CATHAY GENERAL BANCORP

1.** Summary of Significant Accounting Policies

The accompanying Consolidated Financial Statements include the accounts of Cathay General Bancorp (the “Bancorp”), a Delaware corporation, its wholly-owned subsidiaries, Cathay Bank (the “Bank”), a California state-chartered bank, andeleven limited partnerships investing in affordable housing projects (together, the “Company,” “we,” “us,” or “our”). All significant inter-company transactions and balances have been eliminated in consolidation. The Consolidated Financial Statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the banking industry.

Organization and Background.

The Bancorp’s primary business is to act as the holding company for the Bank.

The Bank is a commercial bank, servicing primarily the individuals, professionals, and small to medium-sized businesses in the local markets in which its branches are located. Its operations include the acceptance of checking, savings, and time deposits, and the making of commercial, real estate, and consumer loans. The Bank also offers trade financing, letters of credit, wire transfer, foreign currency spot and forward contracts, Internet banking, investment services, and other customary banking services to its clients. The Bank owns 100% of the common securities of Cathay Holdings LLC.

*Use of Estimates.*The preparation of the Consolidated Financial Statements in accordance with GAAP requires management of the Company to make several estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The significant estimates subject to change relate to the allowance for credit losses.

*Concentrations.The Bank was incorporated in California and started its business from California. Therefore, loans originated, and deposits solicited were mainly from California. As of December 31, 2023,gross loans were primarily comprised of 49.8% of commercial real estate loans,29.9% of residential mortgage loans, and 16.9% of commercial loans. As of December 31, 2023,*approximately 50.5% of the Bank’s residential mortgages were for properties located in California.

Securities Available for Sale. Effective* January 1, 2021,upon the adoption of ASU2016*-13, debt securities Available For Sale (“AFS”) are measured at fair value and subject to impairment testing. When an AFS debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factors and then, (1) recognize an allowance for credit loss by a charge to earnings for the credit-related component (if any) of the decline in fair value, and (2) recognize in other comprehensive income (loss) any non-credit related components of the fair value change. If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation reserve would be reduced, butnot more than the amount of the current existing reserve for that security.

Interest income includes amortization of premiums and discounts as an adjustment of yield on a level-yield basis. Premiums on callable debt securities are amortized to their earliest call date. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

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A debt security is placed on nonaccrual status at the time any principal or interest payments become delinquent by90 days or greater. Interest accrued butnot received for a security placed on non-accrual is reversed against interest income.No interest was reversed against interest income during the period.

Allowance for Credit Losses on Available for Sale Securities.For AFS debt securities in an unrealized loss position, the Companyfirst assesses whether it intends to sell, or it is more likely thannot that it will be required to sell the security before recovery of its amortized cost basis. If an entity intends to sell the debt security, or more likely thannot will be required to sell the security before recovery of its amortized cost basis, any allowance for credit losses shall be written off and the amortized cost basis shall be written down to the debt security's fair value at the reporting date with any incremental impairment reported in earnings. For AFS debt securities that donot meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, the payment structure of the security, failure of the issuer of the security to make scheduled interest or principal payments, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. Any fair value changes that havenot been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as provision for credit loss expense. Losses are charged against the allowance when management believes the uncollectability of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

The amortized cost of the Company’s AFS debt securities exclude accrued interest, which is included in “accrued interest receivable” on the Consolidated Balance Sheets. The Company has made an accounting policy electionnot to measure an allowance for credit losses for accrued interest receivables on AFS debt securities since the Company timely reverses any previously accrued interest when the debt security remains in default for an extended period. As each AFS debt security has a unique security structure, where the accrual status is clearly determined when certain criteria listed in the terms are met, the Company assesses the default status of each security as defined by the debt security’s specific security structure.

Trading securities are reported at fair value, with unrealized gains or losses included in income.

Investment in Federal Home Loan Bank (“FHLB”) Stock. * * As a member of the FHLB system the Bank is required to maintain an investment in the capital stock of the FHLB. The amount of investment is also affected by the outstanding advances under the line of credit the Bank maintains with the FHLB. FHLB stock is carried at cost and is pledged as collateral to the FHLB. FHLB stock is periodically evaluated for impairment based on ultimate recovery of par value. The carrying amount of the FHLB stock were $17.7 million and $17.3 million at* December 31, 2023,and2022,* respectively. As of* December 31, 2023,*the Company owned 177,458 shares of FHLB stock, which exceeded the minimum stock requirement of 150,000 shares.

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Loans Held for Investment.Loans receivable that the Company has the intent and ability to hold for the foreseeable future or until maturity are stated at their outstanding principal, reduced by an allowance for loan losses and net of deferred loan fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Nonrefundable fees and direct costs associated with the origination or purchase of loans are deferred and netted against outstanding loan balances. The deferred net loan fees and costs are recognized in interest income as an adjustment to yield over the loan term using the effective interest method or straight-line method. Discounts or premiums on purchased loans are accreted or amortized to interest income using the effective interest method or straight-line method over the remaining period to contractual maturity. Interest on loans is calculated using the simple-interest method on daily balances of the principal amounts outstanding based on an actual or360-day basis.

Generally, loans are placed on nonaccrual status when they become90 days past due. Loans are considered past due when contractually required principal or interest payments havenot been made on the due dates. Loans are also placed on nonaccrual status when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that full collection of principal or interest becomes uncertain, regardless of the length of past due status. Once a loan is placed on nonaccrual status, interest accrual is discontinued, and all unpaid accrued interest is reversed against interest income. As a result, accrued interest receivable doesnot carry a credit loss reserve. Interest payments received on nonaccrual loans are reflected as a reduction of principal andnot as interest income. A loan is returned to accrual status when the borrower has demonstrated a satisfactory payment trend subject to management’s assessment of the borrower’s ability to repay the loan.

Loans held for sale. Loans held for sale are carried at the lower of aggregate cost or fair value. Gains and losses are recorded in non-interest income based on the difference between sales proceeds, net of sales commissions, and carrying value. When a determination is made at the time of commitment to originate or purchase loans as held-for-investment, it is the Company’s intent to hold these loans to maturity or for the “foreseeable future,” subject to periodic review under the Company’s management evaluation processes, including asset/liability management. When the Company subsequently changes its intent to hold certain loans, the loans are transferred from the loans held-for-investment portfolio at amortized cost to the loans held-for-sale portfolio at lower of aggregate cost or fair value and the existing ACL on the loans transferred is reversed.

Allowance for Credit Losses (“ACL”) on Loans Held for Investment. The Company adopted ASU2016-13, Financial Instruments–* Credit Losses (Topic326)* on* January 1, 2021*which introduced a new current expected credit loss (“CECL”) approach for financial instruments measured at amortized cost and other commitments to extend credit. CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset. The forward-looking concept of CECL requires loss estimates to consider historical experience, GDP, unemployment rates, CRE and home price indexes, and reasonable and supportable economic forecasts of future events and circumstances.

The ACL is the combination of the allowance for loan losses and the reserve for unfunded loan commitments. The allowance for loan losses is reported as a reduction of the amortized cost basis of loans, while the reserve for unfunded loan commitments is included within "other liabilities" on the Consolidated Balance Sheets. The amortized cost basis of loans doesnot include accrued interest receivable, which is included in "accrued interest receivable" on the Consolidated Balance Sheets. The "Provision for credit losses" on the Consolidated Statements of Operations and Comprehensive Income is a combination of the provision for loan losses and the provision for unfunded loan commitments.

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Under the Company’s CECL approach, management estimates the ACL using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable economic forecasts that vary by loan portfolio. We use economic forecasts from Moody’s Analytics in this process. The economic forecast is updated monthly; therefore, theone used for each quarter-end calculation is generally based on aone-month lag based on the timing of when the forecast is released. The Company doesnot consider aone-month lag to create a material difference but considers any subsequent material changes to our estimated loss forecasts as deemed appropriate. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in gross domestic product (or “GDP”), unemployment rates, property values, or other relevant factors.

