performance, perceived opportunities in the market, and statements regarding our business strategies, objectives and vision. Forward-looking statements include, but are not limited to, statements preceded by, followed by or that include the words “will,” “believes,” “expects,” “anticipates,” “intends,” “plans,” “projects,” “forecasts,” “estimates” and similar expressions. With respect to any such forward-looking statements, Hope Bancorp, Inc. (the “Company”) claims the protection provided for in the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, trends, uncertainties, and factors that are beyond the Company’s control or ability to predict. The Company’s actual results, performance or achievements may differ significantly from the results, performance or achievements expressed or implied in any forward-looking statements. With the consummation of the merger of Territorial Bancorp Inc., factors that may cause actual outcomes to differ from what is expressed or forecasted in these forward-looking statements include, among things: difficulties and delays in integrating Hope Bancorp, Inc. and Territorial Bancorp Inc. and achieving anticipated synergies, cost savings and other benefits from the transaction; higher than anticipated transaction costs; and deposit attrition, operating costs, customer loss and business disruption following the merger, including difficulties in maintaining relationships with employees and customers, may be greater than expected. Other risks and uncertainties include, but are not limited to: possible renewed deterioration in economic conditions in the Company’s areas of operation or elsewhere; interest rate risk associated with volatile interest rates and related asset-liability matching risk; liquidity risks; risk of significant non-earning assets, and net credit losses that could occur, particularly in times of weak economic conditions or times of rising interest rates; the failure of or changes to assumptions and estimates underlying the Company’s allowances for credit losses; potential increases in deposit insurance assessments and regulatory risks associated with current and future regulations; the outcome of any legal proceedings that may be instituted against the Company; the impact of U.S. and global trade policies and tensions, including changes in, or the imposition of, tariffs and/or trade barriers and the economic impacts, volatility and uncertainty resulting therefrom, and geopolitical instability; changes to policies by the current United States presidential administration; and risks from natural disasters. For additional information concerning these and other risk factors, see Part I, Item 1A. Risk Factors contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 26, 2025.
Due to the risks and uncertainties we face, readers are cautioned not to place undue reliance on the forward-looking statements contained in this report, which speak only as of the date of this report, or to make predictions about future performance based solely on historical financial information. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.
3
PART I
FINANCIAL INFORMATION
Item 1.Financial Statements
HOPE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
| (Unaudited) | |||||||||||
| June 30, 2025 | December 31, 2024 | ||||||||||
| ASSETS | (Dollars in thousands, except share data) | ||||||||||
| Cash and cash equivalents: | |||||||||||
| Cash and due from banks | $ | $ | |||||||||
| Interest earning cash in other banks | |||||||||||
| Total cash and cash equivalents | |||||||||||
| Investment securities available for sale (“AFS”), at fair value | |||||||||||
Investment securities held to maturity (“HTM”), at amortized cost; fair value of $ | |||||||||||
| Equity investments | |||||||||||
| Loans held for sale, at lower of cost or fair value | |||||||||||
Loans receivable, net of allowance for credit losses of $ | |||||||||||
| Federal Home Loan Bank (“FHLB”) stock, at cost | |||||||||||
| Premises and equipment, net | |||||||||||
| Accrued interest receivable | |||||||||||
| Deferred tax assets, net | |||||||||||
| Bank owned life insurance (“BOLI”) | |||||||||||
| Investments in affordable housing partnerships | |||||||||||
| Operating lease right-of-use assets (“ROU”), net | |||||||||||
| Goodwill | |||||||||||
| Core deposit intangible assets, net | |||||||||||
| Servicing assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
(Continued)
4
HOPE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
| (Unaudited) | |||||||||||
| June 30, 2025 | December 31, 2024 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | (Dollars in thousands, except share data) | ||||||||||
| LIABILITIES: | |||||||||||
| Deposits: | |||||||||||
| Noninterest bearing | $ | $ | |||||||||
| Interest bearing: | |||||||||||
| Money market and NOW accounts | |||||||||||
| Savings deposits | |||||||||||
| Time deposits | |||||||||||
| Total deposits | |||||||||||
| FHLB and Federal Reserve Bank (“FRB”) borrowings | |||||||||||
| Convertible notes and subordinated debentures, net | |||||||||||
| Accrued interest payable | |||||||||||
| Operating lease liabilities | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | $ | $ | |||||||||
Commitments and contingent liabilities (Note 9) | |||||||||||
| STOCKHOLDERS’ EQUITY: | |||||||||||
Common stock, $ | $ | $ | |||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
Treasury stock, at cost; | ( | ( | |||||||||
| Accumulated other comprehensive loss, net | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying Notes to Consolidated Financial Statements (Unaudited)
5
HOPE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands, except per share data) | |||||||||||||||||||||||
| INTEREST INCOME: | |||||||||||||||||||||||
| Interest and fees on loans | $ | $ | $ | $ | |||||||||||||||||||
| Interest on investment securities | |||||||||||||||||||||||
| Interest on cash and deposits at other banks | |||||||||||||||||||||||
| Interest on other investments | |||||||||||||||||||||||
| Total interest income | |||||||||||||||||||||||
| INTEREST EXPENSE: | |||||||||||||||||||||||
| Interest on deposits | |||||||||||||||||||||||
| Interest on FHLB and FRB borrowings | |||||||||||||||||||||||
| Interest on other borrowings and debt | |||||||||||||||||||||||
| Total interest expense | |||||||||||||||||||||||
| NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES | |||||||||||||||||||||||
| PROVISION FOR CREDIT LOSSES | |||||||||||||||||||||||
| NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES | |||||||||||||||||||||||
| NONINTEREST INCOME: | |||||||||||||||||||||||
| 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 | ( | ( | |||||||||||||||||||||
| Other income and fees | |||||||||||||||||||||||
| Total noninterest income | ( | ( | |||||||||||||||||||||
| NONINTEREST EXPENSE: | |||||||||||||||||||||||
| Salaries and employee benefits | |||||||||||||||||||||||
| Occupancy | |||||||||||||||||||||||
| Furniture and equipment | |||||||||||||||||||||||
| Data processing and communications | |||||||||||||||||||||||
| Professional fees | |||||||||||||||||||||||
| Amortization of investments in affordable housing partnerships | |||||||||||||||||||||||
| FDIC assessments | |||||||||||||||||||||||
| FDIC special assessment | ( | ||||||||||||||||||||||
| Earned interest credit expense | |||||||||||||||||||||||
| Merger and restructuring-related costs | |||||||||||||||||||||||
| Other noninterest expense | |||||||||||||||||||||||
| Total noninterest expense | |||||||||||||||||||||||
| (LOSS) INCOME BEFORE INCOME TAXES | ( | ( | |||||||||||||||||||||
| INCOME TAX (BENEFIT) PROVISION | ( | ||||||||||||||||||||||
| NET (LOSS) INCOME | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| (LOSSES) EARNINGS PER COMMON SHARE | |||||||||||||||||||||||
| Basic | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Diluted | $ | ( | $ | $ | ( | $ | |||||||||||||||||
See accompanying Notes to Consolidated Financial Statements (Unaudited)
6
HOPE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Change in unrealized net holding gains (losses) on securities AFS | ( | ( | |||||||||||||||||||||
| Change in unrealized net holding losses on interest rate contracts used in cash flow hedges | ( | ( | ( | ( | |||||||||||||||||||
| Reclassification adjustments for net losses (gains) realized in net income | ( | ( | |||||||||||||||||||||
| Tax effect | ( | ( | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | |||||||||||||||||||||
| Total comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements (Unaudited)
7
HOPE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| Common stock | Additional paid-in capital | Retained earnings | Treasury stock | Accumulated other comprehensive loss, net | Total stockholders’ equity | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands, except share and per share data) | ||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, MARCH 31, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of tax settlements | ||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared on common stock ($ | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| BALANCE, JUNE 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| BALANCE, MARCH 31, 2025 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of tax settlements | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares in exchange for Territorial common stock | ||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared on common stock ($ | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, JUNE 30, 2025 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
(Continued)
8
HOPE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| Common stock | Additional paid-in capital | Retained earnings | Treasury stock | Accumulated other comprehensive loss, net | Total stockholders’ equity | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands, except share and per share data) | ||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, DECEMBER 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of tax settlements | ||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared on common stock ($ | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| BALANCE, JUNE 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| BALANCE, DECEMBER 31, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Issuance of shares pursuant to various stock plans, net of forfeitures and tax withholding cancellations | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of tax settlements | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares in exchange for Territorial common stock | ||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared on common stock ($ | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, JUNE 30, 2025 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements (Unaudited)
9
HOPE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net (loss) income | $ | ( | $ | ||||||||
| Adjustments to reconcile net (loss) income to net cash from operating activities: | |||||||||||
| Discount accretion, net of depreciation and amortization | |||||||||||
| Stock-based compensation expense | |||||||||||
| Provision for credit losses | |||||||||||
| Net gains on sales of loans | ( | ( | |||||||||
| Gains on BOLI | ( | ( | |||||||||
| Net change in fair value of derivatives | ( | ( | |||||||||
| Net losses (gains) on sale of investment securities AFS | ( | ||||||||||
| Net change in deferred income taxes | |||||||||||
| Proceeds from sales of loans held for sale | |||||||||||
| Originations of loans held for sale | ( | ( | |||||||||
| Originations of servicing assets | ( | ( | |||||||||
| Net change in accrued interest receivable | |||||||||||
| Net change in other assets | |||||||||||
| Net change in accrued interest payable | ( | ( | |||||||||
| Net change in other liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Investment securities available for sale: | |||||||||||
| Purchase of securities | ( | ( | |||||||||
| Proceeds from matured, called, or paid-down securities | |||||||||||
| Proceeds from sales and calls of securities | |||||||||||
| Investment securities held to maturity: | |||||||||||
| Proceeds from matured, called, or paid-down securities | |||||||||||
| Purchase of equity investments | ( | ( | |||||||||
| Proceeds from redemptions of equity investments | |||||||||||
| Proceeds from sales of loans held for sale previously classified as held for investment | |||||||||||
| Net change in loans receivable | |||||||||||
| Proceeds from sales of OREO | |||||||||||
| Redemption of FHLB and FRB stock | |||||||||||
| Purchase of premises and equipment | ( | ( | |||||||||
| Proceeds from BOLI death benefits | |||||||||||
| Investments in affordable housing partnerships | ( | ( | |||||||||
| Net cash received from Merger with Territorial | |||||||||||
| Net cash provided by investing activities | |||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Net change in deposits | ( | ( | |||||||||
| Proceeds from FHLB advances | |||||||||||
| Repayment of FHLB advances | ( | ( | |||||||||
| Proceeds from FRB borrowings | |||||||||||
| Repayment of FRB borrowings | ( | ( | |||||||||
| Cash dividends paid on common stock | ( | ( | |||||||||
| Taxes paid in net settlement of restricted stock | ( | ( | |||||||||
| Issuance of additional stock pursuant to various stock plans | |||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | ( | ||||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | |||||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for income taxes, net | |||||||||||
| SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES | |||||||||||
| Transfer from loans receivable to loans held for sale | |||||||||||
| Lease liabilities arising from obtaining ROU assets | |||||||||||
Merger with Territorial (See Note 16 - “Business Combinations”): | |||||||||||
| Identifiable assets acquired, net of cash | |||||||||||
| Liabilities assumed | |||||||||||
| Goodwill | |||||||||||
| Issuance of common stock as consideration | |||||||||||
See accompanying Notes to Consolidated Financial Statements (Unaudited)
10
HOPE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Hope Bancorp, Inc. (“Hope Bancorp” on a parent-only basis and the “Company” on a consolidated basis), headquartered in Los Angeles, California, is the holding company for Bank of Hope (the “Bank”). At June 30, 2025, the Bank operates 46 full-service branches and nine loan production offices in California, New York, New Jersey, Washington, Texas, Illinois, Georgia, Alabama, Florida, Colorado and Oregon under the Bank of Hope banner, 29 branches in Hawaii under the trade name Territorial Savings, as well a representative office in Seoul, South Korea. The Company is a corporation organized under the laws of the state of Delaware and a bank holding company registered under the Bank Holding Company Act of 1956, as amended.
The Consolidated Financial Statements included herein have been prepared without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), except for the Consolidated Statement of Financial Condition at December 31, 2024, which was from the audited financial statements included in the Company’s 2024 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and regulations.
The Consolidated Financial Statements include the accounts of Hope Bancorp and its wholly owned subsidiaries, principally the Bank. All intercompany transactions and balances have been eliminated in consolidation. The Company has made all adjustments, that, in the opinion of management, are necessary to fairly present the Company’s financial position at June 30, 2025 and December 31, 2024, and the results of operations for the three and six months ended June 30, 2025 and 2024. Certain reclassifications have been made to prior period amounts to conform to the current year presentation, and did not have an impact on the prior year net income or stockholders’ equity. The results of operations for the interim periods are not necessarily indicative of results to be anticipated for the full year.
These unaudited Consolidated Financial Statements should be read along with the audited Consolidated Financial Statements and accompanying Notes included in the Company’s 2024 Annual Report on Form 10-K.
Significant Accounting Policies
The Company’s accounting policies are described in Note 1 - “Summary of Significant Accounting Policies”, of its audited consolidated financial statements included in its 2024 Annual Report Form 10-K. Significant changes to accounting policies from those disclosed in the Company’s audited consolidated financial statements included in its 2024 Annual Report Form 10-K are presented below.
Business Combinations—The Company accounts 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 judgements are involved in the fair valuation and purchase price allocation process.
On April 2, 2025, the Company completed the acquisition of Territorial Bancorp Inc., a Maryland corporation (“Territorial”) and its wholly owned subsidiary, Territorial Savings Bank, headquartered in Honolulu, Hawaii, in accordance with the Agreement and Plan of Merger (the “Merger Agreement”) by and between the Company and Territorial entered into on April 26, 2024. Under the Merger Agreement, Territorial merged with and into the Company, with the Company continuing as the surviving entity (the “Merger”). Pursuant to the Merger Agreement, Territorial shareholders had the right to receive 0.8048 shares of Hope Bancorp common stock in exchange for each share of Territorial common stock they own. The legacy Territorial franchise in Hawaii continues to operate under the trade name Territorial Savings, a division of Bank of Hope. See Note 16 - “Business Combinations” for additional information regarding the Merger.
11
2. Investment Securities
The following is a summary of investment securities as of the dates indicated:
| June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt securities AFS: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Government agency and U.S. Government sponsored enterprises: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Agency securities | $ | $ | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations (“CMO”) | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities (“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 Company has elected to exclude accrued interest from the amortized cost of its investment debt securities. Accrued interest receivable for investment debt securities at June 30, 2025 and December 31, 2024, totaled $8.7 million and $7.6 million, respectively, and was included in accrued interest receivable on the Consolidated Statements of Financial Condition.
At June 30, 2025 and December 31, 2024, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.
Investments AFS and HTM of $18.5 million and $516.7 million, respectively, were acquired as part of the Merger with Territorial on April 2, 2025, and, immediately upon Merger, all of the acquired investments were categorized as AFS according to management intent and sold. The investment securities were sold at a market value of $535.2 million, with no gain or loss impact on the Consolidated Statements of (Loss) Income. See Note 16 - “Business Combinations” for additional information regarding the Merger with Territorial.
As part of a strategic repositioning, in June 2025, the Company sold a portion of its 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 these sales were redeployed to purchase higher-yielding investment securities AFS.
12
The table below summarizes the proceeds from and gains and losses on the sales of investment securities AFS, for the periods presented below.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Proceeds from sales of investment securities AFS | $ | $ | $ | $ | |||||||||||||||||||
| Gains from sales of investment securities AFS | $ | $ | $ | $ | |||||||||||||||||||
| Losses from sales of investment securities AFS | ( | ( | ( | ( | |||||||||||||||||||
| Net (losses) gain on sales of investment securities AFS | $ | ( | $ | $ | ( | $ | |||||||||||||||||
At June 30, 2025 and December 31, 2024, $151.6 million and $210.5 million in unrealized losses on investment securities AFS, net of taxes, respectively, were included in accumulated other comprehensive loss.
The following table presents a breakdown of interest income recorded for investment securities that are taxable and nontaxable.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Interest income on investment securities: | |||||||||||||||||||||||
| Taxable | $ | $ | $ | $ | |||||||||||||||||||
| Nontaxable | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The amortized cost and estimated fair value of investment securities at June 30, 2025, by contractual maturity, are presented in the table below. Collateralized mortgage obligations, mortgage-backed securities, and asset-backed securities are presented by final maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.
| Available for Sale | Held to Maturity | ||||||||||||||||||||||
| Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||
| Due within one year | $ | $ | $ | $ | |||||||||||||||||||
| Due after one year through five years | |||||||||||||||||||||||
| Due after five years through ten years | |||||||||||||||||||||||
| Due after ten years | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Securities with carrying values of approximately $319.1 million and $219.4 million at June 30, 2025 and December 31, 2024, respectively, were pledged to secure public deposits, for various borrowings, and for other purposes as required or permitted by law.
13
The following tables show the Company’s 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 as of the dates indicated. The length of time that the individual securities have been in a continuous unrealized loss position is not a factor in determining credit impairment with the adoption of current expected credit losses (“CECL”).
| June 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Description of Securities AFS | Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses | |||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Government agency and U.S. Government sponsored enterprises: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CMOs | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| MBS: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate securities | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Municipal securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Description of Securities AFS | Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses | |||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Government agency and U.S. Government sponsored enterprises: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Agency securities | $ | $ | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| CMOs | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| MBS: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate securities | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Municipal securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
The Company had collateralized mortgage obligations, mortgage-backed, corporate, and municipal securities classified as AFS that were in a continuous loss position for twelve months or longer at June 30, 2025. The collateralized mortgage obligations, and mortgage-backed securities were investments in U.S. Government agency and U.S. Government sponsored enterprises and have high credit ratings (“AA” grade or better). The interest on corporate and municipal securities that were in an unrealized loss position has been paid as agreed, and the Company believes this will continue in the future and that the securities will be paid in full as scheduled. The market value declines for these securities were primarily due to movements in interest rates and are not reflective of management’s expectations of the Company’s ability to fully recover any unrealized losses, which may be at maturity. Under CECL, the length of time that the fair value of investment securities has been less than amortized cost is not considered when assessing for credit impairment.
14
Allowance for Credit Losses on Securities Available for Sale—The Company evaluates investment securities AFS in unrealized loss positions for impairment related to credit losses on at least a quarterly basis. Investment securities AFS in unrealized loss positions are first assessed as to whether the Company intends to sell, or if it is more likely than not that the Company 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 earnings. For securities that do not meet these criteria, the Company evaluates whether the decline in fair value resulted from credit losses or other factors. In evaluating whether a credit loss exists, the Company has set up an initial quantitative filter for impairment triggers. Once the quantitative filter has been triggered, a security is placed on a watch list and an additional assessment is performed to identify whether a credit impairment exists. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment indicates that a credit loss exists, the Company compares the present value of cash flows expected to be collected from the security with the amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Unrealized losses that have not been recorded through an allowance for credit losses are recognized in other comprehensive income, net of applicable taxes. The Company did not
15
3. Equity Investments
Equity investments with readily determinable fair values at June 30, 2025 and December 31, 2024, consisted of mutual funds in the amounts of $50.5 million and $4.3 million, respectively, and were included in equity investments on the Consolidated Statements of Financial Condition.
During the three and six months ended June 30, 2025, the Company purchased $127 thousand and $45.5 million, respectively in equity investments with readily determinable fair values, consisting of Community Reinvestment Act (“CRA”) mutual funds. There were no
The net gains recognized from changes in fair value for equity investments with readily determinable fair values for the three and six months ended June 30, 2025, totaled $117 thousand and $743 thousand, respectively, and were recorded in other noninterest income and fees in the Consolidated Statements of (Loss) Income. The net losses recognized from changes in fair value for equity investments with readily determinable fair values for the three and six months ended June 30, 2024, totaled $19 thousand and $65 thousand, respectively.
At June 30, 2025 and December 31, 2024, the Company also had equity investments without readily determinable fair values, which were carried at cost less any determined impairment. The balance of these investments was adjusted for changes in subsequent observable prices. At June 30, 2025, the total balance of equity investments without readily determinable fair values included in equity investments on the Consolidated Statements of Financial Condition was $37.6 million, consisting of $370 thousand in correspondent bank stock, $1.0 million in Community Development Financial Institutions (“CDFI”) investments, and $36.2 million in CRA investments. At December 31, 2024, the total balance of equity investments without readily determinable fair values was $35.6 million, consisting of $370 thousand in correspondent bank stock, $1.0 million in CDFI investments, and $34.2 million in CRA investments.
16
4. Loans Receivable and Allowance for Credit Losses
The following is a summary of loans receivable by segment:
| June 30, 2025 | December 31, 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Loan portfolio composition | |||||||||||
| Commercial real estate (“CRE”) loans | $ | $ | |||||||||
| Commercial and industrial (“C&I”) loans | |||||||||||
| Residential mortgage loans | |||||||||||
| Consumer and other loans | |||||||||||
| Total loans receivable, net of deferred costs and fees | |||||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Loans receivable, net of allowance for credit losses | $ | $ | |||||||||
Loans receivable is stated at the amount of unpaid principal, adjusted for net deferred fees and costs, premiums and discounts, and purchase accounting fair value adjustments. The Company had net deferred costs of $1.4 million and net deferred fees of $241 thousand at June 30, 2025 and December 31, 2024, respectively.
The loan portfolio consists of four segments: CRE loans, C&I loans, residential mortgage loans, and consumer and other loans. CRE loans are extended for the purchase and refinance of commercial real estate and are generally secured by first deeds of trust and collateralized by multifamily residential or commercial properties. C&I loans are loans provided to businesses for various purposes such as working capital, purchasing inventory, debt refinancing, business acquisitions, international trade finance activities, and other business-related financing needs. CRE and C&I loans also include Small Business Administration (“SBA”) loans. Residential mortgage loans are extended for personal, family, or household use and are secured by a first mortgage or deed of trust. Consumer and other loans consist of home equity, credit card, and other personal loans.
The Company had loans receivable of $14.43 billion at June 30, 2025, an increase of $816.5 million, or 6.0 %, from December 31, 2024. The increase in loans receivable during the six months ended June 30, 2025, was primarily due to the $1.07 billion in loans added from the Merger with Territorial during the quarter ended June 30, 2025. See Note 16 - “Business Combinations” for additional information regarding the Merger.
The Company had $12.1 million in loans held for sale at June 30, 2025, compared with $14.5 million at December 31, 2024. Loans held for sale at June 30, 2025, consisted of $4.7 million in C&I loans, $1.1 million in residential mortgage loans, and $6.3 million in other consumer loans comprising the Company’s legacy credit card portfolio. Loans held for sale are not included in the loans receivable table presented above.
17
The tables below detail the activity in the allowance for credit losses (“ACL”) by portfolio segment for the three and six months ended June 30, 2025 and 2024.
| CRE Loans | C&I Loans | Residential Mortgage Loans | Consumer and Other Loans | Total | |||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Three Months Ended June 30, 2025 | |||||||||||||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Day 1 ACL for acquired purchased credit deteriorated (“PCD”) loans | |||||||||||||||||||||||||||||
| Provision (credit) for credit loss on loans | ( | ||||||||||||||||||||||||||||
| Loans charged off | ( | ( | ( | ( | |||||||||||||||||||||||||
| Recoveries of charge offs | |||||||||||||||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Six Months Ended June 30, 2025 | |||||||||||||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Day 1 ACL for acquired PCD loans | |||||||||||||||||||||||||||||
| Provision (credit) for credit loss on loans | ( | ||||||||||||||||||||||||||||
| Loans charged off | ( | ( | ( | ( | |||||||||||||||||||||||||
| Recoveries of charge offs | |||||||||||||||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| CRE Loans | C&I Loans | Residential Mortgage Loans | Consumer and Other Loans | Total | |||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Three Months Ended June 30, 2024 | |||||||||||||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Provision (credit) for credit loss on loans | ( | ( | |||||||||||||||||||||||||||
| Loans charged off | ( | ( | ( | ( | |||||||||||||||||||||||||
| Recoveries of charge offs | |||||||||||||||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Six Months Ended June 30, 2024 | |||||||||||||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Provision (credit) for credit loss on loans | ( | ( | |||||||||||||||||||||||||||
| Loans charged off | ( | ( | ( | ( | |||||||||||||||||||||||||
| Recoveries of charge offs | |||||||||||||||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
18
The following tables break out the allowance for credit losses and loan balance by measurement methodology at June 30, 2025 and December 31, 2024:
| June 30, 2025 | |||||||||||||||||||||||||||||
| CRE Loans | C&I Loans | Residential Mortgage Loans | Consumer and Other Loans | Total | |||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Allowance for credit losses: | |||||||||||||||||||||||||||||
| Individually evaluated | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Collectively evaluated | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Loans outstanding: | |||||||||||||||||||||||||||||
| Individually evaluated | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Collectively evaluated | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE Loans | C&I Loans | Residential Mortgage Loans | Consumer and Other Loans | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Individually evaluated | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Collectively evaluated | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Loans outstanding: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Individually evaluated | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Collectively evaluated | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
At June 30, 2025 and December 31, 2024, reserves for unfunded loan commitments recorded in other liabilities were $3.3 million and $2.7 million, respectively. For the three and six months ended June 30, 2025, the Company recorded an addition to reserves for unfunded commitments of $1.0 million and $600 thousand, respectively. For the three and six months ended June 30, 2024, the Company recorded a reduction to reserves for unfunded commitments of $300 thousand and $1.3 million, respectively.
