HOPE 10-K & 10-Q changes, risk factors and insider trading

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

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

We may experience adverse effects from acquisitions. We have acquired other banking companies and bank offices in the past, and will consider additional acquisitions as opportunities arise. For example, on April 26,2, 2024,2025, we entered intocompleted a merger agreement with Territorial Bancorp Inc. See Item 1 “Business-Business Overview” and Note 2419 of our Notes to Consolidated Financial Statements for more information about our pending merger with Territorial Bancorp Inc. If we do not adequately address the financial and operational risks associated with acquisitions of other companies, we may incur material unexpected costs and disruption of our business. Future acquisitions may increase the degree of such risks.

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

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

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

The following table presents selected financial and other data for each of the years in the five-year period ended December 31, 2024.2025. The information below should be read in conjunction with,with the more detailed information included elsewhere herein, including our Audited Consolidated Financial Statements and Notes thereto. The comparability of our operating results for the year ended December 31, 2025, with past performance was impacted by acquisition accounting adjustments and merger-related expenses associated with the acquisition of Territorial Bancorp Inc. and the loss on securities sold as a result of repositioning of a portion of our investment securities. The Company has provided supplemental non-GAAP information to facilitate a better understanding of financial performance, identifying certain items as “notable”. There were no notable items for the years ended December 31, 2022 and 2021.

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

(43)Interest Net income divided by average intereststockholders’ earning assets.equity.

(54)Interest expenseNet interest income divided by average interest bearingearning liabilities.assets.

(6)Noninterest Interest expense divided by the sum of netaverage interest incomebearing plus noninterest income.liabilities.

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

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

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

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

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

Certain key macroeconomic variable inputs used in the calculation of our allowance for credit losses experienced a change between projections as of December 31, 20232024 versus projections as of December 31, 2024,2025. particularly projectedWhile GDP growth whichrates hadremained improvedrelatively projectionsflat, unemployment rates showed a slight increase and the CRE Priceprice Indexindex growth rates,rates which had declining projections. This contributed toshowed a decrease in our allowance for credit losses estimated loss ratesdecline at December 31, 2024,2025, compared with December 31, 2023.2024. Changes in the key macroeconomic variables are presented in the tables below.

Moody’s consensus forecast assumes that the probability that the economy will perform better than the consensus estimates is equal to the probability that it will perform worse. A sensitivity analysis of our allowance for credit losses was performed by estimating credit losses using the Moody’s S2 scenario as of December 31, 2024,2025, which has a more negative outlook on the economy compared with the Moody’s consensus scenario. The S2 scenario includes assumptions including elevated market interest rates, which weakens credit sensitive spending moreworse than anticipated.expected Inimpact addition, the combination of tariffs, rising inflation, deportations, global political unrest and tensions, and reduced credit availability causesto the economy tofrom fallthe intoTrump’s aadministration’s mildtariffs recessionand deportations, increased concerns over Russia’s invasion of Ukraine and China’s blockage of the Taiwan Strait, decline in 2025.the U.S. stock market, and declines in European economies. Incorporating key macroeconomic inputs from Moody’s S2 projected scenario in our calculation of the allowance for credit losses resulted in additional allowance for credit losses of approximately $28.5$30.4 million compared with the results using the Moody’s consensus forecast as of December 31, 2024.2025. Management reviews the results using the comparison scenario for sensitivity analysis and considered the results when evaluating the qualitative factor adjustments.

Impact if Actual Results Differ From Estimates and Judgments - Changes in qualitative factors assessed, changes to assumptions used in the impairment test, selection and weighting of the various fair value techniques, and downturns in economic or business conditions, could have a significant adverse impact on the carrying value of goodwill and could result in impairment losses which could have a material impact in our financial condition and earnings. We performed a goodwill impairment quantitative test as of September 30, 2023, and based on this analysis we concluded the fair value of the Company exceeded the carrying value by 15.4%, using a discount rate of 13.6% for the income approach. Management performed a sensitivity analysis of the discount rate used in the income approach of the goodwill impairment analysis, and a 50 basis point increase to the discount rate would result in the fair value of the Company exceeding the carrying amount by 10.9%. We did not perform a quantitative test for the year ended December 31, 2024,2025, as we performed a qualitative analysis that indicated that goodwill was more than likely not impaired.