Under the CECL methodology, quantitative and qualitative loss factors are applied to our population of loans on a collective pool basis when similar risk characteristics exist. The Company evaluates loans for expected credit losses on an individual basis if, based on current information and events, the loan doesnot share similar credit risk characteristics with other loans. The Company* maychoose to measure expected credit losses on an individual loan basis by usingone* of the following methods: (1) the present value of the expected future cash flows of the loan discounted at the loan’s original effective interest rate, or (2) if the loan is collateral dependent, the fair value of the collateral less costs to sell. For loans that arenot collateral-dependent, the Company uses the present value of future cash flows.

Under the Company’s CECL methodology,nine portfolio segments with similar risk characteristics are evaluated for expected loss. Six portfolios are modeled using econometric models andthree smaller portfolios are evaluated using a simplified loss-rate method that calculates lifetime expected credit losses for the respective pools (simplified approach). Thesix portfolios subject to econometric modeling include residential mortgages; commercial and industrial loans (“C&I”); construction loans; commercial real estate (“CRE”) for multifamily loans; CRE for owner-occupied loans; and other CRE loans. We estimate the probability of default during the reasonable and supportable forecast period using separate econometric regression models developed to correlate macroeconomic variables, (GDP, unemployment, CRE prices and residential mortgage prices) to historical credit performance for each of thesix loan portfolios from thefourth quarter of2007 to thefourth quarter of2022. Loss given default rates are computed based on the net charge-offs recognized divided by the exposure at default of defaulted loans starting with thefourth quarter of2007 through thefourth quarter of2022. The probability of default and the loss given default rates are applied to the expected amount at default at the loan level based on contractual scheduled payments and estimated prepayments. The amounts so calculated comprise the quantitative portion of the allowance for credit losses.

The Company’s CECL methodology utilizes aneight-quarter reasonable and supportable (“R&S”) forecast period, and afour-quarter reversion period. Management relies on multiple forecasts, blending them into a single loss estimate. Generally speaking, the blended scenario approach would include the Baseline, the Alternative Scenario1 – Upside –10th Percentile and the Alternative Scenario3 – Downside –90th Percentile forecasts. After the R&S period, the Company reverts linearly for thefour-quarter reversion period to the long-term loss rates for each of thesix portfolios of loans.

The Company’s CECL methodology estimates expected credit losses over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless the extension or renewal options are included in the original or modified contract at the reporting date and arenot unconditionally cancellable by the Company.

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The simplified approach portfolios include Small Business Administration (“SBA”) loans, Home Equity Lines of Credit (“HELOCs”) and cash-secured loans, which arenot modelled econometrically due to the low loss history for thesethree pools of loans. The forecasted loss rate is based on the forecasted GDP and unemployment rates during thefirst eight quarters of the portfolio’s contractual life, reversion loss rates for the nextfour quarters of the portfolio’s contractual life on a linear declining rate, and the long-term loss rate projected over the remainder of the portfolio’s contractual life.

Under the Company’s CECL methodology, the qualitative portion of the reserve on pooled loans represents management’s judgment of additional considerations to account for internal and external risk factors that arenot adequately measured in the quantitative reserve. The qualitative loss factors consider idiosyncratic risk factors, conditions that* may**not* be reflected in quantitatively derived results, or other relevant factors to seek to ensure the allowance for credit losses reflects our best estimate of current expected credit losses. The qualitative reserves include reserves for policy exceptions, experience of management and staff, level of competition in the lending environment, weak risk identification, lack of historical loss experience with residential mortgage loans made to non-U.S. residents, oil & gas, the higher risk characteristics of purchased syndicated loans, model uncertainty, and loans with potential risk of loss given the current environment, including CRE and Office loans, but havenot degraded to the point of qualifying for a specific reserve. Current and forecasted economic trends and underlying market values for collateral dependent loans also are considered within the econometric models described above.

The Company’s CECL methodology requires a significant amount of management judgment in determining the appropriate allowance for credit losses. Several of the steps in the methodology involve judgment and are subjective in nature including, among other things: segmenting the loan portfolio; determining the period over which loss history to consider; selecting predictive econometric regression models that use appropriate macroeconomic variables; determining the methodology to forecast prepayments; selecting the most appropriate economic forecast scenario; determining the length of the R&S forecast and reversion periods; estimating expected utilization rates on unfunded loan commitments; and assessing relevant and appropriate qualitative factors. In addition, the CECL methodology is dependent on economic forecasts that are inherently imprecise and will change from period to period. Although the allowance for credit losses is considered by management to be appropriate, there can beno assurance that it will be sufficient to absorb future losses.

Management believes the allowance for credit losses is appropriate for the current expected credit losses in our loan portfolio and associated unfunded commitments, and the risk ratings and inherent loss rates currently assigned are reasonable and appropriate as of the reporting date. It is possible that others, given the same information,* may*at any point in time reach different conclusions that could result in a significant impact to the Company’s financial statements.

Individually Evaluated Loans. Loans that donot share similar risk characteristics with other financial assets are individually evaluated for impairment and excluded from loan pools used within the collective evaluation of estimated credit losses. We defined the following criteria for what constitutes a “default”, which results in a loanno longer sharing similar risk characteristics with other loans, and therefore requires an individual evaluation for expected credit losses. The criteria for default* mayinclude anyone* of the following: on nonaccrual status, modifications to borrowers experiencing financial difficulty, or payment delinquency of90 days or more.

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The Company has adopted ASU2022-02, “Financial Instruments – Troubled Debt Restructurings and Vintage Disclosures” effective* January 1, 2023.*As part of the adoption, the Company has elected to apply the pending content prospectively and the practical expedient to exclude the accrued interest receivable balance from the disclosed amortized cost basis of loan modifications to debtors experiencing financial difficulty, consistent with our ACL approach discussed further below in this footnote.

Under the new guidance on loan modifications made to borrowers experiencing financial difficulty, when a loan held for investment is modified and is considered to be a continuation of the original loan, the Company uses the post-modification contractual rate to derive the effective interest rate when using a discounted cash flow method to determine the allowance for credit loss.

The amendments in this new guidance eliminate the previous TDR recognition and measurement guidance and, instead, require that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan.

Under the prior TDR guidance, a TDR is a formal modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions* maybe granted in various forms, including a change in the stated interest rate, a reduction in the loan balance or accrued interest, or an extension of the maturity date. Although these loan modifications were considered TDRs, TDR loans that had, pursuant to the Bank’s policy, performed under the restructured terms and had demonstrated sustained performance under the modified terms forsix* months were returned to accrual status. The sustained performance considered by management pursuant to its policy included the periods prior to the modification if the prior performance met or exceeded the modified terms. This would include cash paid by the borrower prior to the restructuring to set up interest reserves. Loans classified as TDRs were reported as individually evaluated loans.

The allowance for credit loss on a TDR was measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. Under the prior guidance when the value of a concession was measured using the discounted cash flow method, the allowance for credit loss was determined by discounting the expected future cash flows at the original interest rate of the loan.

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Unfunded Loan Commitments.Unfunded loan commitments are generally related to providing credit facilities to clients of the Bank and arenot actively traded financial instruments. These unfunded commitments are disclosed as off-balance sheet financial instruments in Note14 in the Notes to Consolidated Financial Statements.

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company, using the same loss factors as used for the allowance for loan losses. The reserve for unfunded loan commitments uses the expected historical usage rate of the unfunded commitments during the contractual life of the commitments. The allowance for unfunded commitments is included in “other liabilities” on the Consolidated Balance Sheets. Changes in the allowance for unfunded commitments are included in the provision for loan losses.