Generally, loans are placed on nonaccrual status if principal and/or interest payments become 90 days or more past due, and/or management deems the collectability of the principal and/or interest to be in question, as well as when required by regulatory requirements. Loans to customers whose financial conditions have deteriorated are considered for nonaccrual status whether or not the loan is 90 days or more past due. Generally, payments received on nonaccrual loans are recorded as principal reductions. Loans are returned to accrual status only when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The Company does not recognize interest income while loans are on nonaccrual status.
19
The tables below represent the amortized cost of nonaccrual loans, as well as loans past due 90 or more days and still on accrual status, by loan segment and broken out by loans with a recorded ACL and those without a recorded ACL, at June 30, 2025 and December 31, 2024.
| June 30, 2025 | ||||||||||||||||||||||||||
| Nonaccrual with No ACL | Nonaccrual with an ACL | Total Nonaccrual (1) | Accruing Loans Past Due 90 Days or More | |||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||
| CRE loans | $ | $ | $ | $ | ||||||||||||||||||||||
| C&I loans | ||||||||||||||||||||||||||
| Residential mortgage loans | ||||||||||||||||||||||||||
| Consumer and other loans | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||
| Nonaccrual with No ACL | Nonaccrual with an ACL | Total Nonaccrual (1) | Accruing Loans Past Due 90 Days or More | |||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||
| CRE loans | $ | $ | $ | $ | ||||||||||||||||||||||
| C&I loans | ||||||||||||||||||||||||||
| Residential mortgage loans | ||||||||||||||||||||||||||
| Consumer and other loans | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
__________________________________
The following table presents the amortized cost of collateral-dependent loans at June 30, 2025 and December 31, 2024:
| June 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||||||||
| Real Estate Collateral | Other Collateral | Total | Real Estate Collateral | Other Collateral | Total | |||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| CRE loans | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| C&I loans | ||||||||||||||||||||||||||||||||||||||
| Residential mortgage loans | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
Collateral on loans is a significant portion of what secures collateral-dependent loans and significant changes to the fair value of the collateral can potentially impact ACL. During the six months ended June 30, 2025, the Company did not have any significant changes to the extent to which collateral secured its collateral-dependent loans, due to general deterioration or from other factors. At June 30, 2025 and December 31, 2024, real estate collateral securing CRE and C&I loans consisted of commercial real estate properties including hotel/motel, building, office, restaurant, land, gas station, warehouse, mixed-use and multifamily properties and real estate collateral securing residential mortgage loans consisted of underlying residential mortgage loan homes. Collateral dependent loans secured by other collateral at June 30, 2025 and December 31, 2024 consisted of loans secured by accounts receivables, inventory, tax credits, and underlying businesses.
20
Accrued interest receivable on loans totaled $44.1 million at June 30, 2025, and $43.0 million at December 31, 2024. The Company has elected to exclude accrued interest receivable in its estimates of expected credit losses because the Company writes off uncollectible accrued interest receivable in a timely manner. The Company considers writing off accrued interest amounts once the amounts become 90 days past due to be considered within a timely manner. The Company writes off accrued interest receivable by reversing interest income. The following table presents interest income reversals, due to loans being placed on nonaccrual status, by loan segment for the three and six months ended June 30, 2025 and 2024:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| CRE loans | $ | $ | $ | $ | |||||||||||||||||||
| C&I loans | |||||||||||||||||||||||
| Residential mortgage loans | |||||||||||||||||||||||
| Consumer and other loans | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The following table presents the amortized cost of past due loans, including nonaccrual loans past due 30 or more days, by the number of days past due at June 30, 2025 and December 31, 2024, by loan segment:
| June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due | Total Past Due | 30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due | Total Past Due | ||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| CRE loans | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| C&I loans | |||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage loans | |||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other loans | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Past Due | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
The Company categorizes 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. Homogeneous loans (i.e., home mortgage loans, home equity lines of credit, overdraft loans, express business loans, and automobile loans) are not risk rated and credit risk is analyzed largely by the number of days past due. This analysis is performed at least on a quarterly basis.
The definitions for risk ratings are as follows:
•Pass: Loans that meet a preponderance or more of the Company’s 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 by the collateral pledged, if any. Loans in this classification have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
•Doubtful: 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.
21
The following tables present the amortized cost basis of loans receivable by segment, risk rating, and year of origination, renewal, or major modification at June 30, 2025 and December 31, 2024.
| June 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loan by Year | Revolving Loans | Revolving Loans Converted to Term Loans | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2022 | 2021 | Prior | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Subtotal | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Year-to-date gross charge offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| C&I loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful / loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Subtotal | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Year-to-date gross charge offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Subtotal | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Year-to-date gross charge offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Subtotal | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Year-to-date gross charge offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Total loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful / loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Total year-to-date gross charge offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
22
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loan by Year | Revolving Loans | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2021 | 2020 | Prior | |||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| CRE loans | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subtotal | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Year-to-date gross charge offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| C&I loans | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful / loss | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subtotal | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Year-to-date gross charge offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage loans | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subtotal | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Year-to-date gross charge offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Consumer and other loans | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subtotal | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Year-to-date gross charge offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Total loans | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful / loss | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Total year-to-date gross charge offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
For the twelve months ended December 31, 2024, there were no revolving loans converted to term loans.
23
The Company may reclassify loans held for investment to loans held for sale in the event that the Company plans to sell loans that were originated with the intent to hold to maturity. Loans transferred from held for investment to held for sale are carried at the lower of cost or fair value. The breakdown of loans by segment that were reclassified from held for investment to held for sale for the three and six months ended June 30, 2025 and 2024, is presented in the following table:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Transfer of loans held for investment to held for sale | (Dollars in thousands) | ||||||||||||||||||||||
| CRE loans | $ | $ | $ | $ | |||||||||||||||||||
| C&I loans | |||||||||||||||||||||||
| Consumer and other loans | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The Company calculates its ACL by estimating expected credit losses on a collective basis for loans that share similar risk characteristics. Loans that do not share similar risk characteristics with other loans are evaluated for credit losses on an individual basis. The Company differentiates its loan segments based on shared risk characteristics for which allowance for credit losses is measured on a collective basis.
| Risk Characteristics | |||||||||||
| CRE loans | Property type, location, owner-occupied status | ||||||||||
| C&I loans | Delinquency status, risk rating, industry type | ||||||||||
| Residential mortgage loans | FICO score, LTV, delinquency status, maturity date, collateral value, location | ||||||||||
| Consumer and other loans | Historical losses | ||||||||||
The Company uses 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. The Company uses Probability of Default (“PD”), Loss Given Default (“LGD”), and Exposure at Default (“EAD”) methodologies with quantitative factors and qualitative considerations in the calculation of the allowance for credit losses for collectively assessed loans. The Company uses a reasonable and supportable period of two years , at which point loss assumptions revert back to historical loss information by means of a one-year reversion period. Included in the quantitative portion of the ACL analysis are inputs such as borrowers’ net operating income, debt coverage ratios, real estate collateral values, as well as factors that are more subjective or require management’s judgment, including key macroeconomic variables from Moody’s forecast scenarios such as GDP, unemployment rates, interest rates, and CRE prices. These key inputs are utilized in the Company’s models to develop PD and LGD assumptions used in the calculation of estimated quantitative losses.
The ACL for the Company’s construction, credit card, and certain consumer loans is calculated based on a non-modeled approach that utilizes historical loss rates to estimate losses. A non-modeled approach was chosen for these loans as fewer data points exist, which could result in high levels of estimated loss volatility under a modeled approach. In the aggregate, non-modeled loans represented approximately 1 % of the Company’s total loan portfolio at June 30, 2025.
The Company’s Economic Forecast Committee (“EFC”) reviews economic forecast scenarios that are incorporated in the Company’s ACL. The EFC reviews multiple scenarios provided to the Company by an independent third party and chooses a single scenario that best aligns with management’s expectation of future economic conditions. At June 30, 2025, the Company utilized the June 2025 consensus economic forecast scenario from Moody’s, as it best aligned with management’s expectations of future conditions. The forecast projected GDP growth of 1.5% in 2025, 1.6% for 2026, and 2.1% for 2027, with unemployment projected to be 4.3% for 2025, 4.5% for 2026, and 4.3% in 2027. CRE prices in the consensus scenario were expected to show improvement by 2027, with the CRE price index projected to (contract) grow (0.2%) for 2025, (1.5%) for 2026, and 2.5% in 2027. The Company also utilized Moody’s December 2024 consensus economic forecast for the calculation of the December 31, 2024 ACL.
24
In order to quantify the credit risk impact of other trends and changes within the loan portfolio, the Company utilizes qualitative adjustments to the modeled and non-modeled estimated loss approaches. The parameters for making adjustments are established under a Credit Risk Matrix that provides different possible scenarios for each of the factors below. The Credit Risk Matrix and the possible scenarios enable the Bank to qualitatively adjust the Loss Migration Ratio by as much as 25 basis points for each loan type pool. This matrix considers the following seven factors, which are patterned after the guidelines provided under the Interagency Policy Statement on the Allowance for Credit Losses:
•Changes in lending policies and procedures, including underwriting standards and collection, charge off, and recovery practices;
•Changes in the nature and volume of the loan portfolio;
•Changes in the experience, ability, and depth of lending management and staff;
•Changes in the trends of the volume and severity of past due loans, classified loans, nonaccrual loans, and other loan modifications;
•Changes in the quality of the loan review system and the degree of oversight by the management and the Board of Directors;
•The existence and effect of any concentrations of credit, and changes in the level of such concentrations; and
•The effect of external factors, such as competition, legal requirements, and regulatory requirements on the level of estimated losses in the loan portfolio.
For loans that do not share similar risk characteristics such as nonaccrual loans above $1.0 million, the Company evaluates these loans on an individual basis in accordance with ASC 326. Such nonaccrual loans are considered to have different risk profiles than performing loans and are therefore evaluated individually. The Company elected to 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, the Company obtains a new appraisal to determine the fair value of collateral. The appraisals are based on an “as-is” valuation. To ensure that appraised values remain current, the Company either obtains 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, the Company recognizes an ACL with a corresponding charge to the provision for credit loss on loans.
The Company maintains a separate ACL for its off-balance-sheet unfunded loan commitments. The Company uses an estimated funding rate to allocate an allowance to undrawn exposures. This funding rate is used as a credit conversion factor to capture how much undrawn lines of credit can potentially become drawn at any point. The funding rate is determined based on a look-back period of eight quarters. Credit loss is not estimated for off-balance-sheet credit exposures that are unconditionally cancellable by the Company.
25
Loan Modifications to Borrowers Experiencing Financial Difficulty
The tables below present the amortized cost of loans modified to borrowers experiencing financial difficulty for the periods presented, disaggregated by loan class and type of modification.
| Three Months Ended June 30, 2025 | |||||||||||||||||||||||||||||
| CRE Loans | C&I Loans | Residential Mortgage Loans | Consumer and Other Loans | Total | |||||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||||
| Principal forgiveness | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Interest rate reduction | |||||||||||||||||||||||||||||
| Payment delay | |||||||||||||||||||||||||||||
| Term extension | |||||||||||||||||||||||||||||
| Total Loan Modifications | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| % of Loan Class | % | % | % | % | % | ||||||||||||||||||||||||
| Six Months Ended June 30, 2025 | |||||||||||||||||||||||||||||
| CRE Loans | C&I Loans | Residential Mortgage Loans | Consumer and Other Loans | Total | |||||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||||
| Principal forgiveness | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Interest rate reduction | |||||||||||||||||||||||||||||
| Payment delay | |||||||||||||||||||||||||||||
| Term extension | |||||||||||||||||||||||||||||
| Total Loan Modifications | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| % of Loan Class | % | % | % | % | % | ||||||||||||||||||||||||
| Three Months Ended June 30, 2024 | |||||||||||||||||||||||||||||
| CRE Loans | C&I Loans | Residential Mortgage Loans | Consumer and Other Loans | Total | |||||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||||
| Principal forgiveness | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Interest rate reduction | |||||||||||||||||||||||||||||
| Payment delay | |||||||||||||||||||||||||||||
| Term extension | |||||||||||||||||||||||||||||
| Total Loan Modifications | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| % of Loan Class | % | % | % | % | % | ||||||||||||||||||||||||
| Six Months Ended June 30, 2024 | |||||||||||||||||||||||||||||
| CRE Loans | C&I Loans | Residential Mortgage Loans | Consumer and Other Loans | Total | |||||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||||
| Principal forgiveness | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Interest rate reduction | |||||||||||||||||||||||||||||
| Payment delay | |||||||||||||||||||||||||||||
| Term extension | |||||||||||||||||||||||||||||
| Total Loan Modifications | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| % of Loan Class | % | % | % | % | % | ||||||||||||||||||||||||
26
The following tables describe the financial effect of the loan modifications made to borrowers experiencing financial difficulty for the periods presented:
| Financial Effect | ||||||||||||||||||||||||||
| Modification & Loan Types | Description of Financial Effect | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | |||||||||||||||||||||||
| Payment delay | ||||||||||||||||||||||||||
| Residential mortgage loans | Length of payment delay by a weighted average of: | N/A | ||||||||||||||||||||||||
| Term extension | ||||||||||||||||||||||||||
| C&I loans | Extended term by a weighted average of: | |||||||||||||||||||||||||
| Financial Effect | ||||||||||||||||||||
| Modification & Loan Types | Description of Financial Effect | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | |||||||||||||||||
| Principal forgiveness | ||||||||||||||||||||
| C&I loans | Forgiveness of principal totaling: | N/A | $ | million | ||||||||||||||||
| Term extension | ||||||||||||||||||||
| C&I loans | Extended term by a weighted average of: | |||||||||||||||||||
The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The Company had no loans that were modified within the 12 months ended June 30, 2025, and that experienced a payment default during the three months ended June 30, 2025. The Company had one loan totaling $2.5 million that was modified through a payment delay within the 12 months ended June 30, 2025, and that experienced a payment default during the six months ended June 30, 2025.
All loans that were modified within the 12 months ended June 30, 2024, to borrowers experiencing financial difficulty were current at June 30, 2024. There were no loan modifications to borrowers experiencing financial difficulty that had payment defaults during the three and six months ended June 30, 2024, and that were modified in the 12 months prior to default.
27
5. Goodwill, Intangible Assets, and Servicing Assets
Goodwill
The carrying amount of the Company’s goodwill at June 30, 2025, and December 31, 2024, was $478.1 million and $464.5 million, respectively. The Company recorded goodwill of $13.7 million as a result of the Merger with Territorial on April 2, 2025. There was no
Goodwill and other intangible assets generated from business combinations and deemed to have indefinite lives are not subject to amortization and instead are tested for impairment annually at the reporting unit level unless a triggering event occurs thereby requiring an updated assessment. Goodwill represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed. Impairment exists when the carrying value of the goodwill exceeds the fair value of the reporting unit.
At December 31, 2024, the Company performed a qualitative assessment to test for impairment and management has concluded that there was no impairment. There were no triggering events during the quarter ended June 30, 2025, that indicated goodwill was more than likely impaired. As the Company operates as single business unit, goodwill impairment was assessed based on the Company as a whole.
Intangible Assets
A core deposit intangible asset of $46.5 million, representing 4.1 % of core deposits, was recorded as part of the Merger with Territorial during the quarter ended June 30, 2025, and is scheduled to amortize for a period of 15 years ending in 2040. See Note 16 - “Business Combinations” for additional information regarding the Merger.
Amortization expense related to core deposit intangible assets totaled $1.2 million and $1.5 million for the three and six months ended June 30, 2025, respectively. Amortization expense related to core deposit intangible assets totaled $401 thousand and $802 thousand for the three and six months ended June 30, 2024, respectively. The following table provides information regarding the core deposit intangibles at June 30, 2025 and December 31, 2024:
| June 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||||||||
| Core Deposit Intangibles Related To: | Amortization Period | Gross Amount | Accumulated Amortization | Carrying Amount | Accumulated Amortization | Carrying Amount | ||||||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| Wilshire Bancorp acquisition | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||
| Territorial Bancorp acquisition | ( | |||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||
Servicing Assets
Total servicing assets at June 30, 2025 totaled $11.8 million comprised $10.6 million in SBA servicing assets and $1.3 million in mortgage related servicing assets. At December 31, 2024, servicing assets totaled $10.1 million and comprised $8.6 million in SBA servicing assets and $1.5 million in mortgage related servicing assets.
Management periodically evaluates servicing assets for impairment based upon the fair value of the rights as compared to the carrying amount. Impairment is determined by stratifying rights into groupings based on loan type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. At June 30, 2025 and December 31, 2024, the Company did not have a valuation allowance on its servicing assets.
28
The changes in servicing assets for the three and six months ended June 30, 2025 and 2024, were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Additions through originations of servicing assets | |||||||||||||||||||||||
| Amortization | ( | ( | ( | ( | |||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | |||||||||||||||||||
Loans serviced for others are not reported as assets. The principal balances of loans serviced for other institutions were $1.05 billion at June 30, 2025, and $975.0 million at December 31, 2024.
The Company utilizes the discounted cash flow method to calculate the initial excess servicing assets. The inputs used in evaluating servicing assets for impairment at June 30, 2025 and December 31, 2024, are presented below.
| June 30, 2025 | December 31, 2024 | ||||||||||
| SBA Servicing Assets: | |||||||||||
| Weighted-average discount rate | |||||||||||
| Constant prepayment rate | |||||||||||
| Mortgage Servicing Assets: | |||||||||||
| Weighted-average discount rate | |||||||||||
| Constant prepayment rate | |||||||||||
29
6. Deposits
Total deposits of $15.94 billion at June 30, 2025, were up $1.62 billion, or 11.3 %, 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 Merger with Territorial during the quarter ended June 30, 2025. The Company recorded $147 thousand in net premium on time deposits at close of Merger, of which $60 thousand in net discounts remained at June 30, 2025. See Note 16 - “Business Combinations” for additional information regarding the Merger.
The aggregate amount of time deposits in denominations of more than $250 thousand at June 30, 2025 and December 31, 2024 was $3.30 billion and $2.71 billion, respectively. Included in time deposits of more than $250 thousand was $300.0 110 % of outstanding deposits. At June 30, 2025 and December 31, 2024, a letter of credit issued by the FHLB for $330.0 million and $150.0 million, respectively, and at December 31, 2024, securities with an aggregate fair value of $200.5 million were pledged as collateral for the California State Treasurer’s deposits. At June 30, 2025, certificates of deposit owned by state and local governments in Hawaii in amounts greater than or equal to $250,000 was $244.1 million, and was collateralized by investment securities with an aggregate fair value of $257.3 million.
Brokered deposits at June 30, 2025 and December 31, 2024, totaled $797.1 million and $1.06 billion, respectively. Brokered deposits at June 30, 2025, consisted of $475.9 million in money market and NOW accounts and $321.2 million in time deposit accounts. Brokered deposits at December 31, 2024, consisted of $527.1 million in money market and NOW accounts and $536.0 million in time deposit accounts.
The aggregate amount of unplanned overdrafts of demand deposits that were reclassified as loans was $3.3 million and $1.1 million at June 30, 2025 and December 31, 2024, respectively.
The following is a breakdown of the Company’s deposits at June 30, 2025 and December 31, 2024:
| June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||
| Balance | Percentage (%) | Balance | Percentage (%) | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Noninterest bearing demand deposits | $ | % | $ | % | |||||||||||||||||||
| Money market and NOW accounts | % | % | |||||||||||||||||||||
| Savings deposits | % | % | |||||||||||||||||||||
| Time deposits | % | % | |||||||||||||||||||||
| Total deposits | $ | % | $ | % | |||||||||||||||||||
30
7. Borrowings
At June 30, 2025, borrowings totaled $29.8 million, compared with $239.0 million at December 31, 2024. All of the Company’s borrowings at June 30, 2025 and December 31, 2024, had maturities of less than 12 months. Borrowings at June 30, 2025 are net of discounts totaling $248 thousand and have a weighted average effective rate of 1.72 %. The tables below summarize the Company’s borrowing lines at June 30, 2025 and December 31, 2024:
| June 30, 2025 | |||||||||||||||||||||||
| Total Borrowing Capacity | Borrowings Outstanding | Available Borrowing Capacity | |||||||||||||||||||||
| Amount | Weighted Average Rate | ||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| FHLB | $ | $ | % | $ | |||||||||||||||||||
| FRB Discount Window | % | ||||||||||||||||||||||
| Unsecured Federal Funds lines | % | ||||||||||||||||||||||
| Total | $ | $ | % | $ | |||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Total Borrowing Capacity | Borrowings Outstanding | Available Borrowing Capacity | |||||||||||||||||||||
| Amount | Weighted Average Rate | ||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| FHLB | $ | $ | % | $ | |||||||||||||||||||
| FRB Discount Window | % | ||||||||||||||||||||||
| Unsecured Federal Funds lines | % | ||||||||||||||||||||||
| Total | $ | $ | % | $ | |||||||||||||||||||
The Company maintains a line of credit with the FHLB of San Francisco as a secondary source of funds. The borrowing capacity with the FHLB is limited to the lower of either 25 % of the Bank’s total assets or the Bank’s collateral capacity. The terms of this credit facility require the Company to pledge eligible collateral with the FHLB equal to at least 100 % of outstanding advances. The Company’s available borrowing capacity decreased to $5.80 billion at June 30, 2025 from $5.96 billion at December 31, 2024, mainly due to an increase in FHLB issued letters of credit from $150.0 million at December 31, 2024 to $330.0 million at June 30, 2025. At June 30, 2025 and December 31, 2024, loans with a carrying amount of $7.45 billion and $7.58 billion were pledged at the FHLB for outstanding advances and remaining borrowing capacity, respectively. At June 30, 2025, in addition to FHLB stock, a total market value of $45.0 million in investment securities were pledged as collateral to the FHLB. The purchase of FHLB stock is a prerequisite to become a member of the FHLB system, and the Company is required to own a certain amount of FHLB stock based on total asset size and outstanding borrowings.
As part of the 2025 second quarter Merger, the Company assumed $160.0 million in FHLB advances, of which $125.0 million was paid off on April 2, 2025, and an additional $5.0 million matured prior to June 30, 2025. The remaining $30.0 million in FHLB advances outstanding at June 30, 2025, have maturities through June 2026, have a weighted average coupon rate of 1.70 %, and were acquired at a discount of $441 thousand, with $248 thousand in discount remaining at June 30, 2025. See Note 16 - “Business Combinations” for additional information regarding the Merger.
The Company may also borrow from the FRB discount window up to the maximum amount, which is limited to 99 % of the fair market value of the qualifying loans and securities that are pledged. At June 30, 2025, the outstanding principal balance of the qualifying loans pledged at the FRB discount window was $1.81 billion. There were no investment securities pledged at the discount window at June 30, 2025.
The Company also maintains unsecured federal funds borrowing lines with other banks. There were no
31
8. Convertible Notes and Subordinated Debentures
Convertible Notes
In 2018, the Company 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 are not capital instruments but can be converted into shares of the Company’s common stock at an initial rate of 45.0760 shares per $1,000 principal amount of the notes (equivalent to an initial conversion price of approximately $22.18 per share of common stock, which represented a premium of 22.50 % to the closing stock price on the date of the pricing of the notes). Holders of the convertible notes have the option to convert all or a portion of the notes at any time on or after February 15, 2023. The convertible notes can be called by the Company, in part or in whole, on or after May 20, 2023, for 100 % of the principal amount in cash. Holders of the convertible notes have the option to put the notes back to the Company on May 15, 2028, or May 15, 2033, for 100 % of the principal amount in cash. The convertible notes can be settled in cash, stock, or a combination of stock and cash at the option of the Company.