Our net income was $61.6 million for 2025 compared with $99.6 million for 2024 compared withand $133.7 million for 2023 and $218.3 million for 2022.2023. Our diluted earnings per common share totaled $0.49, $0.82, $1.11, and $1.81$1.11 for the years 2025, 2024, 2023, and 2022,2023, respectively. The return on average assets was 0.34%, 0.56%, 0.67%, and 1.20%0.67% and the return on average stockholders’ equity was 2.77%, 4.68%, 6.48%, and 10.73%6.48% for the years 2025, 2024, and 2023, respectively. 2025’s results included an aggregate $51.8 million of notable items, net of taxes, that impacted the comparability of the Company’s operating results with past performance. Notable items for the year ended December 31, 2025, included a net loss on sales of securities from an investment securities repositioning, merger-related items, and 2022,income respectively.tax expense from the change in California’s state tax apportionment law. Net income, excluding notable items for 2025 was $113.3 million, or $0.89 per diluted common share, compared with net income of $103.4 million, or $0.85 per diluted share, for 2024. The decrease in net income for 2024 compared with 2023 was primarily due to decreasesa decrease in net interest income, offset partially by decreases in provision for credit losses and noninterest expense. The decrease in net income for 2023 compared with 2022 was primarily due to increases in interest expense, provision for credit losses and noninterest expense.

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

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

Net interest income before provision for credit losses decreasedincreased by $98.0$44.4 million, or 19%,10%, for 20242025 compared with 2023.2024. The decreaseincrease in net interest income was primarily driven by a higherlower cost of funds and aan decreaseincrease in the average balance of interest earning assets,loans, partially offset by expandinga yieldslower yield on interest earning assetsloans and aan decreaseincrease in the average balance of interestdeposits. bearingAs liabilities.of TheDecember expanding31, interest2025, earningthe assetFederal Funds target rate was cut by an aggregate 175 basis points since September 2024, impacting average yields and higher deposit costs reflected changes in market interest rates duringfor the2025 period.compared The upper range of the target federal funds rate decreased to 4.50% at December 31, 2024, down from 5.50% at December 31, 2023, but the cuts to the federal funds rate did not begin until September 18,with 2024. The year-over-year decrease in the balance of average interest earning cash and deposits in other banks between 2024 and 2023 was primarily due to the payoff of BTFP borrowings in 2024.

Net interest income before provision for credit losses decreased by $52.6$98.0 million, or 9%,19%, for 20232024 compared with 2022.2023. The decrease in net interest income was driven by a higher cost of funds and increasesa decrease in the average balance of interest bearingearning deposits and short-term borrowings,assets, partially offset by expanding yields on interest earning assets and highera decrease in the average balancesbalance in loans andof interest earningbearing cash and deposits in other banks.liabilities. The expanding interest earning asset yields and higher deposit costs reflected risingchanges in market interest rates during the period. The upper range of the target federal funds rate increaseddecreased to 4.50% at December 31, 2024, down from 5.50% at December 31, 2023, upbut fromthe 4.50%cuts atto Decemberthe 31,federal 2022.funds rate did not begin until September 2024. The year-over-year increasedecrease in the average balance of average interest earning cash and deposits atin other banks between 20232024 and 20222023 was largelyprimarily fundeddue throughto the payoff of borrowings under the FRB’s BTFPBank borrowings,Term reflectingFunding our conservative approach to liquidity risk management, given the banking industry volatility caused by multiple bank failuresProgram in the first half of 2023.2024.

Interest income was $941.2 million for 2025, compared with $954.0 million for 2024, compared withand $1.05 billion for 2023, and $716.1 million for 2022.2023. The yield on average interest earning assets was 5.50% for 2025, compared with 5.69% for 2024, compared withand 5.60% for 2023, and 4.16% for 2022.2023.

The increasedecrease in interest expense on total deposits of $326.4$38.2 million, or 284%,8%, for 20232025 compared with 20222024 was due to a higherlower cost of interest bearing depositsdeposits, and growtha inlower average timebalance deposits.and rate on FHLB and FRB borrowings. The increasedecrease in the cost of depositsfunds was driven by risinga decline in market interest rates during the period, a remix of low-yielding deposits into higher-cost options, and deposit pricing competition.period.