Letter of Credit Fees. Issuance and commitment fees received for the issuance of commercial or standby letters of credit are recognized over the term of the instruments.* *

Other Real Estate Owned (“OREO”). Real estate acquired in the settlement of loans is initially recorded at fair value, less estimated costs to sell. Specific valuation allowances on other real estate owned are recorded through charges to operations to recognize declines in fair value subsequent to foreclosure. Gain or loss on sale is recognized when certain criteria relating to the buyer’s initial and continuing investment in the property are met.

Investments in Affordable Housing Partnerships and Other Tax Credit Investments. The Company is a limited partner in limited partnerships that invest in low-income housing projects that are intended to qualify for Federal and/or State income tax credits and limited partnerships that invests in alternative energy systems that are intended to qualify for alternative energy tax credits. As further discussed in Note6 to the Consolidated Financial Statements, the partnership interests are accounted for utilizing the equity method of accounting. As of* December 31, 2023,*eleven of the limited partnerships in which the Company has an equity interest were determined to be variable interest entities for which the Company is the primary beneficiary. The Company therefore consolidated the financial statements of theseten limited partnerships into the Consolidated Financial Statements. The tax credits from these partnerships are recognized in the consolidated financial statements to the extent they are utilized on the Company’s income tax returns. The investments are reviewed for impairment on an annual basis or on an interim basis if an event occurred that would trigger potential impairment.

Investments in Venture Capital. The Company invests in limited partnerships that invest in nonpublic companies. These are commonly referred to as venture capital investments. These limited partnership interests are carried under the cost method with impairment charged against net income.

*Premises and Equipment.*Premises and equipment are carried at cost, less accumulated depreciation. Depreciation is computed on the straight-line method based on the following estimated useful lives of the assets:

Improvements are capitalized and amortized to occupancy expense based on the above table. Construction in process is carried at cost and includes land acquisition cost, architectural fees, general contractor fees, capitalized interest and other costs related directly to the construction of a property.

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Goodwill and Other Intangible Assets. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in an acquisition. Goodwill and other intangible assets are assessed for impairment annually as of* December 31or whenever events or changes in circumstances indicate the carrying amount may**not* be recoverable. The Company performed its annual impairment test and determinedno impairment existed as of* December 31, 2023and2022.*

Other intangible assets. Other intangible assets are mainly comprised of core deposit intangible, which represents the purchase price over the fair value of the deposits acquired from other financial institutions, is amortized over its estimated useful life to its residual value in proportion to the economic benefits consumed. If a pattern of consumption cannot be reliably determined, straight-line amortization is used. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the premium balance over its remaining life can be recovered through the remaining deposit portfolio and amortizes core deposit premium over its estimated useful life.

Bank-Owned Life Insurance. We have purchased single premium life insurance policies (“bank-owned life insurance”) on certain officers. The Bank is the beneficiary under each policy. In the event of the death of a covered officer, we will receive the specified insurance benefit from the insurance carrier and pay a fixed dollar amount to the beneficiary designated by the officer. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due, if any, that are probable at settlement.

Stock-Based Compensation. * *Stock option compensation expense is calculated based on the fair value of the award at the grant date for those options expected to vest and is recognized as an expense over the vesting period of the grant using the straight-line method. The Company uses the Black-Scholes option pricing model to estimate the value of granted options. This model takes into account the option exercise price, the expected life, the current price of the underlying stock, the expected volatility of the Company’s stock, expected dividends on the stock and a risk-free interest rate. The Company estimates the expected volatility based on the Company’s historical stock prices for the period corresponding to the expected life of the stock options. Restricted stock units are valued at the closing price of the Company’s stock on the date of the grant.

Derivatives. The Company follows ASC Topic815 that establishes accounting and reporting standards for financial derivatives, including certain financial derivatives embedded in other contracts, and hedging activities. It requires the recognition of all financial derivatives as assets or liabilities in the Company’s Consolidated Balance Sheets at fair value. The accounting treatment of changes in fair value is dependent upon whether ornot a financial derivative is designated as a hedge and, if so, the type of hedge. Fair value is determined usingthird-party models with observable market data. For derivatives designated as cash flow hedges, changes in fair value are recognized in other comprehensive income/(loss) and are reclassified to earnings when the hedged transaction is reflected in earnings. For derivatives designated as fair value hedges, changes in the fair value of the derivatives are reflected in current earnings, together with changes in the fair value of the related hedged item if there is a highly effective correlation between changes in the fair value of the interest rate swaps and changes in the fair value of the underlying asset or liability that is intended to be hedged. If there isnot a highly effective correlation between changes in the fair value of the interest rate swap and changes in the fair value of the underlying asset or liability that is intended to be hedged, then only the changes in the fair value of the interest rate swaps are reflected in the Company’s consolidated financial statements.

Foreign Exchange Forwards and Foreign Currency Option Contracts. * We enter into foreign exchange forward contracts and foreign currency option contracts with correspondent banks to mitigate the risk of fluctuations in foreign currency exchange rates for foreign currency certificates of deposit, foreign exchange contracts or foreign currency option contracts entered into with our clients. These contracts arenot* designated as hedging instruments and are recorded at fair value in our Consolidated Balance Sheets. Changes in the fair value of these contracts as well as the related foreign currency certificates of deposit, foreign exchange contracts or foreign currency option contracts, are recognized immediately in net income as a component of non-interest income. Period end gross positive fair values are recorded in other assets and gross negative fair values are recorded in other liabilities.

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Income Taxes.The provision for income taxes is based on income reported for financial statement purposes, and differs from the amount of taxes currently payable, since certain income and expense items are reported for financial statement purposes in different periods than those for tax reporting purposes. The Company accounts for income taxes using the asset and liability approach, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance is established for deferred tax assets if, based on the weight of available evidence, it is more likely thannot that some portion or all of the deferred tax assets willnot be realized.

*Comprehensive Income/(loss).*Comprehensive income/(loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income/(loss) generally includes net income/(loss), unrealized gains and losses on investments in securities available-for-sale, and cash flow hedges. Comprehensive income/(loss) and its components are reported and displayed in the Company’s Consolidated Statements of Operations and Comprehensive Income.

Net Income per Common Share. Earnings per share (“EPS”) is computed on a basic and diluted basis. Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shares in the earnings of the Company. Potential dilution is excluded from computation of diluted per-share amounts when a net loss from operations exists.

Foreign Currency Translation. * *The Company considers the functional currency of its foreign operations to be the United States dollar. Accordingly, the Company remeasures monetary assets and liabilities at year-end exchange rates, while nonmonetary items are remeasured at historical rates. Income and expense accounts are remeasured at the average rates in effect during the year, except for depreciation, which is remeasured at historical rates. Foreign currency transaction gains and losses are recognized in income in the period of occurrence.

Statement of Cash Flows. Cash and cash equivalents include short-term highly liquid investments that generally have an original maturity ofthree months or less.

Segment Reporting. Through our branch network and lending units, we provide a broad range of financial services to individuals and companies. These services include demand, time and savings deposits; and commercial and industrial, real estate and consumer lending. While our chief decision makers monitor the revenue streams of our various products and services, operations are managed, and financial performance is evaluated on a company-wide basis. Accordingly, we consider all of our operations to be aggregated inone reportable operating segment.

Accounting Pronouncements Adopted in2023

In* March 2022,the FASB issued ASU2022*-01, “Derivatives and Hedging (Topic815): Fair Value Hedging - Portfolio Layer Method.” Under prior guidance, entities can apply the last-of-layer hedging method to hedge the exposure of a closed portfolio of prepayable financial assets to fair value changes due to changes in interest rates for a portion of the portfolio that isnot expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU2022-01 expands the last-of-layer method, which permits onlyone hedge layer, to allow multiple hedged layers of a single closed portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. ASU2022-01 also (i) expands the scope of the portfolio layer method to include non-prepayable financial assets, (ii) specifies eligible hedging instruments in a single-layer hedge, (iii) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method and (iv) specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. The adoption of ASU2022-01 didnot have a significant impact on our financial statements.