On May 15, 2023, most holders of the Company’s convertible notes elected to exercise their optional put right and the Company paid off $197.1 million principal amount of notes in cash. During 2023, the Company also repurchased its 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 the repurchase. These repurchases are separate from the optional put and were made through a third-party broker. No notes were repurchased or paid off in the six months ended June 30, 2025 or the year ended December 31, 2024.
The carrying value of the convertible notes at June 30, 2025 and December 31, 2024, was $444
Interest expense on the convertible notes for the three and six months ended June 30, 2025, totaled $2 thousand and $4 thousand, respectively. Interest expense on the convertible notes for the three and six months ended June 30, 2024, totaled $2 thousand and $4 thousand, respectively.
Subordinated Debentures
At June 30, 2025, the Company had nine wholly owned subsidiary grantor trusts that 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 indentures. The trusts used the net proceeds from the offering to purchase a like amount of subordinated debentures. The subordinated debentures are the sole assets of the trusts. The Company’s obligations under the subordinated debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon the maturity of the subordinated debentures, or upon earlier redemption as provided in the indentures. The Company has the right to redeem the subordinated debentures in whole (but not in part) on a quarterly basis at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date. The Company also has a right to defer consecutive payments of interest on the subordinated debentures for up to five years .
The following table is a summary of trust preferred securities and subordinated debentures at June 30, 2025:
| Issuance Trust | Issuance Date | Trust Preferred Security Amount | Carrying Value of Subordinated Debentures | Rate Type | Current Rate | Maturity Date | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| Nara Capital Trust III | 06/05/2003 | $ | $ | Variable | 06/15/2033 | |||||||||||||||||||||||||||||||||
| Nara Statutory Trust IV | 12/22/2003 | Variable | 01/07/2034 | |||||||||||||||||||||||||||||||||||
| Nara Statutory Trust V | 12/17/2003 | Variable | 12/17/2033 | |||||||||||||||||||||||||||||||||||
| Nara Statutory Trust VI | 03/22/2007 | Variable | 06/15/2037 | |||||||||||||||||||||||||||||||||||
| Center Capital Trust I | 12/30/2003 | Variable | 01/07/2034 | |||||||||||||||||||||||||||||||||||
| Wilshire Trust II | 03/17/2005 | Variable | 03/17/2035 | |||||||||||||||||||||||||||||||||||
| Wilshire Trust III | 09/15/2005 | Variable | 09/15/2035 | |||||||||||||||||||||||||||||||||||
| Wilshire Trust IV | 07/10/2007 | Variable | 09/15/2037 | |||||||||||||||||||||||||||||||||||
| Saehan Capital Trust I | 03/30/2007 | Variable | 06/30/2037 | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||||||||||||||||
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The carrying value of the subordinated debentures at June 30, 2025 and December 31, 2024, was $109.8 million and $109.1 million, respectively. At June 30, 2025 and December 31, 2024, acquired subordinated debentures had remaining discounts of $20.1 million and $20.8 million, respectively. The carrying balance of subordinated debentures is net of remaining discounts and includes common trust securities.
The Company’s investment in the common trust securities of the issuer trusts was $3.9 25 % of capital on an aggregate basis as they were grandfathered in under BASEL III. Any amount that exceeds 25 % qualifies as Tier 2 capital.
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9. Commitments and Contingencies
The following table presents a summary of commitments described below at the dates indicated below:
| June 30, 2025 | December 31, 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Commitments to extend credit | $ | $ | |||||||||
| Standby letters of credit | |||||||||||
| Other letters of credit | |||||||||||
| Commitments to fund affordable housing partnerships and CRA investments | |||||||||||
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, commercial letters of credit, and commitments to fund investments in affordable housing partnerships and other CRA investments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition.
The Company’s exposure to credit loss in the event of nonperformance on commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as the Company does for extending loan facilities to customers. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on the Company’s credit evaluation of the counterparty. The types of collateral that the Company may hold can vary and may include accounts receivable, inventory, property, plant and equipment, and income-producing properties. The estimated exposure to loss from these commitments is included in the reserve for unfunded loan commitments, which amounted to $3.3 million at June 30, 2025, and $2.7 million at December 31, 2024.
In the normal course of business, the Company is involved in various legal claims. The Company has reviewed all legal claims against the Company with counsel and has taken into consideration the views of such counsel as to the potential outcome of the claims. Loss contingencies for all legal claims totaled $302 thousand at June 30, 2025, and $664 thousand at December 31, 2024. It is reasonably possible that the Company may incur losses in excess of the amounts currently accrued. However, at this time, the Company is unable to estimate the range of additional losses that are reasonably possible because of a number of factors, including the fact that certain of these litigation matters are still in their early stages. Management believes that none of these legal claims, individually or in the aggregate, will have a material adverse effect on the results of operations or financial condition of the Company.
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10. Stockholders’ Equity
Total stockholders’ equity at June 30, 2025, was $2.22 billion, compared with $2.13 billion at December 31, 2024.
On April 2, 2025, the Company acquired Territorial in an all-stock transaction. Pursuant to the Merger Agreement, Territorial shareholders received 0.8048 shares of the Company’s common stock in exchange for each share of Territorial common stock owned, with cash paid in lieu of fractional shares. The Company issued 6,976,754 shares of the Company’s common stock to Territorial shareholders valued at $73.3 million as part of the transaction, based on the closing price of the Company’s common stock on April 2, 2025. The pre-merger outstanding shares of the Company’s common stock remained outstanding and were not affected by the Merger. See Note 16 - “Business Combinations” for additional information regarding the Merger.
In January 2022, the Company’s Board of Directors approved a share repurchase program that authorized the Company to repurchase up to $50.0 million of its common stock, of which an estimated $35.3 million remained available at June 30, 2025. During the six months ended June 30, 2025, the Company did not repurchase any shares of common stock as part of this program. See Part II, Item 2—“Unregistered Sales of Equity Securities and Use of Proceeds” for additional information.
For the three months ended June 30, 2025 and 2024, the Company paid dividends of $0.14 0.28
The following table presents the changes to accumulated other comprehensive loss for the three and six months ended June 30, 2025 and 2024:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Balance at beginning of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Unrealized net gains (losses) on investment securities AFS | ( | ( | |||||||||||||||||||||
| Unrealized net losses on interest rate contracts used for cash flow hedges | ( | ( | ( | ( | |||||||||||||||||||
Reclassification adjustments for net losses (gains) realized in net income | ( | ( | |||||||||||||||||||||
| Tax effect | ( | ( | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | |||||||||||||||||||||
| Balance at end of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Reclassifications for net gains and losses realized in net income for the three and six months ended June 30, 2025 and 2024, related to net gains on interest rate contracts designated as cash flow hedges, amortization on unrealized losses from transferred investment securities to HTM, and net gains and losses on sales of investment securities. Gains and losses on interest rate contracts are recorded in interest income and expense in the Consolidated Statements of (Loss) Income. The unrealized holding losses at the date of transfer on securities HTM will continue to be reported, net of taxes, in AOCI as a component of stockholders’ equity and will be amortized over the remaining life of the securities as an adjustment of yield, offsetting the impact on yield of the corresponding discount amortization.
For the three and six months ended June 30, 2025, the Company reclassified net gains of $1.2 million and $3.2 million on interest rate contracts designated as cash flow hedges, respectively, from other comprehensive income to net interest income, compared with net gains of $3.8 million and $7.6 million for the three and six months ended June 30, 2024, respectively.
For the three and six months ended June 30, 2025, the Company recorded a reclassification adjustment of $860 thousand and $1.7 million, respectively, from other comprehensive income to a reduction of interest income, to amortize transferred unrealized losses to investment securities HTM, compared with $978 thousand and $1.8 million for the three and six months ended June 30, 2024, respectively.
For both the three and six months ended June 30, 2025, the Company reclassified net losses of $38.9 million on the sale of investment securities AFS, respectively, from other comprehensive income to noninterest income, compared with the reclassification of net gains of $425
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11. (Losses) Earnings Per Share (“EPS”)
EPS are computed by dividing net (loss) income by the weighted average number of common shares outstanding for the period. Basic EPS does not reflect the possibility of dilution that could result from the issuance of additional shares of common stock upon exercise or conversion of outstanding equity awards or convertible notes. Diluted EPS reflects the potential dilution that could occur if stock options, convertible notes, employee stock purchase program (“ESPP”) shares, or other contracts to issue common stock were exercised or converted to common stock that would then share in earnings. For the three and six months ended June 30, 2025, stock options and restricted share awards of 525,283 and 523,812 shares of common stock, respectively, were excluded in computing diluted (losses) earnings per common share because they were anti-dilutive. For the three and six months ended June 30, 2024, stock options and restricted share awards of 527,936 and 517,628 shares of common stock, respectively, were excluded in computing diluted (losses) earnings per common share because they were anti-dilutive.
Pursuant to the Territorial Merger Agreement, on April 2, 2025, Territorial shareholders received 0.8048 shares of Hope Bancorp common stock in exchange for each share of Territorial common stock; accordingly, the Company issued 6,976,754 shares, or $73.3 million of equity, as part of the transaction, based on the closing price of the Company’s common stock on April 2, 2025. The Company previously issued $217.5 million in convertible senior notes maturing on May 15, 2038, of which $444 thousand remained outstanding at June 30, 2025. The convertible notes can be converted into the Company’s shares of common stock at an initial rate of 45.0760 shares per $1,000 principal amount of the notes (See Note 8 - “Convertible Notes and Subordinated Debentures” for additional information regarding convertible notes issued). Under the required if-converted method for calculating dilutive EPS for convertible instruments, the denominator of the diluted EPS calculation is adjusted to reflect the full number of common shares issuable upon conversion, while the numerator is adjusted to add back after-tax interest expense for the period. For the three and six months ended June 30, 2025 and 2024, shares related to the convertible notes issued were not included in the Company’s diluted EPS calculation. In accordance with the terms of the convertible notes and settlement options available to the Company, no shares would have been delivered to investors of the convertible notes based on the Company’s common stock price during the three and six months ended June 30, 2025 and 2024, as the conversion price exceeded the market price of the Company’s stock.
The following table presents computations of basic and diluted EPS for the three and six months ended June 30, 2025 and 2024.
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||
| Net Loss (Numerator) | Weighted-Average Shares (Denominator) | Losses Per Share | Net Income (Numerator) | Weighted-Average Shares (Denominator) | Earnings Per Share | ||||||||||||||||||||||||||||||
| (Dollars in thousands, except share and per share data) | |||||||||||||||||||||||||||||||||||
| Basic EPS - common stock | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||||||||||||||
| Stock options and restricted stock | |||||||||||||||||||||||||||||||||||
| Diluted EPS - common stock | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||
| Net Loss (Numerator) | Weighted-Average Shares (Denominator) | Losses Per Share | Net Income (Numerator) | Weighted-Average Shares (Denominator) | Earnings Per Share | ||||||||||||||||||||||||||||||
| (Dollars in thousands, except share and per share data) | |||||||||||||||||||||||||||||||||||
| Basic EPS - common stock | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||||||||||||||
| Stock options and restricted stock | |||||||||||||||||||||||||||||||||||
| Diluted EPS - common stock | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||
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12. Segment Reporting
The Company’s reportable segment is determined by the Chief Executive Officer, who is designated as the chief operating decision maker (“CODM”), based upon information provided about the Company’s products and services offered, primarily banking operations. The segment is also distinguished by the level of information provided to the CODM, who uses such information to review performance of various line of businesses, which are then aggregated if operating performance, product/services, and customers are similar. The CODM evaluates the financial performance of the Company’s businesses using revenue streams, comparative product pricing, and significant expenses to assess performance and return on assets. The CODM uses consolidated net income and profitability metrics to benchmark the Company against its competitors. Benchmarking analysis and monitoring of budget to actual results are used to assess performance and establish compensation. The CODM when making significant decisions takes into consideration certain financial metrics including loan growth, deposit growth, return on assets, return on average tangible common equity, efficiency ratio, and net interest margin.
Interest income from loans and other earning assets, and income from fee-based businesses provide banking operation revenue. Interest expense on deposits and other sources of funding, provisions for credit losses, and operating expenses, primarily salaries and employee benefits, occupancy, furniture and equipment, and data processing and communications, provide the significant expenses of banking operations. The Company currently operates as a single segment and all operations are domestic. The Merger did not result in any additional operating segment for the Company since Territorial branches became part of the Company’s single segment.
The following table presents certain segment income statement information, including significant expense categories:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Net interest income | $ | $ | $ | $ | |||||||||||||||||||
| Provision for credit losses | ( | ( | ( | ( | |||||||||||||||||||
| Noninterest income | ( | ( | |||||||||||||||||||||
| Noninterest expense | ( | ( | ( | ( | |||||||||||||||||||
| (Loss) income before income taxes | $ | ( | $ | ( | |||||||||||||||||||
| Significant segment expenses | |||||||||||||||||||||||
| Salaries and employee benefits | $ | $ | $ | $ | |||||||||||||||||||
| Occupancy | |||||||||||||||||||||||
| Furniture and equipment | |||||||||||||||||||||||
| Data processing and communications | |||||||||||||||||||||||
| Merger and restructuring-related costs | |||||||||||||||||||||||
The following table presents certain segment balance sheet information:
| June 30, 2025 | December 31, 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Total assets | $ | $ | |||||||||
| Investment securities AFS and HTM | |||||||||||
| Total loans receivable | |||||||||||
| Total deposits | |||||||||||
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13. Revenue Recognition
The Company recognizes revenue when obligations under the terms of a contract with customers are satisfied. ASU 2014-09 (Topic 606) does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also out of scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as deposit related fees, wire transfer and foreign currency fees, and certain other real estate owned (“OREO”) related net gains or expenses. However, the recognition of these revenue streams for the Company did not change significantly upon adoption of Topic 606. Noninterest revenue streams within the scope of Topic 606 are discussed below.
Service Charges on Deposit Accounts and Wire Transfer Fees
Service charges on noninterest and interest bearing deposit accounts consist of monthly service charges, customer analysis charges, non-sufficient funds (“NSF”) charges, and other deposit account related charges. The Company’s performance obligation for account analysis charges and monthly service charges is generally satisfied, and the related revenue is recognized, over the period in which the service is provided. NSF charges, other deposit account related charges, and wire transfer fees are transaction based, and therefore the Company’s performance obligation is satisfied at the point of the transaction, and related revenue recognized at that point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.
Service charges on deposit accounts and wire transfers are summarized below:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Noninterest bearing deposit account income: | |||||||||||||||||||||||
| Monthly service charges | $ | $ | $ | $ | |||||||||||||||||||
| Customer analysis charges | |||||||||||||||||||||||
| NSF charges | |||||||||||||||||||||||
| Other service charges | |||||||||||||||||||||||
| Total noninterest bearing deposit account income | |||||||||||||||||||||||
| Interest bearing deposit account income: | |||||||||||||||||||||||
| Monthly service charges | |||||||||||||||||||||||
| Total service fees on deposit accounts | $ | $ | $ | $ | |||||||||||||||||||
| Wire transfer fee income: | |||||||||||||||||||||||
| Wire transfer fees | $ | $ | $ | $ | |||||||||||||||||||
| Foreign exchange fees | |||||||||||||||||||||||
| Total wire transfer and foreign currency fees | $ | $ | $ | $ | |||||||||||||||||||
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14. Stock-Based Compensation
In May 2024, the Company’s stockholders approved the 2024 Equity Incentive Plan (the “2024 Plan”), which provides for grants of stock options, stock appreciation rights (“SAR”), restricted stock, performance shares, and performance units to non-employee directors and employees of the Company. Stock options may be either incentive stock options (“ISOs”), as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or nonqualified stock options (“NQSOs”).
The 2024 Plan provides the Company flexibility to (i) attract and retain qualified non-employee directors, executives, and other key employees with appropriate equity-based awards; (ii) motivate high levels of performance; (iii) recognize employees’ contributions to the Company’s success; and (iv) align the interests of the participants with those of the Company’s stockholders. The 2024 Plan reserved for 4,500,000 shares available for grant to participants. At June 30, 2025, there were 2,555,341 remaining shares available for future grants under the 2024 Plan. The pool of available shares can be partially replenished for future grants to the extent there are forfeitures, expirations or otherwise terminations of existing equity awards without issuance of the shares underlying such awards. The exercise price for shares under an ISO may not be less than 100 % of fair market value on the date the award is granted under the Code. Similarly, under the terms of the 2024 Plan, the exercise price for SARs and NQSOs may not be less than 100 % of fair market value on the date of grant. Performance units are awarded to participants at the market price of the Company’s common stock on the date of award, after the lapse of the restriction period and the attainment of the performance criteria. All options not exercised generally expire 10 years after the date of grant.
The shares of common stock previously available under the 2019 Incentive Compensation Plan (the “2019 Plan”) are no longer be available for future grant.
ISOs, SARs, and NQSOs have vesting periods of three to five years and have 10 -year contractual terms. Restricted stock, performance shares, and performance units are granted with a restriction period of not less than one year from the grant date for performance-based awards and not more than three years from the grant date for time-based vesting of grants. Compensation expense for awards is recognized over the vesting period.
With the exception of the shares that are underlying stock options and restricted stock awards, the Board of Directors may choose to settle the awards by paying the equivalent cash value or by delivering the appropriate number of shares.
The following is a summary of the stock option activity under the Company’s plans for the six months ended June 30, 2025:
| Number of Shares | Weighted-Average Exercise Price Per Share | Weighted-Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Outstanding - January 1, 2025 | $ | ||||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | |||||||||||||||||||||||
| Expired | |||||||||||||||||||||||
| Forfeited | |||||||||||||||||||||||
Outstanding - June 30, 2025 | $ | $ | |||||||||||||||||||||
Options exercisable - June 30, 2025 | $ | $ | |||||||||||||||||||||
The following is a summary of the restricted stock and performance unit activity under the Company’s plans for the six months ended June 30, 2025:
| Number of Shares | Weighted-Average Grant Date Fair Value | ||||||||||
| Outstanding (unvested) - January 1, 2025 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Forfeited | ( | ||||||||||
Outstanding (unvested) - June 30, 2025 | $ | ||||||||||
The total fair value of restricted stock and performance units vested during the six months ended June 30, 2025 and 2024, was $6.2 million and $10.0 million, respectively.
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The total amounts charged against income related to stock-based payment arrangements were $1.7 million and $3.6 million for the three and six months ended June 30, 2025, respectively. For the three and six months ended June 30, 2024, $1.7 million and $4.4 million, respectively, of stock-based payment arrangements were charged against income. The income tax benefit recognized was approximately $496 thousand and $1.1 million for the three and six months ended June 30, 2025, respectively, compared with $466 thousand and $1.2 million for the three and six months ended June 30, 2024, respectively.
Since all stock option grants were vested at June 30, 2025, there was no unrecognized compensation expense related to non-vested stock option grants. Unrecognized compensation expense related to non-vested restricted stock and performance units at June 30, 2025 was $16.8 million, and is expected to be recognized over a weighted average vesting period of 2.38 years.
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15. Income Taxes
For the three months ended June 30, 2025, the Company recorded an income tax benefit of $2.0 million on pretax loss of $29.9 million, representing an effective tax rate of 6.74 %, compared with an income tax provision of $9.3 million on pretax income of $34.5 million, representing an effective tax rate of 26.85 % for the three months ended June 30, 2024.
For the six months ended June 30, 2025, the Company recorded an income tax provision of $4.7 million on pretax loss of $2.1 million, representing an effective tax rate of (230.65 )%, compared with an income tax provision of $19.3 million on pretax income of $70.4 million, representing an effective tax rate of 27.41 % for the six months ended June 30, 2024.
The year-over-year changes in the income tax provision or benefit, and effective tax rates for the three and six months ended June 30, 2025, compared with the three and six months ended June 30, 2024, reflected the impact of merger-related expenses and securities portfolio sales recognized in the second quarter of 2025, both of which reduced pre-tax income. 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.
The Company and its subsidiaries are subject to U.S. federal income tax, as well as state income taxes. The Company had total unrecognized tax benefits of $696
Management believes it is reasonably possible that the unrecognized tax benefits may decrease by $214 thousand in the next twelve months due to the expiration of statute of limitations.
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities (without regard to certain changes to deferred taxes). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
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16. Business Combinations
The Company applied the acquisition method of accounting for the Merger with Territorial under ASC 805 “Business Combinations”. Under the acquisition method of accounting, the acquiring entity in a business combination recognizes 100 percent of the assets acquired and liabilities assumed at their acquisition date fair values. Management utilized valuation techniques appropriate for the asset or liability being measured in determining these fair values. Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed was recorded as goodwill. Where amounts allocated to assets acquired and liabilities assumed was greater than the purchase price, a bargain purchase gain is recognized. Merger-related costs are expensed as incurred as merger and integration expense. The Company determined that the Merger with Territorial was “not significant” under the definition as stated in SEC rules and regulations.
Acquisition of Territorial Bancorp Inc.
On April 2, 2025, the Company completed the acquisition of Territorial Bancorp Inc., a Maryland corporation and its wholly owned subsidiary, Territorial Savings Bank, headquartered in Honolulu, Hawaii, in accordance with the Agreement and Plan of Merger by and between the Company and Territorial entered into on April 26, 2024. Under the Merger Agreement, Territorial merged with and into the Company, immediately followed by the merger of Territorial’s subsidiary bank, Territorial Savings Bank, with and into the Company’s subsidiary bank, Bank of Hope, with the Company being the surviving corporation. The Company acquired Territorial to expand its domestic presence to the Hawaii market, increase its low cost deposits base, and to further diversify the Company’s loan portfolio by acquiring Territorial’s residential mortgage loan portfolio. After acquisition accounting adjustments, $1.93 billion in assets were acquired through the transaction, including $1.07 billion in loans receivable, and $1.67 billion in deposits were assumed. Subsequent to the Merger, the Bank operates 29 branches in Hawaii under the trade name Territorial Savings.
Pursuant to the Merger Agreement, Territorial shareholders received 0.8048 shares of the Company’s common stock in exchange for each share of Territorial common stock owned, with cash paid in lieu of fractional shares. The Company issued 6,976,754 shares of the Company’s common stock to Territorial shareholders valued at $73.3 million, based on the closing price of the Company’s common stock on April 2, 2025. The pre-merger outstanding shares of the Company’s common stock remained outstanding and were not affected by the Merger.
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Consideration Paid and Net Assets Acquired
The consideration paid, the assets acquired, and the liabilities assumed are summarized in the following table:
| April 2, 2025 | |||||
| (Dollars in thousands) | |||||
| Consideration paid: | |||||
| Hope common stock issued in exchange for Territorial common stock | $ | ||||
| Cash paid in lieu of fractional shares | |||||
| Total consideration paid | $ | ||||
| Assets acquired: | |||||
| Cash and cash equivalents | $ | ||||
| Investment securities AFS | |||||
| Investment securities HTM | |||||
| Loans receivable | |||||
| FHLB and FRB stock | |||||
| Premises and equipment | |||||
| Accrued interest receivable | |||||
| Deferred tax assets, net | |||||
| BOLI | |||||
| Operating lease ROU assets | |||||
| CDI | |||||
| Other assets | |||||
| Liabilities assumed: | |||||
| Deposits | ( | ||||
| Borrowings | ( | ||||
| Accrued interest payable | ( | ||||
| Operating lease liabilities | ( | ||||
| Other liabilities | ( | ||||
| Total identifiable net assets acquired | $ | ||||
| Excess of consideration paid over fair value of net assets acquired, or goodwill | $ | ||||
The fair value estimates above are considered provisional and additional analysis may be performed. Fair values are primarily determined using inputs that are not observable from market-based information. Management may further adjust the provisional fair values during a measurement of up to one year from the acquisition date. Any adjustments to provisional amounts will be applied prospectively. Valuations subject to change include, but are not limited to, loans receivable, premises and equipment, deferred tax assets, other assets, accrued interest payable and other liabilities. Goodwill recorded from the Merger reflects expected cost savings and increased revenue opportunities through offering a broader array of products and services to the strategically important market of Hawaii. None of the goodwill recognized in this transaction is expected to be deductible for income tax purposes as the acquisition was accounted for as a tax-free exchange.
Determination of Fair Values
The following is a description of the methods used to determine the fair values of significant assets acquired and liabilities assumed from Territorial.
Cash and cash equivalents - The carrying amount of these items was a reasonable estimate of their fair value based on the short-term nature of these assets.
43
Investment securities - The acquired investment securities were sold immediately after the Merger. The actual sales prices of securities were used as the fair value, rather than the quoted market price, as sales prices were determined to be the best indicator of fair value as of the acquisition date.