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

Average FHLB and FRB borrowings were $531.9$79.9 million for 2024,2025, compared with $531.9 million in 2024, and $1.62 billion in 2023, and $528.3 million in 2022.2023. Interest expense on FHLB and FRB borrowings was $2.1 million for 2025 compared with $19.9 million for 20242024, compared withand $69.4 million for 2023, and $11.5 million for 2022.2023. The average cost of FHLB and FRB borrowings was 2.57% for 2025, compared with 3.73% for 2024, compared withand 4.29% for 2023, and 2.18% for 2022.2023. The year-over-year decrease in the cost of FHLB and FRB borrowings for 20242025 compared to 20232024 was primarily reflectedattributable theto payoffdeclining of $1.70 billion in FRB BTFP borrowings, which had a weighted average rate of 4.47%, and the impact of our cash flow hedges which reducedmarket interest expense on borrowings starting in the second quarter of 2024.rates.

In 2018, we issued $217.5 million in senior convertible notes. Interest expense on convertible notes was $9 thousand for 20242025 compared with $1.9$9 millionthousand and $5.3$1.9 million for 20232024 and 2022,2023, respectively. The cost of our convertible notes for 20242025 was 2.00% compared with 2.00% for 2024 and 2.47% for 2023 and 2.44% for 2022.2023. The cost of our convertible notes consisted of the 2.00% coupon rate for 2025 and 2024, and also included non-cash interest expense from the capitalization of issuance cost.cost for 2023.

At December 31, 2025, our nine wholly-owned subsidiary grantor trusts had issued $126.0 million of pooled trust preferred securities. Trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in the related indentures. The trusts used the net proceeds from the offering to purchase a like amount of subordinated indentures. The subordinated debentures bear interest at the 3-month Chicago Mercantile Exchange term Secured Financing Overnight Rate (“SOFR”) rate, plus a designated spread. Prior to LIBOR cessation at June 2023, the interest rate was tied to the 3-month LIBOR rate, plus a designated spread. There were no changes in our balance of subordinated debentures during 20242025 or 20232024, aside from the increases related to the discount accretion on subordinated debentures acquired from previous acquisitions. Interest expense on subordinated debentures was $9.6 million for 2025 compared with $10.8 million for 20242024, compared withand $10.5 million for 2023, and $6.0 million for 2022.2023. The average rate on other borrowings increaseddecreased to 8.96% for 2025, compared with 10.17% for 2024, compared withand 10.02% for 2023, and 5.84% for 2022.2023. The change in cost of other borrowingsborrowings, or subordinated debentures, for 2023 and 20222023, compared with 20242025 and 2024, was due to changes in the 3-month SOFR and 3-month LIBOR rates.

Noninterest income is primarily comprised of service fees on deposit accounts, international service fees (fees received on trade finance letters of credit), wire transfer and foreign currency fees, swap fee income, net gains on sales of loans, net gains or losses on sales of investment securities AFS, net gain on branch sales, and other income and fees, which included loan servicing fees, earnings on bank owned life insurance, changes in the fair value of our equity investments with readily determinable fair value, and other miscellaneous income. Noninterest income was $26.5 million for 2025 compared with $47.1 million for 20242024, compared withand $45.6 million for 2023, and $51.4 million for 2022.2023.

During the year ended December 31, 2024, we sold $275.3$276.3 million in fair value of investment securities AFS and recorded $936 thousand in net gains on sales of investment securities AFS. There were no investment securities AFS sold during 2023.

Management is not aware of any material changes to the risk factors discussed in Part 1,I, Item 1A, of the Annual Report on Form 10-K for the year ended December 31, 2025. 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,I, Item 1A, of the Annual Report on Form 10-K for the year ended December 31, 2025, 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 and this Quarterly Report on Form 10-Q 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.

Hope Bancorp, Inc. is the holding company of Bank of Hope, the only regional Korean American bank in the United States with $18.66$18.99 billion in total assets at MarchJune 31,30, 2026. 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 45 full-service branches in California, New York, New Jersey, Washington, Texas, Illinois, Georgia and Alabama under the Bank of Hope banner, and 28 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 (loss) 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.

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, we completed the acquisition of Territorial Bancorp and repositioned our investment securities AFS portfolio. In addition, in the first quarter of 2026, we announced an upcoming acquisition of certain assets and liabilities of the Commercial Banking Unit of SMBC, the closing of which is subject to regulatory approvals and the satisfaction of other customary closing conditions. The comparability of our operating results for the three and six months ended MarchJune 31,30, 2026,2025, with pastperformance performancefor the three and six months ended June 30, 2026, was impacted by acquisition accounting adjustments and merger-related expenses associated with the 2025 Territorial Merger.Merger, the loss on securities sold, merger-related expenses for both the Merger and SMBC acquisition, and the change in the California state tax apportionment rate. We have provided supplemental non-GAAP information to facilitate a better understanding of financial performance, identifying certain items as “notablenotable.”.