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In* March 2022,ASU2022*-02, “Financial Instruments - Credit Losses (Topic326): Troubled Debt Restructurings and Vintage Disclosures.” ASU2022-02 eliminates the accounting guidance for troubled debt restructurings in Accounting Standards Codification (“ASC”) Subtopic310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. As part of the adoption, the Company has elected to apply the pending content prospectively and the practical expedient to exclude the accrued interest receivable balance from the disclosed amortized cost basis of loan modifications to debtors experiencing financial difficulty, consistent with our ACL approach discussed further below in Note5.

Other Accounting Standards Pending Adoption

In* March 2023,ASU2023*-02, “Investments-Equity Method and Joint Ventures (Topic323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method". ASU2023-02 permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. ASU2023-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after* December 15, 2023.*The Company is still evaluating the impact on it’s consolidated financial statements.

In* June 2022,ASU2022*-03, “Fair Value Measurement (Topic820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU2022-03 clarifies that a contractual restriction on the sale of an equity security isnot considered part of the unit of account of the equity security and, therefore, isnot considered in measuring fair value. ASU2022-03 also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires certain new disclosures for equity securities subject to contractual sale restrictions. ASU2022-03 will be effective for us on* January 1, 2024.The adoption of ASU2022*-03 isnot expected to have a significant impact on our financial statements.

2. Business Combinations

The Company’s subsidiary bank, Cathay Bank completed the purchase of HSBC Bank USA, National Association’s West Coast mass retail market consumer banking business and retail business banking business on* February 7, 2022.*As a result of the acquisition, Cathay Bank added 10 retail branches in California and additional loans with principal balance of $646.1 million and deposits with a balance of $575.2 million.

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The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the* February 7, 2022*acquisition date. The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. We have included the financial results of the business combinations in the Consolidated Statements of Operations and Comprehensive Income beginning on the acquisition date.

The fair value of the assets and the liabilities acquired as of* February 7, 2022*are shown below:

3. Cash, Cash Equivalents and Restricted Cash

The Company manages its cash and cash equivalents based upon the Company’s operating, investment, and financing activities. Cash and cash equivalents, for the purpose of reporting cash flows, consist of cash and due from banks and short-term investments and interest-bearing deposits. Cash and due from banks include cash on hand, cash items in transit, cash due from the Federal Reserve Bank of San Francisco (“FRBSF”) and other financial institutions. Short-term investments and interest-bearing deposits include cash placed with other banks with original maturity ofthree months or less.

The Company had average excess balance with FRBSF of $1.09 billion and $1.24 billion as of* December 31, 2023and2022,* respectively. As of* December 31, 2023and2022,* the Company had $53.8 million and $88.9 million, respectively, as cash margin that serves as collateral on deposit in a cash margin account for interest rate swaps of which $8.6 million and $8.2 million is restricted. As of* December 31, 2023and December 31, 2022,*the Company held $6.4 million and $25.4 million, respectively, in a restricted escrow account with a major bank for its alternative energy investments.

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4. Investment Securities

Investment Securities.The following tables reflect the amortized cost, gross unrealized gains, gross unrealized losses, and fair values of debt securities available-for-sale as of December 31, 2023and* December 31, 2022:*

The amortized cost and fair value of securities available-for-sale as of* December 31, 2023,by contractual maturities, are set forth in the table below. Actual maturities maydiffer from contractual maturities because borrowers may*have the right to call or repay obligations with or without call or repayment penalties.

There wereno sales of investment securities during the years ended* December 31, 2023and2022.* We received proceeds of $21.1 million from sales of investment securities for the year ended* December 31, 2021.Gross realized gain on sale of investment securities was $853 thousand for the year ended December 31, 2021.*

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Allowance for Credit Losses

The securities that were in an unrealized loss position as of* December 31, 2023,were evaluated to determine whether the decline in fair value below the amortized cost basis resulted from a credit loss or other factors. For a discussion of the factors and criteria the Company uses in analyzing securities for impairment related to credit losses, see Note1* Summary of Significant Accounting Policies - Allowance for Credit Losses on Available for Sale Securities to the Consolidated Financial Statements.

The Company concluded the unrealized losses were primarily attributed to yield curve movement, together with widened liquidity spreads and credit spreads. The issuers havenot, to the Company’s knowledge, established any cause for default on these securities. The Company expects to recover the amortized cost basis of its securities and hasno present intent to sell and willnot be required to sell available-for-sale securities that have declined below their cost before their anticipated recovery. Accordingly, no allowance for credit losses was recorded as of* December 31, 2023and2022,* against these securities, and there wasno provision for credit losses recognized for the years ended* December 31, 2023,*2022 and2021.

The tables below show the related fair value and the gross unrealized losses of the Company’s investment portfolio, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position as of* December 31, 2023,and December 31, 2022:*

As of* December 31, 2023the Company had 192 AFS debt securities in a gross unrealized loss position withno* credit impairment, consisting of 154 mortgage-backed securities,24 corporate debt securities, one U.S. treasury securities, five collateralized mortgage obligations andeight U.S. government agencies. In comparison, as of* December 31, 2022,*the Company had 159 mortgage-backed securities,22 corporate debt securities, six U.S. treasury securities, five collateralized mortgage obligations andthree U.S. government agencies.

Securities available-for-sale having a carrying value of $134.2 million and $145.7 million as of* December 31, 2023,and December 31, 2022,*respectively, were pledged to secure public deposits, and other borrowings.

Equity securities were $40.4 million and $22.2 million as of* December 31, 2023and2022,* respectively. The Company recognized a net unrealized gain of $18.2 million, $291 thousand and $1.4 million for the years ended* December 31, 2023,2022 and2021, respectively. The Company received proceeds of $553 thousand and realized a loss of $101 thousand on the sale of equity securities for the year ended December 31, 2022.*

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5. Loans

Most of the Company’s business activities are with clients located in the high-density Asian-populated areas of Southern and Northern California; New York City, New York; Houston and Dallas, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Rockville, Maryland; and Las Vegas, Nevada. The Company also has loan clients in Hong Kong. The Company hasno specific industry concentration, and generally its loans, when secured, are secured by real property or other collateral of the borrowers. The Company generally expects loans to be paid off from the operating profits of the borrowers, from refinancing by another lender, or through sale by the borrowers of the secured collateral.

The following table presents the composition of the Company’s loans as of* December 31, 2023,and2022,* were as follows:

The Company pledged real estate loans of $14.15 billion as of* December 31, 2023,and $13.07 billion as of December 31, 2022,to the Federal Home Loan Bank of San Francisco under its blanket lien pledging program. The Company pledged commercial loans of $388 thousand as of December 31, 2023,and $583 thousand as of December 31, 2022,*to the Federal Reserve Bank’s Discount Window under the Borrower-in-Custody program.

Loans serviced for others as of* December 31, 2023,totaled $203.0 million and were comprised of $70.7 million of residential mortgages, $76.1 million of commercial real estate loans, $11.8 million of construction loans, and $44.4 million of commercial loans. As of December 31, 2022,*loans serviced for others, totaled $181.4 million and were comprised of $80.2 million of residential mortgages, $51.6 million of commercial real estate loans, $2.5 million of construction loans and $47.1 million of commercial loans.