Loans receivable - The fair value of loans was estimated on an individual basis based on the characteristics for each loan. A discounted cash flow analysis was used to project cash flows for each loan using assumptions for rate, remaining maturity, prepayment speeds, projected default probabilities, loss given defaults, and estimates of prevailing discount rates.
The acquired loans totaling $1.28 billion were valued at $1.07 billion. Net discounts of $205.9 million and $3.8 million on non-PCD and PCD loans, respectively, were recorded as reductions to loans receivable on the Company's Consolidated Statements of Financial Condition, and will be amortized or accreted using the effective interest rate method, at an individual loan level basis, as an adjustment to loan interest income on the Consolidated Statements of (Loss) Income over the remaining life of each loan.
In addition, an initial allowance for credit losses on PCD loans of $63 thousand was recorded on the Consolidated Statements of Financial Condition at the date of acquisition with no impact on the Consolidated Statements of (Loss) Income, and was included in the initial amortized cost basis for PCD loans. An initial ACL of $3.9 million on acquired non-PCD loans was recorded on the Consolidated Statements of Financial Condition, and a corresponding credit loss expense was incurred on the Consolidated Statements of (Loss) Income. The ACL on acquired loans was determined using a methodology consistent with the ACL on the Company’s existing loan receivables portfolio.
Loans were classified as PCD if they were on nonaccrual status, 60 days past due or greater, or had been 30 days past due more than twice, 60 days past due more than once, or were ever 90+ days past due.
The acquired PCD loans are summarized in the following table:
| April 2, 2025 | |||||
| (Dollars in thousands) | |||||
| Amortized cost of acquired PCD loans | $ | ||||
| Day 1 ACL on PCD loans | ( | ||||
| Noncredit discount on PCD loans | ( | ||||
| Fair value of acquired PCD loans | $ | ||||
Deferred tax assets, net - Under ASC 805-740, deferred taxes were recognized for the differences between the tax bases and the amounts recognized for financial reporting purposes of the assets acquired and liabilities assumed in a business combination.
Bank owned life insurance - The cash surrender value of Territorial’s BOLI was representative of the fair value of BOLI at acquisition date.
Leases - Under ASC 805, an acquiring company is required to adjust the ROU asset on operating leases to reflect favorable and unfavorable terms of the lease when compared with market terms at the point of acquisition. The adjustment represents the difference between the present value of current and future contract lease obligations and the estimated market lease rates over the remaining term of the lease. The favorable or unfavorable adjustments will be amortized or accreted on a straight-line basis over the remaining term of the lease agreements, to noninterest expense on the Consolidated Statements of (Loss) Income.
Core deposit intangible - The CDI represents the low cost of funding acquired core deposits provide relative to the Company’s marginal cost of funds. The Company calculated the CDI from Territorial using the income approach, which estimates CDI valuation based on the cost savings a company will realize from acquiring low-cost, stable core deposits compared to alternative sources of funding. The Company will amortize the CDI over its estimated useful life.
Deposits - The fair values used for demand, savings and money market deposits were equal to the amount payable on demand at the acquisition date. The fair value of time deposits was estimated by discounting the estimated future cash flows using current rates offered for deposits with similar remaining maturities. Premiums and discounts will be accreted on a straight-line basis as a decrease and increase, respectively, to time deposit interest expense on the Consolidated Statements of (Loss) Income, over the remaining weighted average term of each category of time deposits.
Borrowings - The fair value of FHLB advances was estimated by discounting the estimated future cash flows using rates available to the Company for debt with similar remaining maturities along with applicable prepayment fees. The fair value adjustment on outstanding FHLB advances will be amortized over the remaining term of the advances.
44
Pro Forma Information
The operating results for Territorial are included in the Condensed Consolidated Statements of (Loss) Income beginning on the acquisition date of April 2, 2025.
The following unaudited combined pro forma information presents the operating results for the three and six months ended June 30, 2025 and 2024, as if the Territorial acquisition had occurred on January 1, 2024. The pro forma results are presented for illustrative purposes only and are not intended to represent or be indicative of the actual results of operations of the merged companies that would have been achieved had the acquisitions occurred on January 1, 2024, nor are they intended to represent or be indicative of future results of operations.
The second quarter 2025 pro forma information is based on the Company’s actual pre-tax income, excluding certain merger-related items, including noninterest expenses and provision for credit losses, and applying a pro forma effective tax rate. The historical pro forma information uses Territorial’s second quarter 2025 pre-tax income as a run-rate proxy of Territorial’s contribution in the period of comparison, excluding certain merger-related items in the historical periods, and applying a pro forma effective tax rate.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Revenue (noninterest income before provision for credit losses and noninterest income) | $ | $ | $ | $ | |||||||||||||||||||
| Net (loss) income | ( | ||||||||||||||||||||||
The pro forma results do not include expected operating cost savings or income synergies as a result of the acquisitions. In addition, merger-related expenses shown in the section below were not included in the pro forma information. These pro forma results require significant estimates and judgments particularly as it relates to the valuation and accretion of income associated with acquired loans.
Merger-Related Expenses
The following table presents merger-related expenses associated with the Merger, which were included in the Consolidated Statements of (Loss) Income as provision for credit losses and noninterest expense. Merger-related provision for credit losses consists of mostly day 1 provision for credit losses recorded on acquired non-PCD loans. Merger-related expenses consisted primarily of salaries and benefits, professional services, and other noninterest expenses.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Merger-related provision for credit losses | $ | $ | $ | $ | |||||||||||||||||||
| Merger-related expenses | |||||||||||||||||||||||
45
17. Derivative Financial Instruments
As part of the Company’s overall interest rate risk management, the Company enters into derivative instruments, including interest rate swaps, collars, caps, floors, foreign exchange contracts, risk participation agreements and mortgage banking derivatives. The notional amount does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements. Derivative instruments are recognized on the balance sheet at their fair value and are not reported on a net basis.
The tables below present the fair value of the Company’s derivative financial instruments at June 30, 2025 and December 31, 2024. The Company’s derivative assets and derivative liabilities are located within “Other assets” and “Other liabilities,” respectively, on the Company’s Consolidated Statements of Financial Condition.
| June 30, 2025 | |||||||||||||||||
| Notional Amount | Fair Value(1) | ||||||||||||||||
| Other Assets | Other Liabilities | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Derivatives designated as cash flow hedges | |||||||||||||||||
| Interest rate swaps | $ | $ | $ | ||||||||||||||
| Interest rate collars | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
| Derivatives not designated as hedges | |||||||||||||||||
| Interest rate contracts with correspondent banks | $ | $ | $ | ( | |||||||||||||
| Interest rate contracts with customers | ( | ||||||||||||||||
| Foreign exchange contracts with correspondent banks | ( | ||||||||||||||||
| Risk participation agreement | ( | ||||||||||||||||
| Mortgage banking derivatives | ( | ||||||||||||||||
| Total | $ | $ | $ | ( | |||||||||||||
__________________________________
(1) The fair values of centrally-cleared derivative contracts are presented net of settled-to-market margin.
| December 31, 2024 | |||||||||||||||||
| Notional Amount | Fair Value(1) | ||||||||||||||||
| Other Assets | Other Liabilities | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Derivatives designated as cash flow hedges | |||||||||||||||||
| Interest rate swaps | $ | $ | $ | ( | |||||||||||||
| Interest rate collars | ( | ||||||||||||||||
| Forward interest rate swaps | ( | ||||||||||||||||
| Total | $ | $ | $ | ( | |||||||||||||
| Derivatives not designated as hedges | |||||||||||||||||
| Interest rate contracts with correspondent banks | $ | $ | $ | ( | |||||||||||||
| Interest rate contracts with customers | ( | ||||||||||||||||
| Foreign exchange contracts with correspondent banks | ( | ||||||||||||||||
| Foreign exchange contracts with customers | |||||||||||||||||
| Risk participation agreement | ( | ||||||||||||||||
| Total | $ | $ | $ | ( | |||||||||||||
__________________________________
(1) The fair values of centrally-cleared derivative contracts are presented net of settled-to-market margin.
46
Derivatives designated as cash flow hedges
The Company’s interest rate contracts designated as cash flow hedges were determined to be fully effective during the periods presented and were hedged to financial instruments tied to term SOFR and Federal Funds Rate. The aggregate fair value of the cash flow hedges are recorded in assets or liabilities on the Consolidated Statements of Financial Condition, with changes in fair value recorded in other comprehensive income on the Consolidated Statements of Comprehensive Income. The gain or loss on derivatives is recorded in accumulated other comprehensive income (“AOCI”) and is subsequently reclassified into interest income and interest expense in the period, during which the hedged forecasted transaction affects earnings. Amounts reported in AOCI related to interest rate agreements will be reclassified to interest income and interest expense as interest payments are received or paid on the Company’s derivatives. The Company expects the hedges to remain fully effective throughout the remaining terms. The Company expects to reclassify, during the next 12 months, approximately $457 thousand, net of taxes, from AOCI as an increase to net interest income, including a decrease of $2.3 million from terminated swaps.
During the six months ended June 30, 2025, the Company terminated $600.0 million in notional value of receive fixed swaps set to mature through September 2028. The swaps were designated as cash flow hedges on the changes in cash flows associated with certain variable rate loans. The termination of the swaps was performed to reduce prolonged exposure to higher interest rates. Prior to the termination of the swaps, the change in value of the swaps was recorded through accumulated other comprehensive income. Including previously terminated swaps in 2024 totaling to $400.0 million in notional value of receive fixed swaps, $6.5 million in pre-tax losses in AOCI at June 30, 2025, which represents the total unamortized fair value adjustments on $1.00 billion in notional value of terminated received fixed swaps, will be amortized as a reduction to net interest income over an expected remaining period of 2.2 years.
The table below presents the gains (losses) on derivative instruments designated as cash flow hedges, that were reclassified from AOCI into earnings for the periods indicated:
| Derivative Instruments Designated as Cash Flow Hedges | Location of Gain (Loss) Recognized in Income | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
| Interest rate contracts | Interest income and fees on loans | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
| Interest rate contracts | Interest expense on deposits | |||||||||||||||||||||||||||||||
| Interest rate contracts | Interest expense on FHLB and FRB borrowings | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Derivatives not designated as hedges
The Company’s derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers.
The Company offers a loan hedging program to certain loan customers. Through this program, the Company originates a variable rate loan with the customer. The Company and the customer will then enter into a fixed interest rate swap. Simultaneously, an identical offsetting swap is entered into by the Company with a correspondent bank. These “back-to-back” swap arrangements are intended to offset each other and allow the Company to book a variable rate loan, while providing the customer with a contract for fixed interest payments. In these arrangements, the Company’s net cash flow is equal to the interest income received from the variable rate loan originated with the customer. These customer interest rate contracts are not designated as hedging instruments and are recorded at fair value in other assets and other liabilities on the Consolidated Statements of Financial Condition. The change in fair value is recognized in the Consolidated Statements of (Loss) Income as other income and fees.
47
The Company offers foreign exchange contracts to customers to purchase and/or sell foreign currencies at set rates in the future. The foreign exchange contracts allow customers to hedge the foreign exchange rate risk of their deposits and loans denominated in foreign currencies. In conjunction with this, the Company also enters into offsetting back-to-back contracts with institutional counterparties to hedge the Company’s foreign exchange rate risk. The Company also enters into certain foreign exchange contracts with institutional counterparties, including non-deliverable forward contracts, to manage its foreign exchange rate risk. These foreign exchange contracts are not designated as hedging instruments and are recorded at fair value in “Other assets” and “Other liabilities” on the Consolidated Statements of Financial Condition. During the three and six months ended June 30, 2025, the changes in fair value on foreign exchange contracts were losses of $947 thousand and $1.4 million, respectively, and were recognized in the Consolidated Statements of (Loss) Income as other income and fees. During the three and six months ended June 30, 2024, the changes in fair value on foreign exchange contracts were gains of $370 thousand and gains of $633 thousand, respectively, and were recognized in the Consolidated Statements of (Loss) Income as other income and fees.
The Company had risk participation agreements with an outside counterparty for interest rate swaps related to loans in which it is a participant. The risk participation agreements provide credit protection to the financial institution should the borrowers fail to perform on their interest rate derivative contracts. Risk participation agreements are credit derivatives not designated as hedges. Credit derivatives are not speculative and are not used to manage interest rate risk in assets or liabilities. Changes in the fair value of credit derivatives are recognized directly in earnings. The fee received, less the estimate of the loss for credit exposure, is recognized in earnings at the time of the transaction.
The Company enters into various stand-alone mortgage-banking derivatives in order to hedge the risk associated with the fluctuation of interest rates. Changes in fair value are recorded as mortgage banking revenue. Residential mortgage loans funded with interest rate lock commitments and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives.
48
18. Fair Value Measurements
Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. There are three levels of inputs that may be used to measure fair value. The fair value inputs of the instruments are classified and disclosed in one of the following categories pursuant to ASC 820:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. The quoted price shall not be adjusted for any blockage factor (i.e., size of the position relative to trading volume).
Level 2 - Pricing inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Fair value is determined through the use of models or other valuation methodologies, including the use of pricing matrices. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 - Pricing inputs are unobservable for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. The inputs into the determination of fair value require significant management judgment or estimation.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The Company uses the following methods and assumptions in estimating fair value disclosures for financial instruments. Financial assets and liabilities recorded at fair value on a recurring and non-recurring basis are listed as follows:
Investment Securities
The fair values of investment securities available for sale and held to maturity are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
The fair value of the Company’s Level 3 security available for sale was measured using an income approach valuation technique. The primary inputs and assumptions used in the fair value measurement was derived from the security’s underlying collateral, which included discount rate, prepayment speeds, payment delays, and an assessment of the risk of default of the underlying collateral, among other factors. Significant increases or decreases in any of the inputs or assumptions could result in a significant increase or decrease in the fair value measurement.
Equity Investments With Readily Determinable Fair Value
The fair value of the Company’s equity investments with readily determinable fair value is comprised of mutual funds. The fair value for these investments is obtained from unadjusted quoted prices in active markets on the date of measurement and is therefore classified as Level 1.
Interest Rate Contracts
The Company offers interest rate contracts to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate contract with the customer. The Company also enters into an offsetting interest rate contract with a correspondent bank. These back-to-back agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The fair value of these derivatives is based on a discounted cash flow approach. The fair value assets and liabilities of centrally cleared interest rate contracts are net of variation margin settled-to-market. Due to the observable nature of the inputs used in deriving the fair value of these derivative contracts, the valuation of interest rate contracts is classified as Level 2.
49
Mortgage Banking Derivatives
Mortgage banking derivative instruments consist of interest rate lock commitments and forward sale contracts that trade in liquid markets. The fair value is based on the prices available from third party investors. Due to the observable nature of the inputs used in deriving the fair value, the valuation of mortgage banking derivatives is classified as Level 2.
Other Derivatives
Other derivatives consist of interest rate contracts designated as cash flow hedges, foreign exchange contracts and risk participation agreements. The fair values of these other derivative financial instruments are based upon the estimated amount the Company would receive or pay to terminate the instruments, taking into account current interest rates, foreign exchange rates and, when appropriate, the current credit worthiness of the counterparties. Fair value assets and liabilities of centrally cleared derivatives are net of variation margin settled-to-market. Interest rate contracts designated as cash flow hedges and foreign exchange contracts, which includes non-deliverable forward contracts, are classified within Level 2 due to the observable nature of the inputs used in deriving the fair value of these contracts. Credit derivatives such as risk participation agreements are valued based on credit worthiness of the underlying borrower, which is a significant unobservable input and therefore is classified as Level 3.
Collateral-Dependent Loans
The fair values of collateral-dependent loans are generally measured for ACL using the practical expedients permitted by ASC 326-20-35-5 including collateral-dependent loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral-dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuations utilizing enterprise value, asset fair value, or other valuation techniques, less costs to sell of 8.5 %. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and income approach. Adjustment may be made in the appraisal process by the independent appraiser to adjust for differences between the comparable sales and income data available for similar loans and the underlying collateral. For C&I and asset backed loans, independent valuations may include a discount for eligible accounts receivable and a discount for inventory. These result in a Level 3 classification.
Loans Held For Sale
Loans held for sale are carried at the lower of cost or fair value, as determined by outstanding commitments from investors, or based on recent comparable sales (Level 2 inputs), if available. If Level 2 inputs are not available, carrying values are based on discounted cash flows using current market rates applied to the estimated life and credit risk (Level 3 inputs) or may be assessed based upon the fair value of the collateral, which is obtained from recent real estate appraisals (Level 3 inputs). These appraisals may utilize a single valuation approach or a combination of approaches including the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
50
Assets and liabilities measured at fair value on a recurring basis are summarized below:
| Fair Value Measurements at the End of the Reporting Period Using | |||||||||||||||||||||||
| June 30, 2025 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Investment securities AFS: | |||||||||||||||||||||||
| U.S. Government agency and U.S. Government sponsored enterprises: | |||||||||||||||||||||||
| Agency securities | $ | $ | $ | $ | |||||||||||||||||||
| Collateralized mortgage obligations | |||||||||||||||||||||||
| Mortgage-backed securities: | |||||||||||||||||||||||
| Residential | |||||||||||||||||||||||
| Commercial | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Corporate securities | |||||||||||||||||||||||
| Municipal securities | |||||||||||||||||||||||
| Equity investments with readily determinable fair value | |||||||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||
| Mortgage banking derivatives | |||||||||||||||||||||||
| Other derivatives | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||
| Mortgage banking derivatives | |||||||||||||||||||||||
| Other derivatives | |||||||||||||||||||||||
51
| Fair Value Measurements at the End of the Reporting Period Using | |||||||||||||||||||||||
| December 31, 2024 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Investment securities AFS: | |||||||||||||||||||||||
| U.S. Government agency and U.S. Government sponsored enterprises: | |||||||||||||||||||||||
| Agency securities | $ | $ | $ | $ | |||||||||||||||||||
| Collateralized mortgage obligations | |||||||||||||||||||||||
| Mortgage-backed securities: | |||||||||||||||||||||||
| Residential | |||||||||||||||||||||||
| Commercial | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Corporate securities | |||||||||||||||||||||||
| Municipal securities | |||||||||||||||||||||||
| Equity investments with readily determinable fair value | |||||||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||
| Mortgage banking derivatives | |||||||||||||||||||||||
| Other derivatives | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||
| Mortgage banking derivatives | |||||||||||||||||||||||
| Other derivatives | |||||||||||||||||||||||
There were no transfers between Levels 1, 2, and 3 during the three and six months ended June 30, 2025 and 2024.
The table below presents a reconciliation and income statement classification of gains (losses) for the municipal security and risk participation agreements measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2025 and 2024:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Municipal securities: | |||||||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | |||||||||||||||||||
Change in fair value included in other comprehensive income | ( | ( | ( | ||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | |||||||||||||||||||
| Risk participation agreements: | |||||||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | |||||||||||||||||||
| Change in fair value included in income | ( | ||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | |||||||||||||||||||
52
The Company measures certain assets at fair value on a non-recurring basis including collateral-dependent loans and loans held for sale. These fair value adjustments result from individually evaluated ACL recognized during the period, and application of the lower of cost or fair value on loans held for sale.
Assets measured at fair value on a non-recurring basis are summarized below:
| Fair Value Measurements at the End of the Reporting Period Using | |||||||||||||||||||||||
| June 30, 2025 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Collateral-dependent loans receivable at fair value: | |||||||||||||||||||||||
| CRE loans | $ | $ | $ | $ | |||||||||||||||||||
| C&I loans | |||||||||||||||||||||||
| Residential mortgage loans | |||||||||||||||||||||||
| Loans held for sale, net | |||||||||||||||||||||||
| Fair Value Measurements at the End of the Reporting Period Using | |||||||||||||||||||||||
| December 31, 2024 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Collateral-dependent loans receivable at fair value: | |||||||||||||||||||||||
| CRE loans | $ | $ | $ | $ | |||||||||||||||||||
| C&I loans | |||||||||||||||||||||||
| Loans held for sale, net | |||||||||||||||||||||||
For assets measured at fair value on a non-recurring basis, the total net losses, which include charge offs, recoveries, recorded ACL, valuations, and recognized gains and losses on sales are summarized below:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Collateral-dependent loans receivable at fair value: | |||||||||||||||||||||||
| CRE loans | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| C&I loans | ( | ( | ( | ( | |||||||||||||||||||
| Residential mortgage loans | ( | ( | |||||||||||||||||||||
| Loans held for sale, net | ( | ( | ( | ( | |||||||||||||||||||
53
The following table presents the quantitative information about the significant unobservable inputs used in the valuation of Level 3 fair value measurements that are measured on a nonrecurring basis as of June 30, 2025 and December 31, 2024:
| Fair Value Measurements (Level 3) | Valuation Techniques | Unobservable Inputs | Range of Inputs | Weighted-Average of Inputs | ||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| June 30, 2025 | ||||||||||||||||||||||||||||||||||||||
| Collateral dependent loans | $ | Collateral Fair Value | Selling cost | - | ||||||||||||||||||||||||||||||||||
| Enterprise Value | EBITDA(1) multiple | |||||||||||||||||||||||||||||||||||||
| Enterprise Value | Active bid | N/A | N/A | |||||||||||||||||||||||||||||||||||
| Asset Fair Value | Discount | - | ||||||||||||||||||||||||||||||||||||
| Loans held for sale, net | Asset Fair Value | Discount | ||||||||||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Collateral dependent loans | $ | Collateral Fair Value | Selling cost | |||||||||||||||||||||||||||||||||||
| Enterprise Value | EBITDA(1) multiple | |||||||||||||||||||||||||||||||||||||
| Enterprise value | Revenue multiple | |||||||||||||||||||||||||||||||||||||
EBITDA(1) multiple | ||||||||||||||||||||||||||||||||||||||
| Asset Fair Value | Discount | - | ||||||||||||||||||||||||||||||||||||
__________________________________
(1) EBITDA = earnings before interest, tax, depreciation and amortization.
54
Fair Value of Financial Instruments
Carrying amounts and estimated fair values of financial instruments, not previously presented, at June 30, 2025 and December 31, 2024, were as follows:
| June 30, 2025 | |||||||||||||||||
| Carrying Amount | Estimated Fair Value | Fair Value Measurement Using | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Financial Assets: | |||||||||||||||||
| Cash and cash equivalents | $ | $ | Level 1 | ||||||||||||||
| Investment securities HTM | Level 2 | ||||||||||||||||
| Equity investments without readily determinable fair values | Level 2 | ||||||||||||||||
| Loans held for sale | Level 2 | ||||||||||||||||
| Loans receivable, net | Level 3 | ||||||||||||||||
| Accrued interest receivable | Level 2/3 | ||||||||||||||||
| Servicing assets, net | Level 3 | ||||||||||||||||
| Customers’ liabilities on acceptances | Level 2 | ||||||||||||||||
| Financial Liabilities: | |||||||||||||||||
| Noninterest bearing deposits | $ | $ | Level 2 | ||||||||||||||
| Money market, interest bearing demand and savings deposits | Level 2 | ||||||||||||||||
| Time deposits | Level 2 | ||||||||||||||||
| FHLB and FRB borrowings | Level 2 | ||||||||||||||||
| Convertible notes, net | Level 1 | ||||||||||||||||
| Subordinated debentures | Level 3 | ||||||||||||||||
| Accrued interest payable | Level 2 | ||||||||||||||||
| Acceptances outstanding | Level 2 | ||||||||||||||||
| December 31, 2024 | |||||||||||||||||
| Carrying Amount | Estimated Fair Value | Fair Value Measurement Using | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Financial Assets: | |||||||||||||||||
| Cash and cash equivalents | $ | $ | Level 1 | ||||||||||||||
| Investment securities HTM | Level 2 | ||||||||||||||||
| Equity investments without readily determinable fair values | Level 2 | ||||||||||||||||
| Loans held for sale | Level 2 | ||||||||||||||||
| Loans receivable, net | Level 3 | ||||||||||||||||
| Accrued interest receivable | Level 2/3 | ||||||||||||||||
| Servicing assets, net | Level 3 | ||||||||||||||||
| Customers’ liabilities on acceptances | Level 2 | ||||||||||||||||
| Financial Liabilities: | |||||||||||||||||
| Noninterest bearing deposits | $ | $ | Level 2 | ||||||||||||||
| Money market, interest bearing demand and savings deposits | Level 2 | ||||||||||||||||
| Time deposits | Level 2 | ||||||||||||||||
| FHLB and FRB borrowings | Level 2 | ||||||||||||||||
| Convertible notes, net | Level 1 | ||||||||||||||||
| Subordinated debentures | Level 3 | ||||||||||||||||
| Accrued interest payable | Level 2 | ||||||||||||||||
| Acceptances outstanding | Level 2 | ||||||||||||||||
55
The Company measures assets and liabilities for its fair value disclosures based on an exit price notion. Although the exit price notion represents the value that would be received to sell an asset or paid to transfer a liability, the actual price received for a sale of assets or paid to transfer liabilities could be different from exit price disclosed. The methods and assumptions used to estimate fair value are described as follows:
The carrying amount was the estimated fair value for cash and cash equivalents, savings and other nonmaturity interest bearing demand deposits, equity investments without readily determinable fair values, customers’ and Bank’s liabilities on acceptances, noninterest bearing deposits, short-term debt, secured borrowings, and variable rate loans or deposits that reprice frequently and fully. The fair value of loans was determined through a discounted cash flow analysis, which incorporates probability of default and loss given default rates on an individual loan basis. For fixed rate loans, the discount rate used in a discounted cash flow analysis was based on the SOFR Swap Rate. For variable loans, the discount rate started with the underlying index rate and an adjustment was made on certain loans, which considered factors such as servicing costs, capital charges, duration, asset type incremental costs, and use of projected cash flows. Fair values of residential real estate loans included Fannie Mae and Freddie Mac prepayment speed assumptions or a third-party index based on historical prepayment speeds. Fair value of time deposits was based on discounted cash flow analyses using recent issuance rates over the prior three months and a market rate analysis of recent offering rates for retail products. Wholesale time deposit fair values incorporated brokered time deposit offering rates. The fair value of the Company’s debt was based on current rates for similar financing with a liquidity premium added to assumed market spreads to reflect exit pricing and the marketability/liquidity costs contained with consummating an orderly transaction. Fair value for the Company’s convertible notes was based on the actual last traded price of the notes. The fair value of commitments to fund loans represents fees currently charged to enter into similar agreements with similar remaining maturities and was not presented herein, as the fair value of these financial instruments was not material to the Consolidated Financial Statements.