_____________________________________________ (1)Net income (loss) 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.

During the three and six months ended MarchJune 31,30, 2026 and 2025, our operating results included certain notable items as a result of the 2025 Merger with TerritorialTerritorial, our legacy investment securities repositioning, the change in the California state tax apportionment rate, and other items. We have presented figures that adjust for these notable items because they are irregular one-time events, and we believe that doing so will help investors better understand our operating performance. 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.

Return on average tangible common equity is calculated by dividing net income (loss) 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.

Net income for the firstsecond quarter of 2026 was $29.5$33.0 million, or $0.23$0.26 per diluted common share, an increase of $8.4$57.8 million over net incomeloss of $21.1$24.8 million, or $0.17$(0.19) per diluted common share, for the same period of 2025. The year-over-year increase in net income was primarily due to increases in noninterest income and net interest income and noninteresta income, partially offset by increasesdecrease in noninterest expenseexpense. andNet income excluding notable items, a non-GAAP measure, for the provisionthree months ended June 30, 2026, was $34.5 million, or $0.27 per diluted common share, compared with net income of $24.6 million, or $0.19 per diluted share, for creditthe losses.same period of 2025.

Comparison of Three Months Ended MarchJune 31,30, 2026, with the Three Months Ended MarchJune 31,30, 2025

Net interest income was $124.1$129.0 million for the firstsecond quarter of 2026, compared with $100.8$117.5 million for the same period of 2025, an increase of $23.2$11.5 million, or 23.1%.9.8%. The year-over-year increase in net interest income was primarily driven by a lower cost of depositsdeposits, a decrease in the average balance of interest bearing deposits, and an increase in the average balance of interest earning assets, partially offset by anlower increaseyields inon the average balance of interest bearing deposits. The year-over-year growth in average earning assets primarily reflected the acquisition of Territorial, which closed in the second quarter of 2025.loans. As of MarchJune 31,30, 2026, the Federal Funds target rate was cut by an aggregate 75 basis points since MarchJune 31,30, 2025, favorably impacting funding costs for the firstsecond quarter of 2026 compared with the prior-year period.

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 firstsecond quarter of 2026 was 2.90%,2.96%, up 3627 basis points from 2.54%2.69% for the same period of 2025. The net interest margin for the six months ended June 30, 2026, was 2.93%, an increase of 31 basis points from 2.62% for the same period of 2025. The net interest margin expansion year over year was primarily driven by funding cost improvements, with the cost of interest bearing deposits decreasing 7746 basis points toand 3.37%60 basis points for the firstthree quarterand ofsix months ended June 30, 2026, downcompared from 4.14% for the first quarter of 2025, exceeding the decline in the Federal Funds target rate overto the same period.periods in 2025, respectively.

The weighted average yield on loans decreased to 5.69%5.73% for the firstsecond quarter of 2026, down 1915 basis points from 5.88% for the same period of 2025. The weighted average yield on loans decreased by 17 basis points to 5.71% for the six months ended June 30, 2026, down from 5.88% for the same period of 2025. The year-over-year decrease in average loan yields was driven by the downward repricing of variable rate loans, reflecting higher benchmark interest rates in 2025 versus 2026. At MarchJune 31,30, 2026, variable interest rate loans made up 43%46% of the loan portfolio. The total accretion of net discount on acquired loans was $4.6$4.5 million and $229$9.1 thousandmillion for the three and six months ended MarchJune 31,30, 20262026, respectively, compared with $4.1 million and $4.3 million for the same periods of 2025, respectively.