F-22

The Company has entered into transactions with its directors, executive officers, or principal holders of its equity securities, or the associates of such persons (“Related Parties”). All loans to Related Parties were current as of* December 31, 2023and2022.* An analysis of the activity with respect to loans to Related Parties for the years indicated is as follows:

As of* December 31, 2023,recorded investment in non-accrual loans totaled $66.7 million compared to $68.9 million as of December 31, 2022.The average balance of non-accrual loans was $71.8 million and $71.4 million as of December 31, 2023and2022,* respectively. Interest recognized on non-accrual loans totaled $321 thousand, $435 thousand and $1.1 million for the years ended* December 31, 2023,2022 and2021. For non-accrual loans, the amounts previously charged-off represent 15.8% of the contractual balances for non-accrual loans as of December 31, 2023and 14.1% as of December 31, 2022.*

The following tables present the average balance and interest income recognized on non-accrual loans for the periods indicated:

F-23

The following table presents non-accrual loans and the related allowance as of* December 31, 2023and2022:*

The following table is a summary of non-accrual loans as of* December 31, 2023,*2022, and2021 and the related net interest foregone for the years then ended:

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The following tables present the aging of the loan portfolio by type as of* December 31, 2023,and December 31, 2022:*

The Company has adopted ASU2022-02, “Financial Instruments – Troubled Debt Restructurings and Vintage Disclosures” effective* January 1, 2023.*As part of the adoption, the Company has elected to apply the pending content prospectively and the practical expedient to exclude the accrued interest receivable balance from the disclosed amortized cost basis of loan modifications to debtors experiencing financial difficulty, consistent with our ACL approach discussed further below in this footnote.

Under the new guidance on loan modifications made to borrowers experiencing financial difficulty, when a loan held for investment is modified and is considered to be a continuation of the original loan, the Company uses the post-modification contractual rate to derive the effective interest rate when using a discounted cash flow method to determine the allowance for credit loss.

The amendments in this new guidance eliminate the previous TDR recognition and measurement guidance and, instead, require that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan.

Under the prior TDR guidance, a TDR is a formal modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions* maybe granted in various forms, including a change in the stated interest rate, a reduction in the loan balance or accrued interest, or an extension of the maturity date. Although these loan modifications were considered TDRs, TDR loans that had, pursuant to the Bank’s policy, performed under the restructured terms and had demonstrated sustained performance under the modified terms forsix* months were returned to accrual status. The sustained performance considered by management pursuant to its policy included the periods prior to the modification if the prior performance met or exceeded the modified terms. This would include cash paid by the borrower prior to the restructuring to set up interest reserves. Loans classified as TDRs were reported as individually evaluated loans.

The allowance for credit loss on a TDR was measured using the same method as all other loans held for investment, except when the value of a concession couldnot be measured using a method other than the discounted cash flow method. Under the prior guidance when the value of a concession was measured using the discounted cash flow method, the allowance for credit loss was determined by discounting the expected future cash flows at the original interest rate of the loan.

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Upon adoption of ASU2022-02, the Company establishes a specific reserve for individually evaluated loans that donot share similar risk characteristics with the loans included in the quantitative baseline. These individually evaluated loans are removed from the pooling approach for the quantitative baseline, and include non-accrual loans, loan modifications made to borrowers experiencing financial difficulty, and other loans as deemed appropriate by management. The Company applies the loan refinancing and restructuring guidance provided in ASU2022-02 to determine whether a modification made to a borrower results in a new loan or a continuation of an existing loan.

If economic conditions or other factors worsen relative to the assumptions the Company utilized, the expected loan losses will increase accordingly in future periods.

As of* December 31, 2022,under the prior TDR guidance, there was accruing TDRs of $15.1 million and non-accrual TDRs of $6.3 million. As of December 31, 2022,*the Company allocated zero in reserves to accruing TDRs and $427 thousand to non-accrual TDRs.

The following table presents TDRs that were modified during2022, their specific reserve as of* December 31, 2022,and charge-offs during2022:*

The following table presents TDRs that were modified during2021, their specific reserve as of* December 31, 2021,and charge-offs during2021:*

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Modifications of the loan terms in thethree andtwelve months ended* December 31, 2023,*were in the form of payment deferrals, term extensions, and interest rate reductions, or a combination thereof.

The following table presents the amortized cost of loans modified to borrowers experiencing financial difficulty disaggregated by class of financing receivable and type of concession granted and the financial effects of the modifications for thetwelve months ended* December 31, 2023*by loan class and modification type:

The Company considers a loan to be in payment default once it is 60 to 90 days contractually past due under the modified terms. The Company tracks the performance of modified loans. A modified loan* maybecome delinquent and mayresult in a payment default subsequent to modification. There wereno loans that received a modification for thetwelve* months ended* December 31, 2023*that subsequently defaulted.

The following table presents the performance of loans that were modified during thetwelve months ended* December 31, 2023.*

F-27

A summary of TDRs by type of concession and by type of loans as of* December 31, 2022,*is set forth in the table below:

Modifications of the loan terms in thetwelve months ended* December 31, 2022,were in the form of extensions of maturity dates, which ranged generally fromthree* totwelve months from the modification date.

We expect that the TDRs on accruing status as of* December 31, 2022,*which were all performing in accordance with their restructured terms, will continue to comply with the restructured terms because of the reduced principal or interest payments on these loans.

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The Company considers a loan to be in payment default once it is 60 to 90 days contractually past due under the modified terms. The Company didnot have any loans that were modified as a TDR during the previoustwelve months and which had subsequently defaulted as of* December 31, 2022.*

Under the Company’s internal underwriting policy, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification in order to determine whether a borrower is experiencing financial difficulty.

As of* December 31, 2023,*there wereno commitments to lend additional funds to borrowers experiencing financial difficulty and whose loans were modified.

As part of the on-going monitoring of the credit quality of our loan portfolio, the Company utilizes a risk grading matrix to assign a risk rating to each loan. Loans are risk rated based on analysis of the current state of the borrower’s credit quality. The analysis of credit quality includes a review of sources of repayment, the borrower’s current financial and liquidity status and other relevant information. The risk rating categories can be generally described by the following grouping for non-homogeneous loans:

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The following table summarizes the Company’s loan held for investment as of* December 31, 2023and2022,* presented by loan portfolio segments, internal risk ratings and vintage year. The vintage year is the year of origination, renewal or major modification:

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Revolving loans that are converted to term loans presented in the table above are excluded from the term loans by vintage year columns.

F-31

The following table details activity in the allowance for loan losses by portfolio segment for the years ended* December 31, 2023,and2022.* Allocation of a portion of the allowance toone category of loans doesnot preclude its availability to absorb losses in other categories.

Residential mortgage loans in process of formal foreclosure proceedings were $242 thousand as of* December 31, 2023,and $456 thousand as of December 31, 2022.*

**6. **Investments in Affordable Housing and Alternative Energy Partnerships

The Company holds ownership interests in a number of limited partnerships that were formed to develop and operate housing for lower-income tenants throughout the United States and alternative energy partnerships that qualify for energy tax credits. The Company evaluates its interests in these partnerships to determine whether they meet the definition of a Variable Interest Entity (“VIE”) and whether the Company is required to consolidate these entities. A VIE is consolidated by its primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) a variable interest that could potentially be significant to the VIE. To determine whether ornot a variable interest the Company holds could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regarding the nature, size and form of the Company's involvement with the VIE. While the Company has determined that its interests in these entities meet the definition of a variable interest in accordance with ASC810, the Company has determined that the Company isnot the primary beneficiary in all buteleven of these partnerships because the Company doesnot have the power to direct the activities that most significantly impact the economic performance of the entities including operational and credit risk management activities. As the Company isnot the primary beneficiary, the Company didnot consolidate the entities.

The investment in these entities approximates the maximum exposure to loss as a result of the Company’s involvement with these unconsolidated entities. The balance of the Company’s investments in these entities was $315.7 million and $327.1 million as of* December 31, 2023,and2022,* respectively.

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The Company’s investments in these partnerships, net, are presented in the table below:

As of* December 31, 2023,eleven of the limited partnerships in which the Company has an equity interest were determined to be variable interest entities for which the Company is the primary beneficiary. The consolidation of these limited partnerships in the Company’s Consolidated Financial Statements increased total assets and liabilities by $25.3 million as of December 31, 2023,and by $31.3 million as of December 31, 2022.Recourse in other borrowings for affordable housing limited partnerships is limited to the assets of the limited partnerships. Investments in alternative energy partnerships were $19.9 million and $37.2 million as of December 31, 2023and2022,* respectively. As of* December 31, 2023and2022,* $6.4 million and $25.4 million, respectively, of this investment were in an escrow account with a major bank. Unfunded commitments for affordable housing limited partnerships and alternative energy tax credit partnerships were recorded under other liabilities.