56
19. Leases
The Company’s operating leases comprise primarily real estate leases of bank branch locations, loan production offices, and office spaces with remaining lease terms ranging from 1 year to 13 years at June 30, 2025. In addition, the Company leases ATM equipment located at certain branches with remaining lease terms of up to 7 years. Certain lease arrangements contain extension options, which are typically around 5 years. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. The Company did not have any finance leases at June 30, 2025 and December 31, 2024.
The table below summarizes supplemental balance sheet information related to operating leases:
| June 30, 2025 | December 31, 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Operating lease ROU assets | $ | $ | |||||||||
| Current portion of long-term lease liabilities | |||||||||||
| Long-term lease liabilities | |||||||||||
The Company assumed operating leases with the acquisition of Territorial. The ROU assets and related lease liabilities recorded for the assumed leases were $22.7 million and $21.1 million, respectively. ROU assets related to the acquisition reflect net favorable adjustments of approximately $1.9 million. The ROU assets from Territorial included 26 real estate and 1 equipment leases. See Note 16 - “Business Combinations” for additional information regarding the Merger.
The Company uses its incremental borrowing rate to present value lease payments in order to recognize a ROU asset and the related lease liability. The Company calculates its incremental borrowing rate by adding a spread to the FHLB borrowing interest rate at a given period. During the six months ended June 30, 2025, the Company extended five leases and did not enter into any new lease contracts aside from the leases acquired from Territorial. Lease extension terms ranged from one to 12 years and the Company reassessed the ROU assets and lease liabilities related to these leases.
The table below summarizes the Company’s net operating lease cost:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Variable lease cost | |||||||||||||||||||||||
| Sublease income | ( | ( | ( | ( | |||||||||||||||||||
| Net lease cost | $ | $ | $ | $ | |||||||||||||||||||
The table below summarizes other information related to the Company’s operating leases:
| At or for the Six Months Ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash outflows for operating leases | $ | $ | |||||||||
| Weighted-average remaining lease term - operating leases | |||||||||||
| Weighted-average discount rate - operating leases | % | % | |||||||||
57
The table below summarizes the maturity of remaining lease liabilities:
| June 30, 2025 | |||||
| (Dollars in thousands) | |||||
| 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| 2030 and thereafter | |||||
| Total lease payments | |||||
| Less: imputed interest | |||||
| Total lease obligations | $ | ||||
58
20. Investments in Tax Credit Structures
The Company invests in the equity of certain limited partnerships or limited liability companies that typically are associated with affordable housing partnerships and renewable solar energy projects that generate low-income housing tax credits (“LIHTC”) and other income tax benefits for the Company.
Following the adoption of ASU 2023-02 in 2024, the Company elected to account for its tax credit investments using the proportional amortization method (“PAM”) on a program-by-program basis if certain conditions are met. For the Company’s accounting policies on PAM, see Note 1 - “Summary of Significant Accounting Policies”, of its audited Consolidated Financial Statements included in its 2024 Annual Report on Form 10-K.
The Company records its investments in qualifying affordable housing partnerships, net, using the equity investment method. The Company’s 2024 investment in a solar tax credit was accounted for under PAM and recorded under other assets, and its commitment to fund investments in tax credit structures was recorded in other liabilities on the Consolidated Statements of Financial Condition.
The following table presents the investments and unfunded commitment of the Company’s investments in tax credit structures at June 30, 2025 and December 31, 2024:
| June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||
| Assets | Unfunded Commitments | Assets | Unfunded Commitments | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| PAM: | |||||||||||||||||||||||
| Investments in solar tax credit | $ | $ | $ | $ | |||||||||||||||||||
| Equity method: | |||||||||||||||||||||||
| Investments in affordable housing partnerships | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The following table presents additional information related to tax credit and benefits and amortization recorded for the three and six months ended June 30, 2025 and 2024.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Tax credits and benefits: | |||||||||||||||||||||||
| PAM | |||||||||||||||||||||||
| Investments in solar tax credit | $ | $ | $ | $ | |||||||||||||||||||
| Equity method | |||||||||||||||||||||||
| Investments in affordable housing partnerships | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Amortization: | |||||||||||||||||||||||
| PAM | |||||||||||||||||||||||
| Investments in solar tax credit | $ | $ | $ | $ | |||||||||||||||||||
| Equity method | |||||||||||||||||||||||
| Investments in affordable housing partnerships | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
59
21. Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material and adverse effect on the Company’s and the Bank’s business, financial condition and results of operation, such as restrictions on growth or the payment of dividends or other capital distributions or management fees. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
At June 30, 2025, the capital ratios for the Company and the Bank were in excess of all regulatory minimum capital ratios with the addition of the conservation buffer.
At June 30, 2025 and December 31, 2024, the most recent regulatory notification categorized the Bank as “well-capitalized” under the regulatory framework for prompt corrective action. To generally be categorized as “well-capitalized”, the Bank must maintain a minimum total capital ratio, Tier 1 capital ratio, common equity Tier 1 capital ratio, and leverage ratio as set forth in the following table. There are no conditions or events since the most recent notification from regulators that management believes has changed the institution’s category.
60
The Company’s and the Bank’s levels and ratios are presented in the tables below for the dates indicated:
| Actual | Ratio Required for Capital Adequacy Purposes | Ratio Required To Be Well-Capitalized | Ratio Required for Minimum Capital Adequacy With Capital Conservation Buffer | ||||||||||||||||||||||||||
| June 30, 2025 | Amount | Ratio | |||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Common equity Tier 1 capital (to risk weighted assets): | |||||||||||||||||||||||||||||
| Company | $ | % | % | N/A | % | ||||||||||||||||||||||||
| Bank | $ | % | % | % | % | ||||||||||||||||||||||||
| Tier 1 capital (to risk-weighted assets): | |||||||||||||||||||||||||||||
| Company | $ | % | % | N/A | % | ||||||||||||||||||||||||
| Bank | $ | % | % | % | % | ||||||||||||||||||||||||
| Total capital (to risk-weighted assets): | |||||||||||||||||||||||||||||
| Company | $ | % | % | N/A | % | ||||||||||||||||||||||||
| Bank | $ | % | % | % | % | ||||||||||||||||||||||||
| Leverage capital (to average assets): | |||||||||||||||||||||||||||||
| Company | $ | % | % | N/A | N/A | ||||||||||||||||||||||||
| Bank | $ | % | % | % | N/A | ||||||||||||||||||||||||
| Actual | Ratio Required for Capital Adequacy Purposes | Ratio Required To Be Well-Capitalized | Ratio Required for Minimum Capital Adequacy With Capital Conservation Buffer | ||||||||||||||||||||||||||
| December 31, 2024 | Amount | Ratio | |||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Common equity Tier 1 capital (to risk weighted assets): | |||||||||||||||||||||||||||||
| Company | $ | % | % | N/A | % | ||||||||||||||||||||||||
| Bank | $ | % | % | % | % | ||||||||||||||||||||||||
| Tier 1 capital (to risk-weighted assets): | |||||||||||||||||||||||||||||
| Company | $ | % | % | N/A | % | ||||||||||||||||||||||||
| Bank | $ | % | % | % | % | ||||||||||||||||||||||||
| Total capital (to risk-weighted assets): | |||||||||||||||||||||||||||||
| Company | $ | % | % | N/A | % | ||||||||||||||||||||||||
| Bank | $ | % | % | % | % | ||||||||||||||||||||||||
| Leverage capital (to average assets): | |||||||||||||||||||||||||||||
| Company | $ | % | % | N/A | N/A | ||||||||||||||||||||||||
| Bank | $ | % | % | % | N/A | ||||||||||||||||||||||||
61
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
The following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2024 and the unaudited Consolidated Financial Statements and Notes set forth elsewhere in this Quarterly Report on Form 10-Q.
GENERAL
Hope Bancorp, Inc. is the holding company of Bank of Hope, the only regional Korean American bank in the United States with $18.55 billion in total assets at June 30, 2025. With the addition of Territorial Savings, a division of Bank of Hope, effective April 2, 2025, the Company became the largest regional bank catering to multicultural customers across the continental United States and Hawaii. Headquartered in Los Angeles, the Bank provides a full suite of commercial, corporate and consumer loans, deposit and fee-based products and services, including commercial and commercial real estate lending, SBA lending, residential mortgage and other consumer lending; treasury management services, foreign currency exchange solutions, interest rate derivative products, and international trade financing, among others. The Bank operates 46 full-service branches in California, New York, New Jersey, Washington, Texas, Illinois, Georgia and Alabama under the Bank of Hope banner, and 29 branches in Hawaii under the Territorial Savings banner. The Bank also operates SBA loan production offices, commercial loan production offices, and residential mortgage loan production offices throughout the United States, and a representative office in Seoul, South Korea. Bank of Hope is a California-chartered bank, and its deposits are insured by the FDIC to the extent provided by law. Bank of Hope is an Equal Opportunity Lender.
The Bank’s principal business involves earning interest on loans and investment securities, primarily funded by deposits and borrowings. 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, providing fee-based products and services, and income from the sale of loans. Major expenses are the interest paid 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, tariffs, political changes, and other events. We cannot predict the impact that these factors and future changes in domestic and foreign economic and political conditions might have on our business, financial condition, and results of operations.
62
Selected Financial Data
The following tables set forth a performance overview concerning the periods indicated and should be read in conjunction with the unaudited Consolidated Financial Statements and Notes set forth elsewhere in this Quarterly Report on Form 10-Q and the following Results of Operations and Financial Condition sections of this MD&A. During the second quarter of 2025, the acquisition of Territorial Bancorp Inc. was closed and we repositioned a portion of our investment securities AFS portfolio. The comparability of our operating results with past performance was impacted by acquisition accounting adjustments and merger-related expenses associated with the Territorial Merger and the loss on securities sold, which led to a recorded GAAP net loss in the second quarter of 2025. The Company has provided supplemental non-GAAP information to facilitate a better understanding of financial performance, identifying certain items as “notable”.
| At or for the Three Months Ended June 30, | At or for the Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands, except share and per share data) | |||||||||||||||||||||||
| Income Statement Data: | |||||||||||||||||||||||
| Interest income | $ | 239,170 | $ | 232,601 | $ | 456,336 | $ | 492,275 | |||||||||||||||
| Interest expense | 121,637 | 126,741 | 237,986 | 271,368 | |||||||||||||||||||
| Net interest income | 117,533 | 105,860 | 218,350 | 220,907 | |||||||||||||||||||
| Provision for credit losses | 15,000 | 1,400 | 19,800 | 4,000 | |||||||||||||||||||
| Net interest income after provision for credit losses | 102,533 | 104,460 | 198,550 | 216,907 | |||||||||||||||||||
| Noninterest income | (22,956) | 11,071 | (7,268) | 19,357 | |||||||||||||||||||
| Noninterest expense | 109,473 | 80,987 | 193,334 | 165,826 | |||||||||||||||||||
| (Loss) income before income taxes | (29,896) | 34,544 | (2,052) | 70,438 | |||||||||||||||||||
| Income tax (benefit) provision | (2,015) | 9,274 | 4,733 | 19,304 | |||||||||||||||||||
| Net (loss) income | $ | (27,881) | $ | 25,270 | $ | (6,785) | $ | 51,134 | |||||||||||||||
Net income, excluding notable items (1) | $ | 24,531 | $ | 26,579 | $ | 47,405 | $ | 54,170 | |||||||||||||||
| Per Share Data: | |||||||||||||||||||||||
| (Losses) earnings per common share – basic | $ | (0.22) | $ | 0.21 | $ | (0.05) | $ | 0.42 | |||||||||||||||
| (Losses) earnings per common share – diluted | $ | (0.22) | $ | 0.21 | $ | (0.05) | $ | 0.42 | |||||||||||||||
Earnings per common share – diluted excluding notable items (1) | $ | 0.19 | $ | 0.22 | $ | 0.38 | $ | 0.45 | |||||||||||||||
| Cash dividends declared per common share | $ | 0.14 | $ | 0.14 | $ | 0.28 | $ | 0.28 | |||||||||||||||
| Book value per common share (period end) | $ | 17.36 | $ | 17.49 | $ | 17.36 | $ | 17.49 | |||||||||||||||
Tangible common equity (“TCE”) per share (period end) (1) | $ | 13.26 | $ | 13.61 | $ | 13.26 | $ | 13.61 | |||||||||||||||
| Common Share Count: | |||||||||||||||||||||||
Number of common shares outstanding (period end) | 128,124,458 | 120,731,342 | 128,124,458 | 120,731,342 | |||||||||||||||||||
| Weighted average shares – basic | 128,001,605 | 120,664,472 | 124,426,400 | 120,425,886 | |||||||||||||||||||
| Weighted average shares – diluted | 128,223,991 | 120,939,429 | 124,859,880 | 120,964,149 | |||||||||||||||||||
| Selected Performance Ratios: | |||||||||||||||||||||||
Return on average assets (“ROA”) (2) | (0.60) | % | 0.59 | % | (0.08) | % | 0.56 | % | |||||||||||||||
Return on average stockholders’ equity (“ROE”) (2) | (5.02) | % | 4.82 | % | (0.62) | % | 4.84 | % | |||||||||||||||
Return on average tangible common equity (“ROTCE”) (1) (2) | (6.58) | % | 6.20 | % | (0.80) | % | 6.22 | % | |||||||||||||||
Net interest margin (2) (3) | 2.69 | % | 2.62 | % | 2.62 | % | 2.58 | % | |||||||||||||||
Efficiency ratio (4) | 115.75 | % | 69.26 | % | 91.59 | % | 69.02 | % | |||||||||||||||
ROA excluding notable items (1) (2) | 0.52 | % | 0.62 | % | 0.53 | % | 0.60 | % | |||||||||||||||
ROE excluding notable items (1) (2) | 4.42 | % | 5.07 | % | 4.34 | % | 5.13 | % | |||||||||||||||
ROTCE excluding notable items (1) (2) | 5.79 | % | 6.53 | % | 5.61 | % | 6.59 | % | |||||||||||||||
Efficiency ratio excluding notable items (1) (4) | 69.09 | % | 67.67 | % | 69.43 | % | 67.23 | % | |||||||||||||||
63
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Average Balance Sheet Data: | |||||||||||||||||||||||
| Assets | $ | 18,724,864 | $ | 17,256,638 | $ | 17,909,153 | $ | 18,198,707 | |||||||||||||||
| Interest earning cash and deposits at other banks | 807,979 | 428,062 | 653,106 | 1,223,916 | |||||||||||||||||||
| Investment securities AFS and HTM | 2,192,533 | 2,175,379 | 2,138,471 | 2,246,266 | |||||||||||||||||||
| Loans | 14,423,923 | 13,591,936 | 13,942,238 | 13,669,078 | |||||||||||||||||||
| Deposits | 16,096,188 | 14,536,325 | 15,288,311 | 14,699,239 | |||||||||||||||||||
| FHLB and FRB borrowings | 48,671 | 219,402 | 84,835 | 951,368 | |||||||||||||||||||
| Stockholders’ equity | 2,220,633 | 2,097,108 | 2,184,556 | 2,111,720 | |||||||||||||||||||
| June 30, 2025 | June 30, 2024 | ||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Statement of Financial Condition Data - at Period End: | |||||||||||||||||||||||
| Assets | $ | 18,547,017 | $ | 17,375,091 | |||||||||||||||||||
| Interest earning cash and deposits at other banks | 436,608 | 466,227 | |||||||||||||||||||||
| Investment securities AFS and HTM | 2,268,889 | 2,172,859 | |||||||||||||||||||||
| Loans receivable | 14,434,787 | 13,567,002 | |||||||||||||||||||||
| Deposits | 15,943,355 | 14,711,471 | |||||||||||||||||||||
| FHLB and FRB borrowings | 29,752 | 170,000 | |||||||||||||||||||||
| Stockholders’ equity | 2,224,117 | 2,111,282 | |||||||||||||||||||||
Consolidated Capital Ratios (5) | |||||||||||||||||||||||
| Common equity Tier 1 capital ratio | 12.06 | % | 12.70 | % | |||||||||||||||||||
| Tier 1 capital ratio | 12.76 | % | 13.40 | % | |||||||||||||||||||
| Total capital ratio | 13.76 | % | 14.41 | % | |||||||||||||||||||
Leverage ratio (6) | 10.57 | % | 11.61 | % | |||||||||||||||||||
TCE ratio (1) | 9.43 | % | 9.72 | % | |||||||||||||||||||
| Asset Quality Ratios: | |||||||||||||||||||||||
| Allowance for credit losses to loans receivable | 1.04 | % | 1.15 | % | |||||||||||||||||||
| Allowance for credit losses to nonaccrual loans | 135.01 | % | 232.85 | % | |||||||||||||||||||
| Nonaccrual loans to loans receivable | 0.77 | % | 0.49 | % | |||||||||||||||||||
| Nonperforming loans to loans receivable | 0.78 | % | 0.50 | % | |||||||||||||||||||
| Nonperforming assets to total assets | 0.61 | % | 0.39 | % | |||||||||||||||||||
_____________________________________________
(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)Annualized.
(3)Net interest margin is calculated by dividing annualized net interest income by average total interest earning assets.
(4)Efficiency ratio is defined as noninterest expense divided by the sum of net interest income before provision for credit losses and noninterest income.
(5)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.
(6)Calculations are based on quarterly average asset balances.
64
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-Q to the most comparable GAAP performance measures. The non-GAAP financial measures provide information useful to investors in understanding our operating performance and trends and assist in comparing our results with the performance of our peers.
During the three months ended June 30, 2025, our operating results included certain notable non-recurring items as a result of the completion of the Merger with Territorial, our legacy investment securities repositioning, 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.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands, except share and per share data) | |||||||||||||||||||||||
| Net (loss) income | $ | (27,881) | $ | 25,270 | $ | (6,785) | $ | 51,134 | |||||||||||||||
| Notable items: | |||||||||||||||||||||||
| Merger-related provision for credit losses | 4,461 | — | 4,461 | — | |||||||||||||||||||
| Loss on investment portfolio repositioning | 38,856 | — | 38,856 | — | |||||||||||||||||||
| FDIC special assessment expense | — | (309) | — | 691 | |||||||||||||||||||
| Merger and restructuring-related costs | 17,281 | 2,165 | 19,800 | 3,611 | |||||||||||||||||||
| Total notable items included in pre-tax income | 60,598 | 1,856 | 63,117 | 4,302 | |||||||||||||||||||
| Tax effect on notable items in pre-tax income | (13,064) | (547) | (13,805) | (1,266) | |||||||||||||||||||
| Notable one-time impact from California state tax apportionment law change | 4,878 | — | 4,878 | — | |||||||||||||||||||
| Total notable items, net of tax | 52,412 | 1,309 | 54,190 | 3,036 | |||||||||||||||||||
| Net income excluding notable items | $ | 24,531 | $ | 26,579 | $ | 47,405 | $ | 54,170 | |||||||||||||||
| Diluted common shares | 128,223,991 | 120,939,429 | 124,859,880 | 120,964,149 | |||||||||||||||||||
| EPS excluding notable items | $ | 0.19 | $ | 0.22 | $ | 0.38 | $ | 0.45 | |||||||||||||||
| Average assets | $ | 18,724,864 | $ | 17,256,638 | $ | 17,909,153 | $ | 18,198,707 | |||||||||||||||
| ROA excluding notable items (annualized) | 0.52 | % | 0.62 | % | 0.53 | % | 0.60 | % | |||||||||||||||
| Average equity | $ | 2,220,633 | $ | 2,097,108 | $ | 2,184,556 | $ | 2,111,720 | |||||||||||||||
| ROE excluding notable items (annualized) | 4.42 | % | 5.07 | % | 4.34 | % | 5.13 | % | |||||||||||||||
| Average TCE | $ | 1,695,585 | $ | 1,629,286 | $ | 1,688,554 | $ | 1,643,694 | |||||||||||||||
| ROTCE excluding notable items (annualized) | 5.79 | % | 6.53 | % | 5.61 | % | 6.59 | % | |||||||||||||||
65
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Noninterest expense | $ | 109,473 | $ | 80,987 | $ | 193,334 | $ | 165,826 | |||||||||||||||
| Notable items: | |||||||||||||||||||||||
| FDIC special assessment expense | — | 309 | — | (691) | |||||||||||||||||||
| Merger and restructuring-related costs | (17,281) | (2,165) | (19,800) | (3,611) | |||||||||||||||||||
| Noninterest expense excluding notable items | $ | 92,192 | $ | 79,131 | $ | 173,534 | $ | 161,524 | |||||||||||||||
| Revenue (net interest income before provision for credit losses and noninterest income) | $ | 94,577 | $ | 116,931 | $ | 211,082 | $ | 240,264 | |||||||||||||||
| Notable items: | |||||||||||||||||||||||
| Loss on investment portfolio repositioning | 38,856 | — | 38,856 | — | |||||||||||||||||||
| Revenue excluding notable items | $ | 133,433 | $ | 116,931 | $ | 249,938 | $ | 240,264 | |||||||||||||||
| Efficiency ratio excluding notable items | 69.09 | % | 67.67 | % | 69.43 | % | 67.23 | % | |||||||||||||||
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.
| June 30, 2025 | June 30, 2024 | ||||||||||
| (Dollars in thousands, except share data) | |||||||||||
| Total stockholders’ equity | $ | 2,224,117 | $ | 2,111,282 | |||||||
| Less: Goodwill and CDI, net | (525,428) | (467,583) | |||||||||
| TCE | $ | 1,698,689 | $ | 1,643,699 | |||||||
| Total assets | $ | 18,547,017 | $ | 17,375,091 | |||||||
| Less: Goodwill and CDI, net | (525,428) | (467,583) | |||||||||
| Tangible assets | $ | 18,021,589 | $ | 16,907,508 | |||||||
| Common shares outstanding | 128,124,458 | 120,731,342 | |||||||||
| Tangible book value per common share | $ | 13.26 | $ | 13.61 | |||||||
| TCE ratio | 9.43 | % | 9.72 | % | |||||||
Return on average tangible equity is calculated by dividing net income for the period (annualized) by average stockholders’ equity for the period after subtracting average goodwill and core deposit intangible assets for the period from average stockholders’ equity.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Net (loss) income | $ | (27,881) | $ | 25,270 | $ | (6,785) | $ | 51,134 | |||||||||||||||
| Average stockholders’ equity | $ | 2,220,633 | $ | 2,097,108 | $ | 2,184,556 | $ | 2,111,720 | |||||||||||||||
| Less: Average goodwill and CDI, net | (525,048) | (467,822) | (496,002) | (468,026) | |||||||||||||||||||
| Average tangible equity | $ | 1,695,585 | $ | 1,629,286 | $ | 1,688,554 | $ | 1,643,694 | |||||||||||||||
| Return on average tangible equity (annualized) | (6.58) | % | 6.20 | % | (0.80) | % | 6.22 | % | |||||||||||||||
66
Results of Operations
Overview
Net loss for the second quarter of 2025 was $27.9 million, or $(0.22) per diluted common share, compared with net income of $25.3 million, or $0.21 per diluted common share, for the same period of 2024, which was a decrease of $53.2 million. Second quarter 2025 results included an aggregate $52.4 million of notable items, which impacted the comparability of the Company’s operating results with past performance. See the “General” section of this MD&A for a reconciliation of GAAP to non-GAAP financial measures.