The weighted average yield on investment securities for the three and six months ended MarchJune 31,30, 2026, was 3.63%,3.68% anand increase3.65%, ofrespectively, 54compared basiswith points3.25% fromand 3.09%3.17% for the same periodperiods of 2025.2025, respectively. The increase in average yields was primarily due to higher rates on new purchases of investment securities, and the sale of lower-yielding investment securities in the second quarter of 2025 as part of a strategic securities portfolio partial repositioning. At MarchJune 31,30, 2026, 24%22% 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 cost of deposits for the firstthree quarterand ofsix 2026months ended June 30, 2026, was 2.64%,2.60% and 2.62%, respectively, a decrease of 5436 basis points and 45 basis points, respectively, from 3.18%2.96% and 3.07% for the same periodperiods of 2025.2025, respectively. The weighted average cost of interest bearing deposits for the firstthree quarterand ofsix 2026months ended June 30, 2026, was 3.37%,3.31% and 3.34%, respectively, a decrease of 7746 basis points and 60 basis points, respectively, from 4.14%3.77% and 3.94% for the same periodperiods of 2025.2025, respectively. The year-over-year decrease in the cost of deposits was driven by decreases in market interest rates, the planned runoff of higher-cost time deposits, and the positive impact of the acquired Territorial deposits, which have a lower cost of funds, and the planned reductions of higher-costing time deposits.funds.

The recapture of provision for unfunded loan commitments was $550$330 thousand and $400$880 thousand for the three and six months ended MarchJune 31,30, 20262026, respectively, compared with a provision for unfunded loan commitments of $1.0 million and $600 thousand for the same periods of 2025, respectively. The year-over-year increasedecrease in the recapture of provision for unfunded loan commitments was primarily due to the change in balances of unfunded loan commitments.

Noninterest income isconsists 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, other customer-driven income and fees, net gains on sales of SBA loans, net gains (losses) on sales of investment securities AFS, and other noninterest income. Noninterest income for the firstsecond quarter of 2026 was $17.0$18.9 million, compared with $15.7noninterest loss of $23.0 million for the same period of 2025, an increase of $1.3$41.8 million. Noninterest income for the six months ended June 30, 2026, was $35.8 million, compared with noninterest loss of $7.3 million for the same period of the prior year, an increase of $43.1 million.

The year-over-year increase in noninterest income for the three and six months ended MarchJune 31,30, 2026, was primarily driven by increases in other customer-driven income and fees, net gains on sales of AFS securities compared with prior-year net losses on sales of AFS securities, and servicean feesincrease onin depositother accounts,customer-driven income and fees, partially offset by a decrease in other noninterest income. The noninterest loss for 2025 was primarily driven by the investment securities portfolio repositioning which resulted in a net loss of $38.9 million for the three and six months ended June 30, 2025.

During the three and six months ended MarchJune 31,30, 2026 and 2025,2026, we sold $53.0$67.9 million and $49.9$120.9 million in SBA guaranteed loans, respectively, and recorded $3.3$4.4 million and $3.1$7.7 million, respectively, in net gains on sale of SBA loans. This compares with net gains of $4.0 million and $7.1 million for the three and six months ended June 30, 2025, respectively. $67.4 million and $117.3 million in SBA guaranteed loans were sold for the three and six months ended June 30, 2025, respectively.

Other noninterest income decreased $358 thousand for the three months ended MarchJune 31,30, 2026, includedand a$1.7 million for the six months ended June 30, 2026, compared with the same periods in 2025. The six-month decrease ofwas mainly driven by a $1.5 million decrease in net gains on sale of other loans, compared with the same period of 2025.loans.

Noninterest expense for the firstsecond quarter of 2026 was $94.5$98.5 million, ana increasedecrease of $10.6$11.0 million, or 12.6%,10.1%, from $83.9$109.5 million for the firstsecond quarter of 2025. Noninterest expense for the six months ended June 30, 2026, was $192.9 million, a decrease of $415 thousand, or 0.2%, from $193.3 million for the same period of the prior year. Noninterest expense included merger and restructuring-relatedmerger-related costs, which we consider a notable items.item. Excluding notable items, noninterest expense for the firstsecond quarter of 2026 was $94.3$96.4 million compared with $81.3$92.2 million in the year-ago period. Excluding notable items, noninterest expense for the six months ended June 30, 2026, was $190.7 million compared with $173.5 million in the year-ago period. See the “General” section of this MD&A for a reconciliation of GAAP to non-GAAP financial measures.

The year-over-year increasedecrease in noninterest expense for the three and six months ended MarchJune 31,30, 2026, compared with the same periodperiods of 2025, was primarily driven by decreases in merger-related costs and earned interest credit expense, partially offset by increases in salaries and employee benefits; software and subscriptions; occupancy, furniture and equipment; software; and data and item processing,processing. partiallyWe offsetclosed bythe aacquisition decreaseof inTerritorial mergeron April 2, 2025, and restructuring-relatedthe costs.year-to-date second quarter of 2025 included one quarter of operating expenses related to the Territorial franchise, compared with two quarters for 2026.