As of* December 31, 2023,*the Company’s unfunded commitments related to investments in qualified affordable housing and alternative energy partnerships, net, are estimated to be paid as follows:

Each of the partnerships must meet regulatory requirements for affordable housing and alternative energy projects, including long-term minimum compliance periods (such as a15-year minimum compliance period for certain affordable housing tax credits) to fully utilize the tax credits. If the partnerships cease to qualify during the compliance period, the credits* maybe denied for any period in which the projects arenot* in compliance and a portion of the credits previously taken is subject to recapture with interest. The remaining tax credits to be utilized over a multiple-year period are $249.6 million for Federal and $6.2 million for state as of* December 31, 2023.The possible inability to realize these tax credits and other returns from our investments in these partnerships can have a negative impact on our financial results. The risk ofnot* being able to realize the tax credits and other returns depends on many factors, including changes in the applicable provisions of the tax code, the ability of the projects to be completed and properly managed and other factors that are outside of our control. Losses in excess of the Bank’s investment inthree limited partnerships havenot been recorded in the Company’s Consolidated Financial Statements because the Company had fully satisfied all capital commitments required under the respective limited partnership agreements. In2023 and2022, non-interest expense included $7.7 million and $6.2 million in impairment charges for investments in low-income housing partnerships.

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The following table summarizes the Company’s usage of affordable housing and other tax credits including energy tax credits.

**7. **Premises and Equipment

Premises and equipment consisted of the following as of* December 31, 2023,and December 31, 2022:*

The amount of depreciation included in operating expense was $7.1 million, $8.0 million and $7.7 million for the years ended* December 31, 2023,*2022 and2021, respectively.

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8. Goodwill and Other Intangible Assets

Goodwill. Total goodwill was $375.7 million as of* December 31, 2023and2022.* Additional information pertaining to the Company’s accounting policy for goodwill is summarized in Note1 — Summary of Significant Accounting Policies — Goodwill and Other Intangible Assets. The Company completed its annual goodwill impairment testing and additionally reviewed the macroeconomic conditions on its business performance and market capitalization and concluded that goodwill wasnot impaired as of* December 31, 2023and2022.*

Core Deposit Intangibles. * As a result of the acquisition of HSBC’s West Coast mass retail market consumer banking business and retail business banking business, the Company added core deposit intangibles of $3.1 million in2022.* The following table presents the gross carrying amount and accumulated amortization of core deposits intangible assets as of* December 31, 2023and2022:*

There were $1.2 million and $918 thousand in impairment write-downs on core deposit intangibles for the year ended* December 31, 2023and2022,* respectively, included in amortization of core deposit intangibles on the Consolidated Statements of Operations and Comprehensive Income. No impairment write-downs were recorded on core deposit intangibles for the years ended* December 31, 2021.*

The Company amortizes the core deposit intangibles based on the projected useful lives of the related deposits. The amortization expense related to the core deposit intangible assets was $1.3 million, $1.9 million and $687 thousand for the years ended* December 31, 2023,*2022 and2021, respectively.

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9. Deposits

The following table displays deposit balances as of* December 31, 2023,and December 31, 2022:*

Time deposits outstanding as of* December 31, 2023,*mature as follows.

Accrued interest payable on client deposits was $28.6 million, $13.2 million, and $1.7 million as of* December 31, 2023,2022 and2021, respectively. The following table summarizes the interest expense on deposits by account type for the years ended December 31, 2023,*2022, and2021:

The aggregate amount of domestic time deposits in denominations that meet or exceed the current FDIC insurance limit of*$250* thousand was $5.30 billion and $4.10 billion as of* December 31, 2023,and2022,* respectively. Foreign offices’ time deposits of $174.2 million and $128.6 million as of* December 31, 2023,and2022,* respectively, were in denominations of greater than*$250* thousand.

F-36

10. Borrowed Funds

There wereno outstanding securities sold or entered into under agreements to repurchase at* December 31, 2023,*2022 and2021.

Securities sold under agreements to repurchase, if any, are accounted for as collateralized financing transactions and recorded at the amounts at which the securities were sold.

As of* December 31, 2023,there wereno over-night borrowings from the FHLB in2023* and $150.0 million in over-night borrowings from the FHLB at a rate of 4.65% in2022. As of* December 31, 2023,all advances from the FHLB were $540.0 million at a weighted average rate of 5.64% and $335.0 million at a weighted average rate of 4.54% as of December 31, 2022.As of December 31, 2023,final maturity for the FHLB advances were $525.0 million that will mature in January 2024and $15.0 million that will mature in September 2024.Our unused borrowing capacity from the Federal Home Loan Bank as of December 31, 2023was $6.60 billion and unpledged securities at December 31, 2023*was $1.47 billion.

Other Liabilities. * On November 23, 2004,the Company entered into an agreement with Mr. Dunson K. Cheng, pursuant to which he agreed to defer any bonus amounts in excess of $225 thousand for the year ended December 31, 2005,until the later of January 1of thefirst* year following his separation from service from the Company or thefirst day of theseventh month following his separation from service from the Company. Accordingly, an amount equal to $610 thousand was deferred in2004 and was accrued in other liabilities in the Consolidated Balance Sheets. The Company agreed to accrue interest on the deferred portion of the bonus at 7.0% per annum compounded quarterly. The deferred amount will be increased each quarter by the amount of interest computed for that quarter. On* November 23, 2014,the interest rate was reset to 5.06% based on 275 basis points above the interest rate on theten-year Treasury Note on that date. On March 13, 2014,the Compensation Committee of the Company awarded Mr. Cheng a cash bonus in the amount of $300 thousand for the quarter ended December 31, 2013and provided as part of the award that payment of the bonus would be deferred until the later of January 1of thefirst* year following his separation from service from the Company or thefirst day of theseventh month following his separation from service from the Company. The Company accrues interest on the deferred bonus at 5.02% per annum compounded quarterly. On* March 28, 2019,*the interest rate was reset to 5.72% based on 350 basis points above the interest rate on thefive-year Treasury Note on that date.

The balance of deferred bonuses was $2.4 million and $2.3 million at* December 31, 2023,and2022,* respectively. Accrued interest of deferred bonuses were $122 thousand during2023, $116 thousand during2022, and $110 thousand during2021.

We establishedthree special purpose trusts in2003 andtwo in2007 for the purpose of issuing Guaranteed Preferred Beneficial Interests in their Subordinated Debentures to outside investors (“Capital Securities”). The proceeds from the issuance of the Capital Securities as well as our purchase of the common stock of the special purpose trusts were invested in Junior Subordinated Notes of the Company (“Junior Subordinated Notes”). The trusts exist for the purpose of issuing the Capital Securities and investing in Junior Subordinated Notes. Subject to some limitations, payment of distributions out of the monies held by the trusts and payments on liquidation of the trusts, or the redemption of the Capital Securities, are guaranteed by the Company to the extent the trusts have funds on hand at such time. The obligations of the Company under the guarantees and the Junior Subordinated Notes are subordinate and junior in right of payment to all indebtedness of the Company and will be structurally subordinated to all liabilities and obligations of the Company’s subsidiaries. The Company has the right to defer payments of interest on the Junior Subordinated Notes at any time or from time to time for a period of up totwenty consecutive quarterly periods with respect to each deferral period. Under the terms of the Junior Subordinated Notes, the Company* may**not,* with certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or acquire any of its capital stock if it has deferred payment of interest on any Junior Subordinated Notes.