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. In addition, the Company repositioned a portion of its legacy investment securities portfolio available for sale in June 2025. Accordingly, notable items specific to the second quarter of 2025 totaled $52.4 million after tax, comprising $30.5 million after tax in net loss on sales of securities related to the investment securities repositioning, $17.1 million after tax in merger-related items, and a $4.9 million one-time impact on income tax expense of a change in California’s state tax apportionment law that was signed on June 27, 2025.
Excluding notable items, net income for the second quarter of 2025 was $24.5 million, or $0.19 per diluted common share, compared with net income of $26.6 million, or $0.22 per diluted common share, for the same period in 2024. The year-over-year decrease in second quarter 2025 net income was primarily due to a decrease in noninterest income, and increases in noninterest expense and provision for loan losses, partially offset by an increase in the net interest income.
Net loss for the six months ended June 30, 2025, was $6.8 million, or $(0.05) per diluted common share, compared with net income of $51.1 million, or $0.42 per diluted share, for the same period of 2024, which was a decrease of $57.9 million. Excluding notable items referenced above, net income for the six months ended June 30, 2025, was $47.4 million, or $0.38 per diluted common share, compared with net income of $54.2 million, or $0.45 per diluted share, for the same period of 2024. The year-over-year decrease in year-to-date net income was primarily due to increases in noninterest expense and provision for loan losses, and a decrease in noninterest income.
Net Interest Income and Net Interest Margin
Net Interest Income
A principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans, investments and interest earning cash, and the interest paid on deposits, borrowed funds, and convertible notes. Net interest income expressed as a percentage of average interest earning assets is referred to as the net interest margin. The net interest spread is the yield on average interest earning assets less the cost of average interest bearing liabilities. Net interest income is affected by changes in the balances of interest earning assets and interest bearing liabilities, changes in yields earned on interest earning assets, and changes in rates paid on interest bearing liabilities.
Comparison of Three Months Ended June 30, 2025, with the Three Months Ended June 30, 2024
Net interest income before provision for credit losses was $117.5 million for the second quarter of 2025, compared with $105.9 million for the same period of 2024, an increase of $11.7 million, or 11.0%. The year-over-year increase in net interest income was primarily driven by lower cost of deposits and an increase in the average balance of interest earning assets, partially offset by an increase in the average balance of deposits and lower yields on loans. The Federal Funds target rate was cut by an aggregate 100 basis points during the second half of 2024, impacting average yields and rates for the 2025 second quarter, compared with the same period of 2024.
Comparison of Six Months Ended June 30, 2025, with the Six Months Ended June 30, 2024
Net interest income before provision for credit losses was $218.4 million for the six months ended June 30, 2025, compared with $220.9 million for the same period of 2024, a decrease of $2.6 million, or 1.2%. The year-over-year decrease in year-to-date net interest income was driven by lower yields on loans and an increase in the average balance of deposits, partially offset by a lower cost of funds resulting from the Federal Funds target rate cut of an aggregate 100 basis points during the second half of 2024 that impacted average yields and rates for the first half of 2025, compared with the same period of 2024.
67
The following table summarizes the accretion and amortization adjustments resulting from the Merger with Territorial that were included in net interest income for the three and six months ended June 30, 2025 and 2024:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Accretion of discount on acquired loans | $ | 4,149 | $ | — | $ | 4,149 | $ | — | |||||||||||||||||||||
| Amortization of net premium on assumed time deposits | 207 | — | 207 | — | |||||||||||||||||||||||||
| Amortization of discount on assumed FHLB advances | (193) | — | (193) | — | |||||||||||||||||||||||||
| Total | $ | 4,163 | $ | — | $ | 4,163 | $ | — | |||||||||||||||||||||
Net Interest Margin
Net interest margin is impacted by the weighted average rates earned on interest earning assets and paid on interest bearing liabilities. The net interest margin for the second quarter of 2025 increased to 2.69%, from 2.62% for the same period of 2024. The net interest margin for the six months ended June 30, 2025, was 2.62%, an increase of 4 basis points from 2.58% for the same period of 2024. The increase in net interest margin was primarily due to lower weighted average costs of interest bearing deposits and increases in the average balances of loans, partially offset by higher average balances of interest bearing deposits.
The weighted average yield on loans decreased to 5.88% for the second quarter of 2025, down 32 basis points from 6.20% for the same period of 2024. The year-over-year decrease in loan yields was driven by spread compression on new loan originations and the downward repricing of variable rate loans, reflecting year-over-year decreases in benchmark interest rates. At June 30, 2025, variable interest rate loans made up 42% of the loan portfolio. The weighted average yield on loans decreased by 35 basis points to 5.88% for the six months ended June 30, 2025, down from 6.23% for the same period of 2024. The year-over-year decrease in average yields was driven by the downward repricing of variable rate loans, reflecting higher benchmark interest rates in 2024 versus 2025.
The weighted average yield on investment securities for the three and six months ended June 30, 2025, was 3.25% and 3.17%, respectively, compared with 3.11% and 3.12% for the same periods of 2024, respectively. The increase in average yields was primarily due to higher rates on new purchases of investment securities. At June 30, 2025, 29% of the investment portfolio consisted of securities with variable coupon rates. The change in yields was also impacted by fluctuations in the overall investment portfolio yield due to the change in pay-down speeds of investment securities.
The weighted average yield on interest earning cash and deposits at other banks for the second quarter of 2025 was 4.36%, a decrease of 60 basis points from 4.96% for the same period of 2024. The weighted average yield on interest earning cash and deposits at other banks for the six months ended June 30, 2025, was 4.32%, a decrease of 101 basis points from 5.33% for the same period of 2024. The yield on interest earning cash and deposits at other banks is tied to the Federal Funds rate.
The weighted average cost of deposits for the second quarter of 2025 was 2.96%, a decrease of 43 basis points from 3.39% for the same period of 2024. The weighted average cost of deposits for the six months ended June 30, 2025, was 3.07%, a decrease of 30 basis points from 3.37% for the same period of 2024. The year-over-year decrease in the cost of deposits was driven by decreases in market interest rates and by the positive impact of the acquired Territorial deposits, which have a lower cost of funds.
The weighted average cost of FHLB and FRB borrowings for the second quarter of 2025 was 3.00%, an increase of 38 basis points from 2.62% for the same period of 2024. The year-over-year increase in the cost of FHLB and FRB borrowings was primarily due to a decrease in cash flow hedges of FHLB borrowings, some of which matured in second quarter of 2025, and the impact of borrowings acquired from Territorial. The weighted average cost of FHLB and FRB borrowings for the six months ended June 30, 2025, was 1.71%, a decrease of 237 basis points from 4.08% for the same period of 2024. The year-over-year decrease in the year-to-date cost of FHLB and FRB borrowings primarily reflected the payoff of $1.70 billion in FRB BTFP borrowings in the first half of 2024, which had a weighted average rate of 4.47%.
The weighted average cost of subordinated debentures for the second quarter of 2025 was 9.05%, a decrease of 130 basis points from 10.35% for the same period of 2024. The weighted average cost of subordinated debentures for the six months ended June 30, 2025, was 9.09%, a decrease of 129 basis points from 10.38% for the same period of 2024. The subordinated debentures have variable interest rates that are tied to the three-month Chicago Mercantile Exchange term Secured Financing Overnight Rate (“SOFR”) rate.
68
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:
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||
| Average Balance | Interest Income/ Expense | Average Yield/ Rate* | Average Balance | Interest Income/ Expense | Average Yield/ Rate* | ||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| INTEREST EARNINGS ASSETS: | |||||||||||||||||||||||||||||||||||
Loans(1) (2) | $ | 14,423,923 | $ | 211,441 | 5.88 | % | $ | 13,591,936 | $ | 209,683 | 6.20 | % | |||||||||||||||||||||||
Investment securities AFS and HTM(3) | 2,192,533 | 17,769 | 3.25 | % | 2,175,379 | 16,829 | 3.11 | % | |||||||||||||||||||||||||||
| Interest earning cash and deposits at other banks | 807,979 | 8,783 | 4.36 | % | 428,062 | 5,284 | 4.96 | % | |||||||||||||||||||||||||||
| FHLB stock and other investments | 98,052 | 1,177 | 4.81 | % | 48,463 | 805 | 6.68 | % | |||||||||||||||||||||||||||
| Total interest earning assets | 17,522,487 | 239,170 | 5.47 | % | 16,243,840 | 232,601 | 5.76 | % | |||||||||||||||||||||||||||
| Total noninterest earning assets | 1,202,377 | 1,012,798 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 18,724,864 | $ | 17,256,638 | |||||||||||||||||||||||||||||||
| INTEREST BEARING LIABILITIES: | |||||||||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||||||||
| Money market, interest bearing demand and savings deposits | $ | 6,278,578 | $ | 51,884 | 3.31 | % | $ | 4,948,708 | $ | 48,708 | 3.96 | % | |||||||||||||||||||||||
| Time deposits | 6,353,525 | 66,968 | 4.23 | % | 5,921,201 | 73,869 | 5.02 | % | |||||||||||||||||||||||||||
| Total interest bearing deposits | 12,632,103 | 118,852 | 3.77 | % | 10,869,909 | 122,577 | 4.54 | % | |||||||||||||||||||||||||||
| FHLB and FRB borrowings | 48,671 | 364 | 3.00 | % | 219,402 | 1,430 | 2.62 | % | |||||||||||||||||||||||||||
| Convertible notes, net | 444 | 2 | 2.00 | % | 444 | 2 | 2.00 | % | |||||||||||||||||||||||||||
| Subordinated debentures, net | 105,706 | 2,419 | 9.05 | % | 104,378 | 2,732 | 10.35 | % | |||||||||||||||||||||||||||
| Total interest bearing liabilities | 12,786,924 | 121,637 | 3.82 | % | 11,194,133 | 126,741 | 4.55 | % | |||||||||||||||||||||||||||
| Noninterest bearing liabilities and equity: | |||||||||||||||||||||||||||||||||||
| Noninterest bearing demand deposits | 3,464,085 | 3,666,416 | |||||||||||||||||||||||||||||||||
| Other liabilities | 253,222 | 298,981 | |||||||||||||||||||||||||||||||||
| Stockholders’ equity | 2,220,633 | 2,097,108 | |||||||||||||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 18,724,864 | $ | 17,256,638 | |||||||||||||||||||||||||||||||
| Net interest income/net interest spread (not annualized) | $ | 117,533 | 1.65 | % | $ | 105,860 | 1.21 | % | |||||||||||||||||||||||||||
| Net interest margin | 2.69 | % | 2.62 | % | |||||||||||||||||||||||||||||||
| Cost of deposits | 2.96 | % | 3.39 | % | |||||||||||||||||||||||||||||||
__________________________________
* Annualized
(1)Interest income on loans includes loan fees.
(2)Average balances of loans consist of loans receivable and loans held for sale.
(3)Interest income and yields are not presented on a tax-equivalent basis.
69
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||
| Average Balance | Interest Income/ Expense | Average Yield/ Rate* | Average Balance | Interest Income/ Expense | Average Yield/ Rate* | ||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| INTEREST EARNINGS ASSETS: | |||||||||||||||||||||||||||||||||||
Loans(1) (2) | $ | 13,942,238 | $ | 406,402 | 5.88 | % | $ | 13,669,078 | $ | 423,309 | 6.23 | % | |||||||||||||||||||||||
Investment securities AFS and HTM(3) | 2,138,471 | 33,661 | 3.17 | % | 2,246,266 | 34,878 | 3.12 | % | |||||||||||||||||||||||||||
| Interest earning cash and deposits at other banks | 653,106 | 13,988 | 4.32 | % | 1,223,916 | 32,467 | 5.33 | % | |||||||||||||||||||||||||||
| FHLB stock and other investments | 92,589 | 2,285 | 4.98 | % | 48,299 | 1,621 | 6.75 | % | |||||||||||||||||||||||||||
| Total interest earning assets | 16,826,404 | 456,336 | 5.47 | % | 17,187,559 | 492,275 | 5.76 | % | |||||||||||||||||||||||||||
| Total noninterest earning assets | 1,082,749 | 1,011,148 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 17,909,153 | $ | 18,198,707 | |||||||||||||||||||||||||||||||
| INTEREST BEARING LIABILITIES: | |||||||||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||||||||
| Money market, interest bearing demand and savings deposits | $ | 5,867,886 | $ | 102,503 | 3.52 | % | $ | 5,010,745 | $ | 98,852 | 3.97 | % | |||||||||||||||||||||||
| Time deposits | 6,015,687 | 129,934 | 4.36 | % | 5,953,351 | 147,758 | 4.99 | % | |||||||||||||||||||||||||||
| Total interest bearing deposits | 11,883,573 | 232,437 | 3.94 | % | 10,964,096 | 246,610 | 4.52 | % | |||||||||||||||||||||||||||
| FHLB and FRB borrowings | 84,835 | 720 | 1.71 | % | 951,368 | 19,283 | 4.08 | % | |||||||||||||||||||||||||||
| Convertible notes, net | 444 | 4 | 2.00 | % | 444 | 4 | 2.00 | % | |||||||||||||||||||||||||||
| Subordinated debentures, net | 105,539 | 4,825 | 9.09 | % | 104,213 | 5,471 | 10.38 | % | |||||||||||||||||||||||||||
| Total interest bearing liabilities | 12,074,391 | 237,986 | 3.97 | % | 12,020,121 | 271,368 | 4.54 | % | |||||||||||||||||||||||||||
| Noninterest bearing liabilities and equity: | |||||||||||||||||||||||||||||||||||
| Noninterest bearing demand deposits | 3,404,738 | 3,735,143 | |||||||||||||||||||||||||||||||||
| Other liabilities | 245,468 | 331,723 | |||||||||||||||||||||||||||||||||
| Stockholders’ equity | 2,184,556 | 2,111,720 | |||||||||||||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 17,909,153 | $ | 18,198,707 | |||||||||||||||||||||||||||||||
| Net interest income/net interest spread (not annualized) | $ | 218,350 | 1.50 | % | $ | 220,907 | 1.22 | % | |||||||||||||||||||||||||||
| Net interest margin | 2.62 | % | 2.58 | % | |||||||||||||||||||||||||||||||
| Cost of deposits | 3.07 | % | 3.37 | % | |||||||||||||||||||||||||||||||
__________________________________
* Annualized
(1)Interest income on loans includes loan fees.
(2)Average balances of loans consist of loans receivable and loans held for sale.
(3)Interest income and yields are not presented on a tax-equivalent basis.
70
Changes in net interest income are a function of changes in interest rates and volumes of interest earning assets and interest bearing liabilities. The following table 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.
| Three Months Ended June 30, 2025 over June 30, 2024 | |||||||||||||||||
| Net Increase (Decrease) | Change due to: | ||||||||||||||||
| Rate | Volume | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| INTEREST INCOME: | |||||||||||||||||
| Loans, including fees | $ | 1,758 | $ | (11,059) | $ | 12,817 | |||||||||||
| Investment securities AFS and HTM | 940 | 799 | 141 | ||||||||||||||
| Interest earning cash and deposits at other banks | 3,499 | (713) | 4,212 | ||||||||||||||
| FHLB stock and other investments | 372 | (274) | 646 | ||||||||||||||
| Total interest income | $ | 6,569 | $ | (11,247) | $ | 17,816 | |||||||||||
| INTEREST EXPENSE: | |||||||||||||||||
| Money market, interest bearing demand and savings deposits | $ | 3,176 | $ | (8,751) | $ | 11,927 | |||||||||||
| Time deposits | (6,901) | (12,104) | 5,203 | ||||||||||||||
| FHLB and FRB borrowings | (1,066) | 182 | (1,248) | ||||||||||||||
| Convertible notes, net | — | — | — | ||||||||||||||
| Subordinated debentures, net | (313) | (346) | 33 | ||||||||||||||
| Total interest expense | $ | (5,104) | $ | (21,019) | $ | 15,915 | |||||||||||
| NET INTEREST INCOME | $ | 11,673 | $ | 9,772 | $ | 1,901 | |||||||||||
| Six Months Ended June 30, 2025 over June 30, 2024 | |||||||||||||||||
| Net Increase (Decrease) | Change due to: | ||||||||||||||||
| Rate | Volume | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| INTEREST INCOME: | |||||||||||||||||
| Loans, including fees | $ | (16,907) | $ | (24,911) | $ | 8,004 | |||||||||||
| Investment securities AFS and HTM | (1,217) | 544 | (1,761) | ||||||||||||||
| Interest earning cash and deposits at other banks | (18,479) | (5,356) | (13,123) | ||||||||||||||
| FHLB stock and other investments | 664 | (512) | 1,176 | ||||||||||||||
| Total interest income | $ | (35,939) | $ | (30,235) | $ | (5,704) | |||||||||||
| INTEREST EXPENSE: | |||||||||||||||||
| Money market, interest bearing demand and savings deposits | $ | 3,651 | $ | (12,173) | $ | 15,824 | |||||||||||
| Time deposits | (17,824) | (19,321) | 1,497 | ||||||||||||||
| FHLB and FRB borrowings | (18,563) | (7,223) | (11,340) | ||||||||||||||
| Convertible notes, net | — | — | — | ||||||||||||||
| Subordinated debentures, net | (646) | (710) | 64 | ||||||||||||||
| Total interest expense | $ | (33,382) | $ | (39,427) | $ | 6,045 | |||||||||||
| NET INTEREST INCOME | $ | (2,557) | $ | 9,192 | $ | (11,749) | |||||||||||
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Provision for Credit Losses
The provision for credit losses reflects management’s assessment of the current period cost associated with credit risk inherent in the loan portfolio. The provision for credit losses for each period includes provision for credit loss on loans and provision for unfunded loan commitments. Provision for credit loss 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 loss 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 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.
The provision for credit losses includes both provision for credit loss on loans and provision for unfunded loan commitments. The provision for credit losses for the second quarter of 2025 was $15.0 million, an increase of $13.6 million from $1.4 million for the same period of the prior year. The provision for credit losses for the six months ended June 30, 2025, was $19.8 million, an increase of $15.8 million from $4.0 million for the same period of the prior year. The second quarter 2025 provision for credit losses included $4.5 million of merger-related provision expenses that the Company considered a notable item. With the acquisition of Territorial, the Company adopted Territorial’s white-label credit card program. See the “General” section of this MD&A for a reconciliation of GAAP to non-GAAP financial measures.
The increase in provision for credit losses for the three and six months ended June 30, 2025, compared to the same periods in 2024, was primarily due to increases in provision for credit losses on C&I loans and residential mortgage loans, offset partially by a decrease in provision for credit losses on CRE loans. The year over year increase in provision for credit losses on C&I loans was primarily due increased charge offs on C&I loans in 2025, compared with the same periods of 2024. The year-over-year increase in provision for credit losses on residential mortgage loans reflected the impact of the Territorial acquisition, which contributed $1.07 billion of loans. The decrease in provision for credit losses on CRE loans was primarily due to updates to historical loss and prepayment assumptions during the six months ended June 30, 2025.
The provision for unfunded loan commitments was $1.0 million and $600 thousand for the three and six months ended June 30, 2025, respectively, compared with a recapture of provision for unfunded loan commitments of $300 thousand and $1.3 million for the same periods of 2024, respectively. The year-over-year increase in the provision for unfunded loan commitments was due primarily to the change in balances of unfunded loan commitments.
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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 SBA loans, net gains or losses on sales of investment securities AFS, and other income and fees. Noninterest income for the second quarter of 2025 was $(23.0) million, compared with $11.1 million for the same period of 2024, a decrease of $34.0 million. Noninterest income for the six months ended June 30, 2025, was $(7.3) million, compared with $19.4 million for the same period of the prior year, a decrease of $26.6 million. Noninterest income in the second quarter of 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 “General” section of this MD&A for a reconciliation of GAAP to non-GAAP financial measures.
Noninterest income by category is summarized in the tables below:
| Three Months Ended June 30, | Increase (Decrease) | ||||||||||||||||||||||
| 2025 | 2024 | Amount | Percent (%) | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Service fees on deposit accounts | $ | 3,106 | $ | 2,681 | $ | 425 | 15.9 | % | |||||||||||||||
| International service fees | 532 | 696 | (164) | (23.6) | % | ||||||||||||||||||
| Wire transfer and foreign currency fees | 1,058 | 974 | 84 | 8.6 | % | ||||||||||||||||||
| Swap fees | 1,662 | 25 | 1,637 | 6,548.0 | % | ||||||||||||||||||
| Net gains on sales of SBA loans | 3,998 | 1,980 | 2,018 | 101.9 | % | ||||||||||||||||||
| Net losses on sales of investment securities AFS | (38,856) | 425 | (39,281) | N/A | |||||||||||||||||||
| Other income and fees | 5,544 | 4,290 | 1,254 | 29.2 | % | ||||||||||||||||||
| Total noninterest income | $ | (22,956) | $ | 11,071 | $ | (34,027) | N/A | ||||||||||||||||
| Six Months Ended June 30, | Increase (Decrease) | ||||||||||||||||||||||
| 2025 | 2024 | Amount | Percent (%) | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Service fees on deposit accounts | $ | 6,027 | $ | 5,268 | $ | 759 | 14.4 | % | |||||||||||||||
| International service fees | 1,499 | 1,730 | (231) | (13.4) | % | ||||||||||||||||||
| Wire transfer and foreign currency fees | 2,044 | 1,786 | 258 | 14.4 | % | ||||||||||||||||||
| Swap fees | 2,307 | 168 | 2,139 | 1,273.2 | % | ||||||||||||||||||
| Net gains on sales of SBA loans | 7,129 | 1,980 | 5,149 | 260.1 | % | ||||||||||||||||||
| Net losses on sales of investment securities AFS | (38,856) | 425 | (39,281) | N/A | |||||||||||||||||||
| Other income and fees | 12,582 | 8,000 | 4,582 | 57.3 | % | ||||||||||||||||||
| Total noninterest income | $ | (7,268) | $ | 19,357 | $ | (26,625) | N/A | ||||||||||||||||
The year-over-year decreases in noninterest income for the three and six months ended June 30, 2025, were primarily driven by net losses on sales of investment securities AFS, due to a securities portfolio repositioning, partially offset by increases in net gains on sales of SBA loans, swap fees, and other income and fees.
Swap fee income represents fees earned from back-to-back swap transactions for our loan customers. The number of swap transactions is directly proportional to the increase in loan originations, which increased in 2025, and resulted in an increase in swap fee income for the three and six months ended June 30, 2025, compared with the same periods in 2024.
During the three and six months ended June 30, 2025, we sold $67.4 million and $117.3 million in SBA guaranteed loans, respectively, and recorded $4.0 million and $7.1 million, respectively, in net gains on sale of SBA loans. This compares with net gains of $2.0 million for the three and six months ended June 30, 2024, on $29.8 million in SBA guaranteed loans sold. 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.
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As part of a strategic repositioning, in June 2025, the Company sold a portion of its 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 these sales were redeployed to purchase higher-yielding investment securities.
Other income and fees for the three months ended June 30, 2025, included a $662 thousand increase in earnings from BOLI and an increase of $224 thousand in other recovery income compared with same period of 2024. Other income and fees for the six months ended June 30, 2025, included increases of $1.6 million in net gains on sale of mortgage loans, $675 thousand in earnings from BOLI, and $807 thousand in unrealized gain from equity investments, compared with the same period in 2024.
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Noninterest Expense
Noninterest expense for the second quarter of 2025 was $109.5 million, an increase of $28.5 million, or 35.2%, from $81.0 million for the second quarter of 2024. Noninterest expense for the six months ended June 30, 2025, was $193.3 million, an increase of $27.5 million, or 16.6%, from $165.8 million for the same period of the prior year. Noninterest expense in the second quarter of 2025 included $17.3 million of merger and restructuring-related costs, which the Company considers a notable item. See the “General” section of this MD&A for a reconciliation of GAAP to non-GAAP financial measures.