Salaries and employee benefits expense increased $7.8$4.1 million, or 16.0%,7.7%, for the firstsecond quarter of 2026, compared with the same period of 2025, and increased $11.8 million, or 11.7%, for the six months ended June 30, 2026, compared with the same period in 2025. The year-over-year increase in salaries and employee benefits was primarily due to an increase in headcount following the 2025 Territorial acquisition.acquisition, as well as additional hires in 2026. The number of full-time equivalent employees was 1,4241,432 and 1,2271,416 at MarchJune 31,30, 2026 and 2025, respectively.

Merger and restructuring-relatedMerger-related costs decreased $2.3$15.2 million, or 90.7%,88.1%, for the firstsecond quarter of 2026, compared with the same period of 2025. Merger2025, and restructuring-relateddecreased $17.5 million, or 88.4%, for the six months ended June 30, 2026, compared with the same period in 2025. Merger-related costs mainly comprised employee retention bonuses and professional fees related to the Territorial acquisition, which was completed on April 2, 2025. In addition, we incurred $1.9 million in merger expenses related to the SMBC acquisition in the second quarter of 2026. See Note 15 - “Acquisitions” of the Notes to Consolidated Financial Statements for additional information regarding the Merger.Merger and SMBC acquisition.

The year-over-year changes in the income tax provision or benefit, as well as the effective tax rates, for the three and six months ended MarchJune 31,30, 2026, compared with the three and six months ended MarchJune 31,30, 2025, reflected the impact legislative changes in a significant state jurisdiction enacted and the impact of renewablemerger-related energycosts taxand creditsecurities investmentsportfolio madesales in the firstsecond quarter of 2026 and a lower California state tax apportionment.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 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 MarchJune 31,30, 2026 and 2025,2026, total tax credits and other tax benefits related to our investment in affordable housing partnerships were approximately $2.2 million and $4.5 million, respectively. This compares with approximately $2.3 million and $2.7$4.6 million,million in tax credits related to our investment in affordable housing partnerships for the same periods in 2025, respectively.

In addition to affordable housing partnerships, we invest in projects that qualify for renewable energy tax credits. Amortization of investments in renewable energy projects is recorded as a part of income tax expense under the proportional amortization method of accounting. For the three months ended MarchJune 31,30, 2026 and 2025, the total generated renewable energy tax credits and benefits was $8.1$6.3 million and $350 thousand, respectively. This was partially offset by amortization on the investments, which was $7.0$5.4 million and $319 thousand for the three months ended MarchJune 31,30, 2026 and 2025, respectively. For the six months ended June 30, 2026 and 2025, the total generated renewable energy tax credits and benefits was $14.4 million and $700 thousand, respectively. This was partially offset by amortization on the investments, which was $12.4 million and $638 thousand for the six months ended June 30, 2026 and 2025, respectively.

At MarchJune 31,30, 2026, total assets were $18.66$18.99 billion, an increase of $125.2$460.3 million, or 0.7%,2.5%, from $18.53 billion at December 31, 2025. The increase in total assets was primarily due to increases in loans receivable, investment securities and cash and cash equivalents, partially offset by a decrease in loans receivableequivalents during the threesix months ended MarchJune 31,30, 2026.

At MarchJune 31,30, 2026, we had $1.95 billion in investment securities AFS, compared with $1.83 billion at December 31, 2025. The net unrealized loss on the investment securities AFS at MarchJune 31,30, 2026, was $194.6$200.5 million, compared with a net unrealized loss on securities AFS of $185.3 million at December 31, 2025. The year-to-date increase in net unrealized loss position reflected movements in market interest rates during the period. At MarchJune 31,30, 2026, we had $236.1$232.4 million in investment securities HTM, compared with $239.8 million at December 31, 2025. We have the ability and intent to hold securities classified as HTM to maturity.

During the threesix months ended MarchJune 31,30, 2026, $277.9$493.3 million in investment securities was purchased, $34.1$156.0 million in investment securities was sold, $54.5$108.7 million in investment securities was paid down, and $68.5$111.0 million in investment securities was called.called or matured.

We performed an analysis on our investment securities in unrealized loss positions at MarchJune 31,30, 2026 and December 31, 2025, 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 MarchJune 31,30, 2026, we also had fourtwo asset-backed securities, five corporate securities, and 3028 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.