F-37

As of* December 31, 2023and2022,* Junior Subordinated Notes totaled $119.1 million, with a weighted average interest rate of 7.54% and 4.01%, respectively. The Junior Subordinated Notes have a stated maturity term of 30 years. Interest expense on the Junior Subordinated Notes was $6.5 million, $5.5 million, and $5.8 million for years ended* December 31, 2023,*2022 and2021, respectively. Included in the2022 and2023 interest expense is the amortization of the gain on cash flow interest rate swaps, early terminated in2022.

11. Capital Resources

Total equity was $2.74 billion as of* December 31, 2023,an increase of $262.5 million, or 10.6%, from $2.47 billion at December 31, 2022,primarily due to net income of $354.1 million, other comprehensive income of $16.9 million, stock based compensation of $7.0 million, proceeds from dividend reinvestment of $3.5 million, stock issued to directors of $0.9 million, offset by common stock cash dividends of $98.6 million, purchases of treasury stock of $16.7 million, and shares withheld related to net share settlement of RSU’s of $4.5 million. . The Company paid cash dividends of $1.36 per common share in2023,* $1.36 per common share in2022, and $1.27 per common share in2021.

On* May**26th,* 2022, the Board of Directors approved a stock repurchase program to buy back up to $125.0 million of the Company’s common stock. Under this program, the Company repurchased 2,522,538 shares for $108.4 million at an average cost of $42.98 for the year. During2022, the Company repurchased 3,227,465 shares in total for approximately $141.3 million at an average cost of $43.79.

On* February 21, 2023,the Company completed its May 2022stock buyback program by repurchasing 375,090 shares at an average cost of $44.20 in thefirst* quarter of2023, for a total of $16.6 million.

Thefive special purpose trusts established for the purpose of issuing the Capital Securities are considered variable interest entities. Because the Bancorp isnot the primary beneficiary of the trusts, the financial statements of the trusts arenot included in the Consolidated Financial Statements of the Company. The Junior Subordinated Notes, all of which were issued before* May 19, 2010,are currently included in the Tier2* capital of the Bancorp for regulatory capital purposes. Under the Dodd-Frank Act, trust preferred securities issued before* May 19, 2010,by bank holding companies with assets of less than$15.0* billion as of* December 31, 2009,continue to qualify for Tier1* capital treatment. As of* December 31, 2023,and2022,* the Company’s assets exceeded the*$15.0* billion threshold and, as a result, the Junior Subordinated Notesno longer qualify as Tier1 capital for regulatory reporting purposes.

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The table below summarizes the outstanding Junior Subordinated Notes issued by the Company to each trust as of* December 31, 2023and2022:*

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12. Income Taxes

For the years ended* December 31, 2023,*2022, and2021, the current and deferred amounts of the income tax expense are summarized as follows:

Temporary differences between the amounts reported in the financial statements and the tax basis of assets and liabilities give rise to deferred taxes. Net deferred tax assets as of* December 31, 2023and2022,* are included in other assets in the accompanying Consolidated Balance Sheets and are as follows:

Amounts for the current year are based upon estimates and assumptions and could vary from amounts shown on the tax returns as filed.

F-40

As of* December 31, 2023,the Company’s gross net operating loss (“NOL”) carryovers, all of which are subject to limitation under Section382* of the Internal Revenue Code, totaled approximately $2.3 million for which a deferred tax asset of $0.5 million has been recorded reflecting the expected benefit of these federal NOL carryovers. At* December 31, 2023,the Company has California NOL carryovers of $33.5 million for which a California deferred tax asset of $3.3 million has been recorded reflecting the expected benefit of these California NOL carryovers. The annual IRC Section382* limitation is*$10.2* million per year until2021 and decreases to*$8.8* million in2022 and*$7.3* million per year thereafter. Ifnot utilized, a portion of the Company’s federal and state NOL’s will begin to expire in2030. At* December 31, 2023,the Company’s federal tax credit carryovers and AMT tax credit carryovers total $7.5 million and $1.0 million, respectively. Ifnot* utilized, the federal tax credit carryovers will begin to expire in2028. The AMT tax credit carryovers can be carried forward indefinitely.

In assessing the realization of deferred tax assets, management considers whether it is more likely thannot that some portion or all of the deferred tax assets willnot be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely thannot the Company will realize all benefits related to these deductible temporary differences.

The Company had current income tax receivables of $33.7 million as of* December 31, 2023,and $16.7 million as of December 31, 2022.The Company had $15.9 million of tax credits generated in2023* that will be credited back to2022. Current income tax receivable is included in other assets in the accompanying Consolidated Balance Sheets.

The Company’s tax returns are open for audits by the Internal Revenue Service back to 2020 and by the California Franchise Tax Board back to 2019. The Company is currently under audit by the California Franchise Tax Board for2020. It is reasonably possible that unrecognized tax benefits could change significantly over the nexttwelve months. The Company doesnot expect that any such changes would have a material impact on its annual effective tax rate.

Income tax expense results in effective tax rates that differ from the statutory federal income tax rate for the years indicated as follows:

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13. Stockholders’** Equity and Earnings per Share**

As a bank holding company, the Bancorp’s ability to pay dividends will depend upon the dividends it receives from the Bank and on the income it* maygenerate from any other activities in which it may*engage, either directly or through other subsidiaries.

Under California banking law, the Bank* maynot,* without regulatory approval, pay a cash dividend that exceeds the lesser of the Bank’s retained earnings or its net income for the lastthree fiscal years, less any cash distributions made during that period. Under this regulation, the amount of retained earnings available for cash dividends to the Company immediately after* December 31, 2023,is restricted to approximately $420.4 million. The amount of retained earnings available for cash dividends is restricted to approximately $296.2 million for December31,2022.*

Activity in accumulated other comprehensive income, net of tax, and reclassification out of accumulated other comprehensive income for the years ended* December 31, 2023,and2022* was as follows:

The Board of Directors of the Bancorp is authorized to issue preferred stock inone or more series and to fix the voting powers, designations, preferences or other rights of the shares of each such class or series and the qualifications, limitations, and restrictions thereon. Any preferred stock issued by the Bancorp* mayrank prior to the Bancorp common stock as to dividend rights, liquidation preferences, or both, mayhave full or limited voting rights, and may*be convertible into shares of the Bancorp common stock. There areno shares of preferred stock currently issued and outstanding.

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The following is the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the years as indicated:

14. Commitments and Contingencies

Legal Proceedings. * The Company is involved in various claims and legal proceedings that arise in the course of conducting the Company’s business. The outcome of such claims and legal proceedings are inherently difficult to predict. Management, after consultation with legal counsel and based upon its assessment of information currently available to the Company, believes that any liability resulting from the resolution of any claims and proceedings currently pending against the Company willnot* have a material effect upon the Company’s consolidated financial condition, results of operations, or liquidity taken as a whole.

In accordance with ASC450, “Contingencies,” the Company accrues reserves for outstanding lawsuits, claims and proceedings when a loss contingency is probable and can be reasonably estimated. The Company estimates the amount of loss contingencies using current available information from legal proceedings, advice from legal counsel, and available insurance coverage. Due to the inherent subjectivity of the assessments and unpredictability of the outcomes of the legal proceedings, any amounts accrued or included in this aggregate amount* may**not* represent the ultimate loss to the Company from the legal proceedings in question. Thus, the Company’s exposure and ultimate losses* may*be higher, and possibly significantly more than the amounts accrued.

Lending. In the normal course of business, the Company becomes a party to financial instruments with off-balance sheet risk to meet the financing needs of its clients. These financial instruments include commitments to extend credit in the form of loans or through commercial or standby letters of credit and financial guarantees. Those instruments represent varying degrees of exposure to risk in excess of the amounts included in the accompanying Consolidated Balance Sheets. The contractual or notional amount of these instruments indicates a level of activity associated with a particular class of financial instrument and isnot a reflection of the level of expected losses, if any.

The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, the Company doesnot require collateral or other security to support financial instruments with credit risk.