The breakdown of changes in noninterest expense by category is shown in the following tables:
| Three Months Ended June 30, | Increase (Decrease) | ||||||||||||||||||||||
| 2025 | 2024 | Amount | Percent (%) | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Salaries and employee benefits | $ | 52,834 | $ | 44,107 | $ | 8,727 | 19.8 | % | |||||||||||||||
| Occupancy | 8,884 | 6,906 | 1,978 | 28.6 | % | ||||||||||||||||||
| Furniture and equipment | 7,817 | 5,475 | 2,342 | 42.8 | % | ||||||||||||||||||
| Data processing and communications | 3,602 | 2,997 | 605 | 20.2 | % | ||||||||||||||||||
| Professional fees | 1,921 | 2,191 | (270) | (12.3) | % | ||||||||||||||||||
| Amortization of investments in affordable housing partnerships | 2,430 | 2,284 | 146 | 6.4 | % | ||||||||||||||||||
| FDIC assessments | 2,488 | 3,003 | (515) | (17.1) | % | ||||||||||||||||||
| FDIC special assessment | — | (309) | 309 | (100.0) | % | ||||||||||||||||||
| Earned interest credit expense | 3,310 | 6,139 | (2,829) | (46.1) | % | ||||||||||||||||||
| Merger and restructuring-related costs | 17,281 | 2,165 | 15,116 | 698.2 | % | ||||||||||||||||||
| Other noninterest expense | 8,906 | 6,029 | 2,877 | 47.7 | % | ||||||||||||||||||
| Total noninterest expense | $ | 109,473 | $ | 80,987 | $ | 28,486 | 35.2 | % | |||||||||||||||
| Six Months Ended June 30, | Increase (Decrease) | ||||||||||||||||||||||
| 2025 | 2024 | Amount | Percent (%) | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Salaries and employee benefits | $ | 101,294 | $ | 91,684 | $ | 9,610 | 10.5 | % | |||||||||||||||
| Occupancy | 16,050 | 13,692 | 2,358 | 17.2 | % | ||||||||||||||||||
| Furniture and equipment | 13,530 | 10,815 | 2,715 | 25.1 | % | ||||||||||||||||||
| Data processing and communications | 6,509 | 5,987 | 522 | 8.7 | % | ||||||||||||||||||
| Professional fees | 3,841 | 4,710 | (869) | (18.5) | % | ||||||||||||||||||
| Amortization of investments in affordable housing partnerships | 4,391 | 4,417 | (26) | (0.6) | % | ||||||||||||||||||
| FDIC assessments | 4,990 | 5,929 | (939) | (15.8) | % | ||||||||||||||||||
| FDIC special assessment | — | 691 | (691) | (100.0) | % | ||||||||||||||||||
| Earned interest credit expense | 6,397 | 11,973 | (5,576) | (46.6) | % | ||||||||||||||||||
| Merger and restructuring-related costs | 19,800 | 3,611 | 16,189 | 448.3 | % | ||||||||||||||||||
| Other noninterest expense | 16,532 | 12,317 | 4,215 | 34.2 | % | ||||||||||||||||||
| Total noninterest expense | $ | 193,334 | $ | 165,826 | $ | 27,508 | 16.6 | % | |||||||||||||||
The year-over-year increase in noninterest expense for the three and six months ended June 30, 2025 compared with the same periods in 2024, was primarily driven by an increase in merger and restructuring-related costs, salaries and employee benefits, other noninterest expense, furniture and equipment expense, and occupancy expense, partially offset by a decrease in earned interest credits expense. We closed the acquisition of Territorial on April 2, 2025, and the second quarter of 2025 reflected a full quarter of operating expenses related to the Territorial franchise.
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Salaries and employee benefits expense increased $8.7 million, or 19.8%, for the second quarter of 2025, compared with the same period of 2024, and increased $9.6 million, or 10.5%, for the six months ended June 30, 2025, compared with the same period in 2024. The year-over-year increase in salaries and employee benefits was primarily due to an increase in headcount as a result of the Territorial acquisition. The number of full-time equivalent employees was 1,416 and 1,238 at June 30, 2025 and 2024, respectively.
Occupancy expense increased by $2.0 million, or 28.6%, for the second quarter of 2025, compared with the same period of 2024, and increased $2.4 million, or 17.2%, for the six months ended June 30, 2025, compared with the same period in 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 and equipment expense increased $2.3 million, or 42.8%, for the second quarter of 2025, compared with the same period of 2024, and increased $2.7 million, or 25.1%, for the six months ended June 30, 2025, compared with the same period in 2024. The increase in furniture and equipment 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 decreases in the Federal Funds rate since September 2024. Earned interest credit expense decreased $2.8 million, or 46.1%, for the second quarter of 2025, compared with the same period of 2024, and decreased $5.6 million, or 46.6%, for the six months ended June 30, 2025, compared with the year-ago period.
Merger and restructuring-related costs increased $15.1 million, or 698.2%, for the second quarter of 2025, compared with the same period of 2024, and increased $16.2 million, or 448.3%, for the six months ended June 30, 2025, compared with the same period in 2024. Merger and restructuring-related costs mainly related to change-in-control and employee severance and retention expenses related to the acquisition of Territorial Bancorp Inc., which was completed on April 2, 2025. See Note 16 - “Business Combinations” of the Notes to Consolidated Financial Statements for additional information regarding the Merger.
Other noninterest expense increased by $2.9 million, or 47.7%, for the second quarter of 2025, compared with the same period of 2024, and increased by $4.2 million, or 34.2%, for the six months ended June 30, 2025, compared with the same period of 2024. The year-over-year increase was primarily driven by an increase in credit workout-related expense and increased core deposit intangible amortization expense related to acquired deposits from Territorial.
Provision for Income Taxes
For the three months ended June 30, 2025, the Company recorded an income tax benefit of $2.0 million on pretax loss of $29.9 million, representing an effective tax rate of 6.74%, compared with an income tax provision of $9.3 million on pretax income of $34.5 million, representing an effective tax rate of 26.85% for the three months ended June 30, 2025.
For the six months ended June 30, 2025, the Company recorded an income tax provision of $4.7 million on pretax loss of $2.1 million, representing an effective tax rate of (230.65)%, compared with an income tax provision of $19.3 million on pretax income of $70.4 million, representing an effective tax rate of 27.41% for the six months ended June 30, 2025.
The year-over-year changes in the income tax provision or benefit, and effective tax rates for the three and six months of 2025 compared with the three and six months of 2024 reflected the impact of merger-related expenses and securities portfolio sales recognized in the second quarter of 2025, both of which reduced pre-tax income. 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.
We invest in affordable housing partnerships and receive tax credits that reduce our 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. For the three and six months ended June 30, 2025, total tax credits related to our investment in affordable housing partnerships were approximately $2.3 million and $4.7 million, respectively. This compares with approximately $2.1 million and $4.3 million in tax credits related to our investment in affordable housing partnerships for the same periods in 2024, respectively.
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In addition to affordable housing partnerships, during the fourth quarter of 2024, we also invested in projects that qualify for renewable energy tax credits. Amortization of investments in renewable energy projects is recorded as a part of the tax expense under the proportional amortization method of accounting and offsets some of the income tax benefits of the renewable energy tax credits. For the three and six months ended June 30, 2025, the amortization on the investment was $319 thousand and $638 thousand, respectively, and the total generated renewable energy tax credits and benefits was $350 thousand and $700 thousand, respectively. There was no amortization on investments in renewable energy projects or tax credits for the same periods of 2024.
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 during the quarter ended June 30, 2025, we recorded an incremental tax expense of $4.9 million 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 “General” 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 anticipate any impact will be immaterial for the fiscal year 2025.
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Financial Condition
At June 30, 2025, total assets were $18.55 billion, an increase of $1.49 billion, or 8.8%, from $17.05 billion at December 31, 2024. The increase in total assets was primarily due to increases in loans receivable, cash and cash equivalents, investment securities, deferred taxes, BOLI, and other intangible assets during the six months ended June 30, 2025. These increases were mainly attributable to the acquisition of Territorial, which was effective April 2, 2025, with total acquired identifiable assets amounting to $1.93 billion.
Cash and Cash Equivalents
Cash and cash equivalents totaled $689.7 million at June 30, 2025, up from $458.2 million at December 31, 2024. As part of the Territorial acquisition, we acquired $86.7 million in cash.
Investment Securities Portfolio
At June 30, 2025, we had $2.02 billion in investment securities AFS, compared with $1.82 billion at December 31, 2024. The net unrealized loss on the investment securities AFS at June 30, 2025, was $217.4 million, compared with a net unrealized loss on securities AFS of $299.4 million at December 31, 2024. The year-to-date decrease in net unrealized loss position reflected movements in market interest rates and second quarter sales of investment securities AFS. At June 30, 2025, we had $247.2 million in investment securities HTM, compared with $252.4 million at December 31, 2024. We have the ability and intent to hold securities classified as HTM to maturity.
During the six months ended June 30, 2025, $686.7 million in investment securities was purchased, $953.1 million in investment securities was sold, $84.3 million in investment securities was paid down, and $35.1 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 (Loss) Income. The excess cash from the sales was redeployed into investment securities throughout the quarter, contributing to the year-to-date growth in investment securities AFS. See Note 16 - “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 its legacy investment securities portfolio AFS with a fair value of $417.9 million, and recorded realized losses of $38.9 million. Net proceeds from the sales were redeployed to purchase higher-yielding investment securities AFS.
We performed an analysis on our investment securities in unrealized loss positions at June 30, 2025 and December 31, 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 June 30, 2025, we also had three asset-backed securities, five corporate securities, and 37 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 full payment of principal and interest is expected.
Equity Investments
Total equity investments include equity investments with readily determinable fair values and equity investments without readily determinable fair values. Equity investments at June 30, 2025, totaled $88.2 million, an increase of $48.2 million, or 120.7%, from $39.9 million at December 31, 2024. The increase in equity investments was mostly due to purchases of equity investments with readily determinable fair values amounting to $45.5 million.
At June 30, 2025 and December 31, 2024, total equity investments with readily determinable fair values totaled $50.5 million and $4.3 million, respectively, consisting of mutual funds. Changes to the fair value of equity investments with readily determinable fair values are recorded in other noninterest income.
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We also had $37.6 million and $35.6 million in equity investments without readily determinable fair values at June 30, 2025 and December 31, 2024, respectively. At June 30, 2025, equity investments without readily determinable fair values included $36.2 million in CRA investments, $1.0 million in CDFI 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 equity investments without readily determinable fair values during the six months ended June 30, 2025 and 2024.
Loans Held For Sale
Loans held for sale at June 30, 2025, totaled $12.1 million, compared with $14.5 million at December 31, 2024, representing a decrease of $2.4 million, or 16.8%. Loans held for sale at June 30, 2025, consisted of $4.7 million in C&I loans, $1.1 million in residential mortgage loans, and $6.3 million in other consumer loans comprising the Company’s credit card portfolio. With the acquisition of Territorial, the Company adopted Territorial’s white-label credit card program. At December 31, 2024, loans held for sale consisted of $13.8 million in C&I loans and $646 thousand in residential mortgage loans. During the six months ended June 30, 2025, we sold $185.2 million in loans, consisting of $117.3 million in SBA loans, $7.9 million in residential mortgage loans, and $60.0 million in C&I loans.
Loans Receivable
At June 30, 2025, loans receivable totaled $14.43 billion, an increase of $816.5 million, or 6.0%, from $13.62 billion at December 31, 2024. The following table summarizes our loan portfolio by amount and percentage of total loans outstanding in each loan segment as of the dates indicated:
| June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||
| Amount | Percent (%) | Amount | Percent (%) | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Loan portfolio composition | |||||||||||||||||||||||
| CRE loans | $ | 8,385,764 | 58 | % | $ | 8,527,008 | 63 | % | |||||||||||||||
| C&I loans | 3,725,295 | 26 | % | 3,967,596 | 29 | % | |||||||||||||||||
| Residential mortgage loans | 2,273,427 | 16 | % | 1,082,459 | 8 | % | |||||||||||||||||
| Consumer and other loans | 50,301 | — | % | 41,209 | — | % | |||||||||||||||||
| Total loans receivable, net of deferred costs and fees | 14,434,787 | 100 | % | 13,618,272 | 100 | % | |||||||||||||||||
| Allowance for credit losses | (149,505) | (150,527) | |||||||||||||||||||||
| Loans receivable, net of allowance for credit losses | $ | 14,285,282 | $ | 13,467,745 | |||||||||||||||||||
The year-to-date increase in loans receivable was primarily due to the $1.07 billion in loans acquired from Territorial during the quarter ended June 30, 2025, consisting mostly of residential mortgage loans. See Note 16 - “Business Combinations” of the Notes to the Consolidated Financial Statements for additional information regarding the Merger. As a result of acquisition of Territorial, the residential mortgage loans increased to 16% from 8% of total loan portfolio.
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The following tables present the segmentation and geographic dispersion of our largest loan segment, CRE loans, at June 30, 2025 and December 31, 2024.
| June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Amount | % | Average Loan Size | Weighted Average LTV(1) | Amount | % | Average Loan Size | Weighted Average LTV(1) | ||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Multi-tenant retail | $ | 1,589,994 | 19 | % | $ | 2,442 | 41 | % | $ | 1,619,505 | 19 | % | $ | 2,375 | 42 | % | |||||||||||||||||||||||||||||||
| Industrial warehouses | 1,260,991 | 15 | % | 2,502 | 40 | % | 1,264,703 | 15 | % | 2,514 | 42 | % | |||||||||||||||||||||||||||||||||||
| Multifamily | 1,211,785 | 14 | % | 2,339 | 59 | % | 1,208,494 | 14 | % | 2,324 | 60 | % | |||||||||||||||||||||||||||||||||||
| Gas stations and car washes | 1,106,007 | 13 | % | 1,914 | 49 | % | 1,027,502 | 12 | % | 1,784 | 47 | % | |||||||||||||||||||||||||||||||||||
| Hotels/motels | 754,449 | 9 | % | 2,131 | 41 | % | 769,635 | 9 | % | 2,150 | 42 | % | |||||||||||||||||||||||||||||||||||
| Mixed-use facilities | 671,144 | 8 | % | 1,752 | 48 | % | 771,695 | 9 | % | 1,910 | 48 | % | |||||||||||||||||||||||||||||||||||
| Single-tenant retail | 647,374 | 8 | % | 1,420 | 46 | % | 659,993 | 7 | % | 1,413 | 46 | % | |||||||||||||||||||||||||||||||||||
| Office | 340,329 | 4 | % | 1,934 | 56 | % | 394,431 | 5 | % | 2,191 | 54 | % | |||||||||||||||||||||||||||||||||||
| All other | 803,691 | 10 | % | 1,591 | 42 | % | 811,050 | 10 | % | 1,530 | 43 | % | |||||||||||||||||||||||||||||||||||
| Total CRE loans | $ | 8,385,764 | 100 | % | 2,033 | 46 | % | $ | 8,527,008 | 100 | % | 2,021 | 47 | % | |||||||||||||||||||||||||||||||||
| CRE loans owner occupied | $ | 2,721,762 | 32 | % | $ | 2,276 | 45 | % | $ | 2,717,326 | 32 | % | $ | 2,235 | 45 | % | |||||||||||||||||||||||||||||||
| CRE loans non-owner occupied | 5,664,002 | 68 | % | 1,934 | 47 | % | 5,809,682 | 68 | % | 1,934 | 48 | % | |||||||||||||||||||||||||||||||||||
__________________________________
(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.
| June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||
| Amount | % | Amount | % | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| CRE loans by geography | |||||||||||||||||||||||
| Southern California | $ | 4,596,667 | 55 | % | $ | 4,748,695 | 56 | % | |||||||||||||||
| Northern California | 660,763 | 8 | % | 638,085 | 8 | % | |||||||||||||||||
| California | 5,257,430 | 63 | % | 5,386,780 | 64 | % | |||||||||||||||||
| New York | 1,056,827 | 13 | % | 1,053,457 | 12 | % | |||||||||||||||||
| Texas | 541,872 | 7 | % | 529,121 | 6 | % | |||||||||||||||||
| New Jersey | 375,239 | 4 | % | 379,035 | 4 | % | |||||||||||||||||
| Washington | 167,521 | 2 | % | 170,511 | 2 | % | |||||||||||||||||
| Illinois | 121,787 | 1 | % | 135,043 | 2 | % | |||||||||||||||||
| Other states | 865,088 | 10 | % | 873,061 | 10 | % | |||||||||||||||||
| Total | $ | 8,385,764 | 100 | % | $ | 8,527,008 | 100 | % | |||||||||||||||
Lines of credit or loan commitments to business customers are normally made for a period of three years or less. The same credit policies are used in making commitments and conditional obligations as for providing loan facilities to customers. Annual reviews of such commitments are performed prior to renewal.
The following table shows loan commitments and letters of credit outstanding as of the dates indicated:
| June 30, 2025 | December 31, 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Commitments to extend credit | $ | 2,239,010 | $ | 2,255,785 | |||||||
| Standby letters of credit | 129,138 | 134,548 | |||||||||
| Other commercial letters of credit | 36,791 | 22,874 | |||||||||
| Total loan commitments and letters of credit | $ | 2,404,939 | $ | 2,413,207 | |||||||
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Nonperforming Assets
Nonperforming assets, which consist of nonaccrual loans, accruing delinquent loans past due 90 days or more, and OREO, totaled $112.9 million at June 30, 2025, compared with $90.8 million at December 31, 2024, an increase of 24.3%. The increase in nonperforming loans was largely driven by the migration of a CRE loan that is well secured by collateral property in a prime location. The ratio of nonperforming assets to total assets increased to 0.61% at June 30, 2025, compared with 0.53% at December 31, 2024. Nonaccrual loans to loans receivable was 0.77% at June 30, 2025, compared with 0.67% at December 31, 2024. As of the close of the acquisition of Territorial, Territorial’s nonperforming assets amounted to $1.3 million, after acquisition accounting adjustments.
The following table summarizes the composition of our nonperforming assets as of the dates indicated:
| June 30, 2025 | December 31, 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
Nonaccrual loans (1) | $ | 110,739 | $ | 90,564 | |||||||
| Accruing delinquent loans past due 90 days or more | 2,149 | 229 | |||||||||
| Total nonperforming loans | 112,888 | 90,793 | |||||||||
| OREO | — | — | |||||||||
| Total nonperforming assets | $ | 112,888 | $ | 90,793 | |||||||
| Nonaccrual loans to loans receivable | 0.77 | % | 0.67 | % | |||||||
| Nonperforming loans to loans receivable | 0.78 | % | 0.67 | % | |||||||
| Nonperforming assets to total assets | 0.61 | % | 0.53 | % | |||||||
| Allowance for credit losses to nonaccrual loans | 135.01 | % | 166.21 | % | |||||||
| Allowance for credit losses to nonperforming loans | 132.44 | % | 165.79 | % | |||||||
| Allowance for credit losses to nonperforming assets | 132.44 | % | 165.79 | % | |||||||
__________________________________
(1) Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation totaling $15.3 million at June 30, 2025, and $12.8 million at December 31, 2024.
Allowance for Credit Losses
The ACL was $149.5 million at June 30, 2025, compared with $150.5 million at December 31, 2024. The ACL was 1.04% and 1.11% of loans receivable at June 30, 2025 and December 31, 2024, respectively. The year-to-date change in the ACL coverage ratio reflected the impact of the Territorial acquisition, which contributed $1.03 billion of residential mortgage loans at the close of the Merger. The following table reflects the allocation of the ACL by loan segment and the ratio of total ACL to total loans as of the dates indicated:
| June 30, 2025 | December 31, 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| CRE loans | $ | 77,300 | $ | 88,374 | |||||||
| C&I loans | 62,547 | 57,243 | |||||||||
| Residential mortgage loans | 9,113 | 4,438 | |||||||||
| Consumer and other loans | 545 | 472 | |||||||||
| Total | $ | 149,505 | $ | 150,527 | |||||||
| Allowance for credit losses to loans receivable | 1.04 | % | 1.11 | % | |||||||
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The decrease in ACL at June 30, 2025, compared with December 31, 2024, was primarily due to a decline in ACL for CRE loans, which was due to a decrease in the balance of CRE loans and updates to historical loss and prepayment assumptions during the six months ended June 30, 2025, which outweighed the impact of updated forecasted macroeconomic conditions. The third-party economic forecast used in the calculation at June 30, 2025, projected lower GDP growth and CRE price index, and slightly higher unemployment rates, relative to the forecast used at December 31, 2024. The decline in ACL on CRE loans was partially offset by increases in ACL for C&I loans and residential mortgage loans. The increased ACL on C&I loans largely reflected the weaker macroeconomic conditions forecasted, while the increased ACL on residential mortgage loans was primarily driven by a higher residential mortgage loan balance due to the acquisition of Territorial.
The following table presents the provisions for credit losses on loans, the amount of loans charged off, and the recoveries on loans previously charged off, together with the balance of the ACL at the beginning and end of each period, the balance of average loans and loans receivable outstanding, and related ratios at the dates and for the periods indicated:
| At or for the Three Months Ended June 30, | At or for the Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| LOANS: | |||||||||||||||||||||||
| Average loans | $ | 14,423,923 | $ | 13,591,936 | $ | 13,942,238 | $ | 13,669,078 | |||||||||||||||
| Loans receivable (end of period) | $ | 14,434,787 | $ | 13,567,002 | $ | 14,434,787 | $ | 13,567,002 | |||||||||||||||
| ALLOWANCE: | |||||||||||||||||||||||
| Balance, beginning of period | $ | 147,412 | $ | 158,758 | $ | 150,527 | $ | 158,694 | |||||||||||||||
| Less loan charge offs: | |||||||||||||||||||||||
| CRE loans | (67) | (520) | (972) | (558) | |||||||||||||||||||
| C&I loans | (13,748) | (5,972) | (21,303) | (10,591) | |||||||||||||||||||
| Consumer and other loans | (999) | (46) | (1,087) | (109) | |||||||||||||||||||
Total loan charge offs | (14,814) | (6,538) | (23,362) | (11,258) | |||||||||||||||||||
| Plus loan recoveries: | |||||||||||||||||||||||
| CRE loans | 910 | 6 | 916 | 541 | |||||||||||||||||||
| C&I loans | 1,919 | 2,072 | 2,090 | 2,619 | |||||||||||||||||||
| Consumer and other loans | 15 | 21 | 71 | 123 | |||||||||||||||||||
| Total loan recoveries | 2,844 | 2,099 | 3,077 | 3,283 | |||||||||||||||||||
| Net loan charge offs | (11,970) | (4,439) | (20,285) | (7,975) | |||||||||||||||||||
| Day 1 ACL for acquired PCD loans | 63 | — | 63 | — | |||||||||||||||||||
| Provision for credit losses on loans | 14,000 | 1,700 | 19,200 | 5,300 | |||||||||||||||||||
| Balance, end of period | $ | 149,505 | $ | 156,019 | $ | 149,505 | $ | 156,019 | |||||||||||||||
| Net loan charge offs to average loans* | 0.33 | % | 0.13 | % | 0.29 | % | 0.12 | % | |||||||||||||||
| Allowance for credit losses to loans receivable at end of period | 1.04 | % | 1.15 | % | 1.04 | % | 1.15 | % | |||||||||||||||
__________________________________
* Annualized
Net loan charge offs as a percentage of average loans were 0.33% and 0.29%, annualized, for the three and six months ended June 30, 2025, respectively, compared with net loans charge offs of 0.13% and 0.12%, respectively, for the same periods in 2024. Net loan charge offs for the three and six months ended June 30, 2025, primarily reflected C&I loan net charge offs of $11.8 million and $19.2 million, respectively.
We believe the ACL at June 30, 2025 was adequate to absorb current expected lifetime losses in the loan portfolio. However, there is no assurance that actual losses will not exceed the current estimated credit losses. Among other things, if the effects of the tariffs, global trade tensions, inflation, potential economic recession, and the wars in the Gaza Strip and Ukraine are worse than we currently expect, or if the effects are prolonged, actual losses could exceed the estimated credit losses, which could have a material and adverse effect on our financial condition and results of operations.
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At June 30, 2025, we had $44.1 million in accrued interest receivables on loans, compared with $43.0 million at December 31, 2024.
Investments in Tax Credit Structures
At June 30, 2025, we had $30.8 million in investments in affordable housing partnerships, compared with $32.4 million at December 31, 2024. The decrease in investments in affordable housing partnerships primarily reflected amortization during the six months ended June 30, 2025. Off-balance sheet commitments to fund investments in affordable housing partnerships totaled $23.7 million and $11.3 million at June 30, 2025 and December 31, 2024, respectively. Investments in affordable housing partnerships provide low-income housing tax credits.
In 2024, we invested in renewal energy tax credits with an initial investment of $20.0 million. At June 30, 2025, we had $2.8 million in investments in solar tax credits on the Consolidated Statements of Financial Condition, compared with $3.4 million at December 31, 2024, which was recorded in other assets. At June 30, 2025 and December 31, 2024, unfunded commitments were both $2.8 million, which were recorded in other liabilities.