At MarchJune 31,30, 2026, loans receivable totaled $14.64$14.94 billion, aan decreaseincrease of $61.3$240.5 million, or 0.4%,1.6%, from $14.70 billion at December 31, 2025. The following table summarizes our loan portfolio by amount and percentage of total loans outstanding in each loan segment as of the dates indicated:

The following tables present the segmentation by property type and geography of our largest loan segment, CRE loans, at MarchJune 31,30, 2026 and December 31, 2025.

Nonperforming assets, which consist of nonaccrual loans, accruing delinquent loans past due 90 days or more, and OREO, totaled $120.5$112.9 million at MarchJune 31,30, 2026, compared with $136.1 million at December 31, 2025, a decrease of 11.4%.17.1%. The year-to-date decrease in nonperforming loans was largely driven by the payoff of a large CRE nonaccrual loan during the first quarter of 2026 and a reduction in accruing delinquent loans past due 90 days or more during the second quarter of 2026. The ratio of nonperforming assets to total assets decreased to 0.65%0.59% at MarchJune 31,30, 2026, compared with 0.73% at December 31, 2025. Nonaccrual loans to loans receivable was 0.75% at MarchJune 31,30, 2026, decreaseddown from 0.90% at December 31, 2025.

(1) Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation totaling $19.4$17.1 million at MarchJune 31,30, 2026, and $15.6 million at December 31, 2025.

The ACL was $155.1$153.2 million at MarchJune 31,30, 2026, compared with $156.7 million at December 31, 2025. The ACL coverage ratio was 1.06%1.03% and 1.07% of loans receivable at MarchJune 31,30, 2026 and December 31, 2025, respectively. 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:

The decrease in ACL at MarchJune 31,30, 2026, compared with December 31, 2025, was due to a decrease in ACL for C&I loans, which was due to overall improvements in credit metrics for C&I loans as a result of loan sales and charge offs made during the quarterfirst half of 2026 to resolve problem loans. The ACL for CRE loans increased from December 31, 2025 to MarchJune 31,30, 2026, primarily driven by aincreased weakeningrefinance inrisk theand commercialdowngrade realof estateCRE price index forecastsloans from December 31, 2025 to MarchJune 31,30, 2026. The third-party economic forecast used in the calculation at MarchJune 31,30, 2026, projected slightly higher GDP growth but lowerand growth in the CRE price indexindex, and unemployment rates remained largely unchanged relative to the forecast used at December 31, 2025.

Net loan charge offs as a percentage of average loans were 0.29%,0.24% and 0.27%, annualized, for the three and six months ended MarchJune 31,30, 2026, respectively, compared with net loans charge offs of 0.25%,0.33% annualized,and 0.29%, respectively, for the same periodperiods in 2025. Net loan charge offs for the three and six months ended MarchJune 31,30, 2026, primarily reflected C&I loan net charge offs of $9.9$8.7 million.million and $18.6 million, respectively.

We believe the ACL at MarchJune 31,30, 2026 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, unrest in the Middle East, and the wars in Iran, the Gaza Strip,Strip and Ukraine are worse than currently expected, 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.

At MarchJune 31,30, 2026, we had $45.2$44.4 million in accrued interest receivables on loans, compared with $43.5 million at December 31, 2025.

At MarchJune 31,30, 2026, we had $30.0$31.7 million in investments in affordable housing partnerships, compared with $27.9 million at December 31, 2025. The increase in investments in affordable housing partnerships primarily reflected investment in affordable housing partnerships of $4.5$8.8 million, partially offset by amortization during the threesix months ended MarchJune 31,30, 2026. Off-balance sheet commitments to fund investments in affordable housing partnerships totaled $16.0$36.7 million and $20.5 million at MarchJune 31,30, 2026 and December 31, 2025, respectively. Investments in affordable housing partnerships provide low-income housing tax credits.

At MarchJune 31,30, 2026, we had $30.4$21.7 million in investments in renewable energy tax credits on the Consolidated Statements of Financial Condition, compared with $12.4 million at December 31, 2025,2025. whichThese wasinvestments were recorded inas part of other assets. At MarchJune 31,30, 2026 and December 31, 2025, unfunded commitments were $39.6$29.0 million and $12.4 million, respectively, which were recorded in other liabilities. The increase in both investments in renewable energy tax credits and their unfunded commitments reflected new investments made. During the threesix months ended MarchJune 31,30, 2026, we made new commitments to invest $25.0 million in renewable energy tax credit investments.