Deposits, Borrowings, Convertible Notes, and Subordinated Debentures
Deposits
Deposits are the primary source of funds used in lending and investment activities. At June 30, 2025, total deposits were $15.94 billion, an increase of $1.62 billion, or 11.3%, 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 the quarter ended June 30, 2025. Year-to-date, growth in customer deposits offset planned reductions of brokered deposits.
The following table sets forth the balances of our deposits by category for the periods indicated:
| June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||
| Balance | Percent (%) | Balance | Percent (%) | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Demand, noninterest bearing | $ | 3,485,502 | 22 | % | $ | 3,377,950 | 24 | % | |||||||||||||||
| Money market, interest bearing demand and savings | 6,102,999 | 38 | % | 5,175,735 | 36 | % | |||||||||||||||||
| Time deposits | 6,354,854 | 40 | % | 5,773,804 | 40 | % | |||||||||||||||||
| Total deposits | $ | 15,943,355 | 100 | % | $ | 14,327,489 | 100 | % | |||||||||||||||
At June 30, 2025, we had $797.1 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 June 30, 2025, had original maturities of six months, a weighted average interest rate of 4.24%, and were collateralized with a $330.0 million letter of credit issued by the FHLB. At June 30, 2025, certificates of deposit owned by state and local governments in Hawaii was $244.1 million, and was collateralized by investment securities with an aggregate fair value of $257.3 million. At June 30, 2025, time deposits of more than $250 thousand totaled $3.30 billion, compared with $2.71 billion at December 31, 2024.
The Bank’s estimated insured deposits at June 30, 2025, were equivalent to approximately 62% of the Bank’s total deposits, compared with approximately 61% at December 31, 2024. The Bank’s estimated uninsured deposits at June 30, 2025, totaled $6.15 billion (38% of deposits), compared with $5.56 billion (39% of deposits) at December 31, 2024. Uninsured deposits are estimated based on the portion of account balances in excess of FDIC insurance limits.
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The following is a schedule of time deposit maturities at June 30, 2025:
| June 30, 2025 | |||||||||||
| Balance | Percent (%) | ||||||||||
| (Dollars in thousands) | |||||||||||
| Three months or less | $ | 2,300,475 | 36 | % | |||||||
| Over three months through six months | 1,522,203 | 24 | % | ||||||||
| Over six months through nine months | 1,509,731 | 24 | % | ||||||||
| Over nine months through twelve months | 931,074 | 15 | % | ||||||||
| Over twelve months | 91,371 | 1 | % | ||||||||
| Total time deposits | $ | 6,354,854 | 100 | % | |||||||
FHLB and FRB Borrowings and Other Borrowings
We utilize FHLB and FRB borrowings as a secondary source of funds in addition to deposits, which we consider our primary source of funds. FHLB advances are typically secured by pledged loans and/or securities with a market value at least equal to the outstanding advances plus our investment in FHLB stock. At June 30, 2025, borrowings totaled $29.8 million, consisting entirely of FHLB borrowings, compared with $239.0 million in borrowings at December 31, 2024, consisting of $100.0 million in FHLB borrowings and $139.0 million in FRB borrowings. At June 30, 2025 and December 31, 2024, the weighted average remaining maturity of total FHLB and FRB borrowings was five months and two months, respectively. The weighted average rate for FHLB borrowings was 1.70% at June 30, 2025, compared to 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 $5.0 million matured in June 2025. The remaining $30.0 million in FHLB advances outstanding at June 30, 2025, mature through June 2026, have a weighted average coupon rate of 1.70%, and were acquired at a discount of $441 thousand, with $248 thousand in discount remaining at June 30, 2025. See Note 16 - “Business Combinations” of the Notes to the Consolidated Financial Statements for additional information regarding the Merger.
We did not have federal funds purchased at June 30, 2025, and December 31, 2024.
Convertible Notes
In 2018, we issued $217.5 million aggregate principal amount of 2.00% convertible senior notes maturing on May 15, 2038, in a private offering to qualified institutional buyers under Rule 144A of the Securities Act of 1933. The convertible notes were issued as part of our plan to repurchase common stock and pay interest on a semi-annual basis. The net carrying balance of convertible notes at both June 30, 2025 and December 31, 2024, was $444 thousand.
Subordinated Debentures
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 their respective offerings to purchase a like amount of subordinated debentures issued by us. The subordinated debentures are the sole assets of the trusts. Our obligations under the subordinated debentures and related documents, taken together, constitute a full and unconditional guarantee by us of the obligations of the trusts. The subordinated debentures totaled $109.8 million at June 30, 2025, and $109.1 million at December 31, 2024. The trust preferred securities are mandatorily redeemable upon the maturity of the subordinated debentures, or upon earlier redemption as provided in the indentures. We have the right to redeem the subordinated 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. See Note 8 - “Convertible Notes and Subordinated Debentures” of the Notes to Consolidated Financial Statements for additional information regarding the subordinated debentures issued.
Off-Balance-Sheet Activities and Contractual Obligations
We routinely engage 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, foreign exchange contracts, commitments related to affordable housing partnership investments accounted under the equity method, and long-term debt.
84
Traditional off-balance-sheet credit-related financial instruments are primarily commitments to extend credit and standby letters of credit. These activities could require us to make cash payments to third parties if certain specified future events occur. The contractual amounts represent the extent of our exposure in these off-balance-sheet activities. These activities are necessary to meet the financing needs of our customers.
We enter into interest rate contracts under which we are required to either receive cash from or pay cash to counterparties depending on changes in interest rates. We utilize interest rate contracts, interest rate floors, and interest rate caps to help manage the risk of changing interest rates. We also sell interest rate contracts to certain adjustable rate commercial loan customers to fix the interest rate on their floating rate loans. When the fixed rate interest rate contract is originated with the customer, an identical offsetting interest rate contract is also entered into by us with a correspondent bank.
We have outstanding risk participation agreements that are part of syndicated loan transactions that we participated in as a means to earn additional fee income. Risk participation agreements are credit derivatives not designated as hedges, in which we share in the risk related to the interest rate swap on participated loans. Credit derivatives are not speculative and are not used to manage interest rate risk in assets or liabilities.
We enter into various stand-alone mortgage-banking derivatives in order to hedge the risk associated with the fluctuation of interest rates. The first type of derivative, an interest rate lock commitment, is a commitment to originate loans whereby the interest rate on the loan is determined prior to funding. To mitigate interest rate risk on these rate lock commitments, we also enter into forward commitments, or commitments to deliver residential mortgage loans on a future date, which are also considered derivatives. The net change in the fair value of derivatives represents income recorded from changes in fair value for these mortgage derivative instruments.
We invest in the equity of certain limited partnerships or limited liability companies that are associated with affordable housing partnerships that provide income tax benefits and/or CRA credits for the Company. The unfunded commitments on affordable housing partnerships are off-balance sheet liabilities and are funded based on funding schedule or as called by the limited liability companies.
We do not anticipate that our current off-balance-sheet activities will have a material impact on our future results of operations or our financial condition. Further information regarding our financial instruments with off-balance-sheet risk can be found in Item 3 “Quantitative and Qualitative Disclosures about Market Risk.”
Stockholders’ Equity and Regulatory Capital
Historically, our primary source of capital has been the retention of earnings, net of interest payments on subordinated debentures and convertible notes and dividend payments to stockholders. 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 risks.
Total stockholders’ equity was $2.22 billion at June 30, 2025, compared with $2.13 billion at December 31, 2024. During the six months ended June 30, 2025, stockholders’ equity increased by $89.6 million due to $73.3 million in common stock issued as consideration in the Territorial acquisition, a decrease in accumulated other comprehensive loss of $56.5 million, an increase in additional paid-in capital consisting of $1.4 million in stock-based compensation, and $1 thousand in common stock issued, partially offset by cash dividends paid of $34.8 million, and a net loss of $6.8 million. The decrease in accumulated other comprehensive loss from December 31, 2024 to June 30, 2025, primarily reflected a decrease in unrealized losses on our investment securities AFS due to changes in market interest rates and sales of investment securities AFS.
In January 2022, our Board of Directors approved a stock repurchase plan that authorized management to repurchase up to $50.0 million of common stock. Stock repurchases through the plan may be executed through various means, including, without limitation, open market transactions, privately negotiated transactions or by other means as determined by management and in accordance with SEC rules and regulations. We had $35.3 million remaining of the $50.0 million stock repurchase plan at both June 30, 2025 and December 31, 2024.
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At June 30, 2025 and December 31, 2024, the most recent regulatory notification generally categorized the Bank as “well capitalized” under the general regulatory framework for Prompt Corrective Action. To be generally categorized as “well-capitalized” the Bank must maintain the common equity Tier 1 capital, total capital, Tier 1 capital, and Tier 1 leverage capital ratios as set forth in the tables below.
| June 30, 2025 | |||||||||||||||||||||||||||||||||||
| Actual | Ratio Required To Be Well-Capitalized | Excess Over Well-Capitalized | |||||||||||||||||||||||||||||||||
| Amount | Ratio | ||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Hope Bancorp, Inc. | |||||||||||||||||||||||||||||||||||
Common equity tier 1 capital (to risk-weighted assets) | $ | 1,833,818 | 12.06 | % | N/A | N/A | |||||||||||||||||||||||||||||
Tier 1 capital (to risk-weighted assets) | $ | 1,939,737 | 12.76 | % | N/A | N/A | |||||||||||||||||||||||||||||
Total capital (to risk-weighted assets) | $ | 2,090,212 | 13.76 | % | N/A | N/A | |||||||||||||||||||||||||||||
Leverage capital (to average assets) | $ | 1,939,737 | 10.57 | % | N/A | N/A | |||||||||||||||||||||||||||||
| Bank of Hope | |||||||||||||||||||||||||||||||||||
Common equity tier 1 capital (to risk-weighted assets) | $ | 1,917,657 | 12.62 | % | 6.50 | % | 6.12 | % | |||||||||||||||||||||||||||
Tier 1 capital (to risk-weighted assets) | $ | 1,917,657 | 12.62 | % | 8.00 | % | 4.62 | % | |||||||||||||||||||||||||||
Total capital (to risk-weighted assets) | $ | 2,070,132 | 13.62 | % | 10.00 | % | 3.62 | % | |||||||||||||||||||||||||||
Leverage capital (to average assets) | $ | 1,917,657 | 10.45 | % | 5.00 | % | 5.45 | % | |||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Actual | Ratio Required To Be Well-Capitalized | Excess Over Well-Capitalized | |||||||||||||||||||||||||||||||||
| Amount | Ratio | ||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Hope Bancorp, Inc. | |||||||||||||||||||||||||||||||||||
Common equity tier 1 capital (to risk-weighted assets) | $ | 1,900,601 | 13.06 | % | N/A | N/A | |||||||||||||||||||||||||||||
Tier 1 capital (to risk-weighted assets) | $ | 2,005,840 | 13.79 | % | N/A | N/A | |||||||||||||||||||||||||||||
Total capital (to risk-weighted assets) | $ | 2,150,810 | 14.78 | % | N/A | N/A | |||||||||||||||||||||||||||||
Leverage capital (to average assets) | $ | 2,005,840 | 11.83 | % | N/A | N/A | |||||||||||||||||||||||||||||
| Bank of Hope | |||||||||||||||||||||||||||||||||||
Common equity tier 1 capital (to risk-weighted assets) | $ | 1,978,969 | 13.61 | % | 6.50 | % | 7.11 | % | |||||||||||||||||||||||||||
Tier 1 capital (to risk-weighted assets) | $ | 1,978,969 | 13.61 | % | 8.00 | % | 5.61 | % | |||||||||||||||||||||||||||
Total capital (to risk-weighted assets) | $ | 2,123,939 | 14.61 | % | 10.00 | % | 4.61 | % | |||||||||||||||||||||||||||
Leverage capital (to average assets) | $ | 1,978,969 | 11.68 | % | 5.00 | % | 6.68 | % | |||||||||||||||||||||||||||
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Liquidity Management
Liquidity risk is the risk of reduction in our earnings or capital that would 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.
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 and securities, proceeds from sale of loans, and the liquidation or sale of securities from our available for sale portfolio or sale of equity investments. Primary uses of funds include withdrawal of and interest payments on deposits, originations of loans, purchases of investment securities, and payment of operating expenses.
At June 30, 2025, our total borrowing capacity, cash and cash equivalents, and unpledged securities totaled $8.44 billion, compared with $8.24 billion at December 31, 2024. At June 30, 2025, our borrowing capacity comprised $3.92 billion from the FHLB ($3.89 billion unused and available to borrow), $1.58 billion from the FRB (entirely unused and available to borrow), and $331.2 million of Fed funds facilities with other banks (entirely unused). At June 30, 2025, our total remaining available borrowing capacity was $5.80 billion. In addition to these lines, cash and cash equivalents, interest earning cash deposits and deposits with other banks totaled $689.7 million, and unpledged investment securities AFS amounted to $1.95 billion. We believe our liquidity sources are sufficient to meet all reasonably foreseeable short-term and intermediate-term needs.
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Item 3.Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk that movements in market risk factors, including interest rates, foreign exchange rates, equity prices, commodity prices, credit spreads, and volatilities, will negatively impact the Company’s income and the value of its portfolios. The Company is exposed to market risk as a result of its core business of extending loans and acquiring deposits, and secondarily through its asset and liability management activities. The Company’s asset and liability management activities are intended to optimize earnings while maintaining safety and soundness through proper risk management.
Interest Rate Risk
Interest rate risk is the most significant market risk impacting the Company. Interest rate risk, which is inherent in the banking industry, is measured by potential changes in net interest income (“NII”) and the economic value of equity (“EVE”). The primary forms of interest rate risk consist of repricing risk, basis risk, yield curve risk, and options risk.
•Repricing Risk: The risk that interest rate sensitive assets and liabilities do not reprice simultaneously and/or in equal volumes.
•Basis Risk: The risk that different indices with the same repricing frequency do not move in unison due to asymmetrical changes in interest rate indices.
•Yield Curve Risk: The risk from non-parallel changes in the slope of the yield curve.
•Options Risk: The risk that cash flows change due to embedded options (e.g., prepayment / extension, call options, deposit runoff, time deposit early withdrawal).
The Company’s interest rate risk management is governed by policies reviewed and approved annually by the Board of Directors. The Board delegates responsibility for interest rate risk management to the Board Risk Committee and to the Asset and Liability Management Committee (“ALM”), which is composed of the Bank’s senior executives and other designated officers.
The fundamental objective of the ALM is to manage exposure to interest rate fluctuations while maintaining adequate levels of liquidity and capital. ALM meets regularly to monitor the Company’s interest rate risk, balance sheet activities, on- and off-balance sheet composition, earnings, capital, and market trends. Overall, the Company aims to reduce the sensitivity of earnings to interest rate fluctuations. Certain assets and liabilities, however, may react in different degrees to changes in market interest rates. Furthermore, interest rates on certain types of assets and liabilities may fluctuate prior to changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. The expected maturities of various assets or liabilities may shorten or lengthen as interest rates change. Management considers the anticipated effects of these factors when implementing interest rate risk management objectives.
The Company’s interest rate risk sensitivity simulations apply various behavior models and assumptions to account for customer tendencies stemming from interest rate risk changes. The key behavior models and assumptions incorporated in the EVE and NII simulations impact deposit pricing, deposit runoff, time deposit early withdrawal, and prepayments on loans and investments. The deposit pricing model is one of the most significant of these assumptions and determines to what degree our deposit rates change when benchmark interest rates change. The deposit runoff model reflects the increased attrition rate observed in noninterest bearing deposits in higher rate scenarios as customers migrate to interest bearing deposits and/or alternative investments. The time deposit early withdrawal model incorporates the customer’s ability to early terminate time deposits and reprice higher. The prepayment models applied to loans and investments reflects the incentive borrowers have to refinance when market rates are low while conversely slowing down their payments in higher rate environments. Each of the models and assumptions are tailored to the specific interest rate environment and validated on a regular basis. However, assumptions and models are inherently uncertain and actual results may differ from those derived in simulation analysis for multiple reasons, which may include actual balance sheet composition differences, timing, magnitude and frequency of interest rate changes, deviations from projected customer behavioral assumptions, and changes in market conditions or management strategies.
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Net Interest Income Sensitivity Simulation
Net interest income sensitivity simulations are used by management to measure the risk and impact to earnings over various time horizons, using a variety of interest rate scenarios. The following table presents the Company’s net interest income sensitivity profile over a gradual 12-month “ramp” scenario applied to the base implied forward curve. The “ramp” scenario is a parallel shift applied gradually over the 12 months of the forecast on a pro rata basis. The scenarios are applied to an adjusted balance sheet that incorporates assumptions related to asset prepayments, time deposit withdrawal speeds, noninterest bearing deposit migration, and estimated deposit betas; these assumptions differ in rising or falling interest rate scenarios and are anchored in historical performance. Deposit betas represent the change in the rates paid on deposits against a change in benchmark interest indices. The net interest income simulation model does not represent a forecast of the Company’s net interest income but is a tool utilized to assess the impact of changing market interest rates across a range of market interest rate environments.
The following table presents the Company’s net interest income sensitivity related to a 12-month parallel ramp of 100, 200 and 300 bps applied in year 1 on implied forward market interest rates as of June 30, 2025, and June 30, 2024, on a balance sheet assuming static balances on assets and liabilities with deposit balances modeled to migrate from noninterest bearing deposits to interest bearing deposits as rates move.
| Net Interest Income Sensitivity | Interest Rate Change (basis points) | |||||||||||||||||||||||||||||||||||||
| (300) | (200) | (100) | + 100 . | + 200 . | + 300 . | |||||||||||||||||||||||||||||||||
| June 30, 2025 | (5.7)% | (4.0)% | (2.0)% | 1.9% | 4.0% | 5.8% | ||||||||||||||||||||||||||||||||
| June 30, 2024 | (5.5)% | (3.3)% | (1.0)% | (0.2)% | (2.3)% | (4.3)% | ||||||||||||||||||||||||||||||||
The year-over-year changes in the modeled net interest income sensitivity profile are attributable to the termination of the receive fixed swap portfolio during the first quarter of 2025, which was terminated in preparation of acquiring Territorial's balance sheet that consists of long duration fixed rate assets and short duration liabilities. The year-over-year increase in the net interest income sensitivity profile also reflects growth in time deposit balances, which lag changes in interest rates and partially offset the increase in fixed rate mortgage balances from Territorial.
Economic Value of Equity Sensitivity
EVE is used by management to measure the impact of interest rate changes on the net present value of assets and liabilities, including off-balance sheet instruments. EVE estimates the risk exposure for a longer time horizon, or more specifically, the expected life of the current balance sheet, complementing net interest income sensitivity simulations. EVE does not incorporate any assumptions related to new originations or renewal activities used in the net interest income sensitivity analysis. The following table presents the Company’s EVE profile applied to immediate parallel shock scenarios.
| Economic Value of Equity Sensitivity | Interest Rate Change (basis points) | |||||||||||||||||||||||||||||||||||||
| (300) | (200) | (100) | + 100 . | + 200 . | + 300 . | |||||||||||||||||||||||||||||||||
| June 30, 2025 | 6.7% | 6.6% | 4.2% | (5.0)% | (10.6)% | (16.6)% | ||||||||||||||||||||||||||||||||
| June 30, 2024 | 3.2% | 3.9% | 2.7% | (5.5)% | (12.0)% | (19.0)% | ||||||||||||||||||||||||||||||||
The year-over-year changes in the EVE profile were due to the active reduction of the investment portfolio duration in the first half of 2025, termination of the receive fixed swap portfolio during the first quarter of 2025 and increase in low-beta, long-duration retail deposits; partially offset by the increase in fixed rate residential mortgage loan balances from acquisition of Territorial.
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Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chairman, President, and Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
We conducted an evaluation under the supervision and with the participation of our management, including our Chairman, President, and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chairman, President, and Chief Executive Officer and our Chief Financial Officer determined that our disclosure controls and procedures were effective at June 30, 2025.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
OTHER INFORMATION
Item 1.Legal Proceedings
In the normal course of business, the Company is involved in various legal claims. Management has reviewed all legal claims against the Company with counsel and has taken into consideration the views of such counsel as to the potential outcome of the claims in determining our accrued loss contingency. Accrued loss contingencies for all legal claims totaled approximately $302 thousand at June 30, 2025. It is reasonably possible the Company may incur losses in excess of our accrued loss contingency. However, at this time, the Company is unable to estimate the range of additional losses that are reasonably possible because of a number of factors, including the fact that certain of these litigation matters are still in their early stages. Management believes that none of these legal claims, individually or in the aggregate, will have a material adverse effect on the results of operations or financial condition of the Company.
Item 1A.Risk Factors
Management is not aware of any material changes to the risk factors discussed in Part 1, Item 1A, of the Annual Report on Form 10-K for the year ended December 31, 2024. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part 1, Item 1A, of the Annual Report on Form 10-K for the year ended December 31, 2024, which could materially and adversely affect the Company’s business, financial condition, results of operations, and stock price. The risks described in the Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not presently known to management, or that management presently believes not to be material, may also result in material and adverse effects on the Company’s business, financial condition, results of operations, and stock price.
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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
The Company did not have any unregistered sales of equity securities during the three months ended June 30, 2025.
In January 2022, the Company’s Board of Directors approved a stock repurchase program that authorized the Company to repurchase up to $50.0 million of its common stock. The stock repurchase authorization does not have an expiration date and may be modified, amended, suspended, or discontinued at the Company’s discretion at any time without notice. The Company did not repurchase any shares as part of this program during the three months ended June 30, 2025. $35.3 million remains available for the repurchase of additional stock as of June 30, 2025.
The following table summarizes stock repurchase activities during the three months ended June 30, 2025:
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program | ||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||
| April 1, 2025 to April 30, 2025 | — | $ | — | — | $ | 35,333 | ||||||||||||||||||||
| May 1, 2025 to May 31, 2025 | — | — | — | 35,333 | ||||||||||||||||||||||
| June 1, 2025 to June 30, 2025 | — | — | — | 35,333 | ||||||||||||||||||||||
| Total | — | $ | — | — | ||||||||||||||||||||||
Item 3.Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
Not Applicable.
Item 5.Other Information
During the three months ended June 30, 2025, no director or officer of the Company adopted terminated
Item 6.Exhibits
See “Index to Exhibits.”
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INDEX TO EXHIBITS
| Exhibit No. | Description | |||||||
| 3.1 | Second Amended and Restated Certificate of Incorporation of Hope Bancorp, Inc. (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 3.1, filed with the SEC on May 29, 2024) | |||||||
| 3.2 | Amended and Restated Bylaws of Hope Bancorp, Inc. (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 3.2, filed with the SEC on May 29, 2024) | |||||||
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |||||||
| 31.2 | Certification of Chief Finance Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |||||||
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** | |||||||
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** | |||||||
| 101.INS | The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document* | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)* | |||||||
__________________________________
| * | Filed herewith | ||||
| ** | Furnished herewith | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| HOPE BANCORP, INC. | |||||||||||
| Date: | August 8, 2025 | /s/ Kevin S. Kim | |||||||||
| Kevin S. Kim | |||||||||||
| Chairman, President, and Chief Executive Officer | |||||||||||
| Date: | August 8, 2025 | /s/ Julianna Balicka | |||||||||
| Julianna Balicka | |||||||||||
| Executive Vice President and Chief Financial Officer | |||||||||||
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FAQ
What caused Hope Bancorp's Q2 2025 net loss (HOPE)?
The Q2 2025 net loss of $27.881 million was driven primarily by a $38.856 million realized loss on sales of available-for-sale securities and higher merger-related costs of $17.281 million.
How did the Territorial merger affect Hope Bancorp's balance sheet?
The April 2, 2025 merger added approximately $1.07 billion in loans and $1.67 billion in deposits, contributing to total assets of $18.547 billion at June 30, 2025.
What were Hope Bancorp's loans and deposits at June 30, 2025?
Loans receivable totaled $14.434 billion (net of allowance $14.285 billion) and total deposits were $15.943 billion at June 30, 2025.
Did Hope record credit losses or charge-offs in 2025?
Yes. Provision for credit losses was $15.0 million for Q2 2025 and six-month charge-offs totaled $23.362 million for the six months ended June 30, 2025.
What changes occurred in investment securities during Q2 2025?
The company sold legacy AFS securities with fair value of $417.9 million, recorded realized losses of $38.856 million, and redeployed proceeds into higher-yielding AFS securities.
Hope Bancorp
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HOPE Stock Data
1.28B
122.11M
4.69%
87.02%
2.17%
Banks - Regional
National Commercial Banks
United States
LOS ANGELES