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Financial instruments for which contract amounts represent the amount of credit risk include the following:

Commitments to extend credit are agreements to lend to a client provided there isno violation of any condition established in the commitment agreement. These commitments generally have fixed expiration dates and are expected to expire without being drawn upon. The total commitment amounts donot necessarily represent future cash requirements. The Company evaluates each client’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management’s credit evaluation of the borrowers.

As of* December 31, 2023,the Company doesnot* have fixed-rate or variable-rate commitments with characteristics similar to options, which provide the holder, for a premium paid at inception to the Company, the benefits of favorable movements in the price of an underlying asset or index with limited orno exposure to losses from unfavorable price movements.

As of* December 31, 2023,commitments to extend credit of $3.81 billion include commitments to fund fixed rate loans of $130.3 million and adjustable-rate loans of $3.69 billion. As of December 31, 2022*commitments to extend credit of $3.63 billion and included commitments to fund fixed rate loans of $93.1 million and adjustable-rate loans of $3.54 billion.

Commercial letters of credit and bill of lading guarantees are issued to facilitate domestic and foreign trade transactions while standby letters of credit are issued to make payments on behalf of clients if certain specified future events occur. The credit risk involved in issuing letters of credit and bill of lading guarantees is essentially the same as that involved in making loans to clients.

15. Leases

The Company enters into operating leases in the normal course of business primarily for branch offices, office spaces and certain equipment. The Company* may*seek to include options to extend or terminate a lease when it is reasonably certain that the Company will exercise those options.

ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term. The Company uses its incremental borrowing rate to determine the present value of its lease liabilities. The Company has elected tonot separate lease and non-lease components. The Company has also electednot to recognize a ROU asset and lease liability for leases with original lease term of12 months or less (short-term leases). The Company doesnot possess any leases that have variable lease payments or residual value guarantees as of* December 31, 2023and2022.*

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The following table represents the operating lease amounts reported on the Consolidated Balance Sheets and other supplemental information as of* December 31, 2023,and December 31, 2022:*

Operating lease expense is recognized on a straight-line basis over the lease term. Operating lease expense was $12.8 million, $13.1 million and $11.6 million for the years ended* December 31, 2023,*2022 and2021, respectively, and includes short-term leases that were immaterial.

The following table presents a maturity analysis of the Company’s operating lease liabilities as of* December**31,* 2023:

16. Financial Derivatives

The Company doesnot speculate on the future direction of interest rates. As part of the Company’s asset and liability management, however, the Company enters into financial derivatives to seek to mitigate exposure to interest rate risks related to its interest-earning assets and interest-bearing liabilities. The Company believes that these transactions, when properly structured and managed,* mayprovide a hedge against inherent interest rate risk in assets or liabilities and against risk in specific transactions of the Company. In such instances, the Company mayprotect its position through the purchase or sale of interest rate futures contracts for a specific cash or interest rate risk position. Other hedging transactions may*be implemented using interest rate swaps, interest rate caps, floors, financial futures, forward rate agreements, and options on futures or bonds. Prior to considering any hedging activities, the Company seeks to analyze the costs and benefits of the hedge in comparison to other viable alternative strategies. All hedges will require an assessment of basis risk and must be approved by the Bancorp or the Bank’s Investment Committee.

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The Company follows ASC Topic815 that establishes accounting and reporting standards for financial derivatives, including certain financial derivatives embedded in other contracts, and hedging activities. It requires the recognition of all financial derivatives as assets or liabilities in the Company’s Consolidated Balance Sheets and measurement of those financial derivatives at fair value. The accounting treatment of changes in fair value is dependent upon whether ornot a financial derivative is designated as a hedge and, if so, the type of hedge. Fair value is determined usingthird-party models with observable market data. For derivatives designated as cash flow hedges, changes in fair value are recognized in other comprehensive income and are reclassified to earnings when the hedged transaction is reflected in earnings. For derivatives designated as fair value hedges, changes in the fair value of the derivatives are reflected in current earnings, together with changes in the fair value of the related hedged item if there is a highly effective correlation between changes in the fair value of the interest rate swaps and changes in the fair value of the underlying asset or liability that is intended to be hedged. If there isnot a highly effective correlation between changes in the fair value of the interest rate swap and changes in the fair value of the underlying asset or liability that is intended to be hedged, then only the changes in the fair value of the interest rate swaps are reflected in the Company’s consolidated financial statements.

The Company offers various interest rate derivative contracts to its clients. When derivative transactions are executed with its clients, the derivative contracts are offset by paired trades withthird-party financial institutions including with central counterparties (“CCP”). Certain derivative contracts entered with CCPs are settled-to-market daily to the extent the CCP’s rulebooks legally characterize the variation margin as settlement. Derivative contracts are intended to allow borrowers to lock in attractive intermediate and long-term fixed rate financing whilenot increasing the interest rate risk to the Company. These transactions are generallynot linked to specific Company assets or liabilities on the Consolidated Balance Sheets or to forecasted transactions in a hedging relationship and, therefore, are economic hedges. The contracts are marked to market at each reporting period. The changes in fair values of the derivative contracts traded withthird-party financial institutions are expected to be largely comparable to the changes in fair values of the derivative transactions executed with clients throughout the terms of these contracts, except for the credit valuation adjustment component. The Company records credit valuation adjustments on derivatives to properly reflect the variances of credit worthiness between the Company and the counterparties, considering the effects of enforceable master netting agreements and collateral arrangements. As of* December 31, 2023and2022,* the Company had outstanding interest rate derivative contracts with certain clients andthird-party financial institutions with a notional amount of $650.9 million and $595.4 million, respectively, with a fair value of $38.6 million and $50.0 million, respectively, for both clients andthird-party financial institutions. As of* December 31, 2022,*the notional amount of $205.6 million of interest rate swaps cleared through the CCP.

In* May 2014,the Bancorp entered into interest rate swap contracts with the notional amount of $119.1 million for a period often years. The objective of these interest rate swap contracts, which were designated as hedging instruments in cash flow hedges, was to hedge the quarterly interest payments on the Bancorp’s $119.1 million of Junior Subordinated Debentures that had been issued tofive* trusts, throughout theten-year period beginning in* June 2014and ending in June 2024,from the risk of variability of these payments resulting from changes in thethree*-month LIBOR interest rate. The Company early terminated these cash flow derivative swaps in2022 and realized a gain of $4.0 million for the year ended* December 31, 2022and is recognizing the amount as a reduction of long-term debt interest expense over the remaining life of the swaps on a straight-line basis. As of December 31, 2022,the ineffective portion of these interest rates swaps wasnot* significant. The periodic net settlement of the interest rate swaps included in interest expense was a net gain of $772 thousand as of* December 31, 2022.*

As of* December 31, 2023and2022,* the Bank’s outstanding fair value interest rate swap contracts matched to individual fixed-rate commercial real estate loans had a notional amount of $88.5 million and $204.3 million with a fair value of $4.2 million and $6.6 million, respectively, and for various terms from three toten years. These contracts have been designated as hedging instruments to hedge the risk of changes in the fair value of the underlying commercial real estate loans due to changes in interest rates. The swap contracts are structured so that the notional amounts reduce over time to match the contractual amortization of the underlying loan and allow prepayments with the same pre-payment penalty amounts as the related loan. As of* December 31, 2023,and2022,* the ineffective portion of these interest rate swaps wasnot significant.

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The Company has designated as a partial-term hedging election $1.07 billion and $669.7 million notional with a fair value of $3.8 million and $32.0 million as last-of-layer hedge on pools of loans with a notational value of $1.78 billion and $1.21 billion as of* December 31, 2023and2022,* respectively. The loans arenot expected to be affected by prepayment, defaults, or other factors affecting the timing and amount of cash flows under the last-of-layer method. The Company has entered into these pay-fixed and receive1-Month Term SOFR interest rate swap to convert the last-of-layer $1.07 billion portion of a $1.78 billion fixed rate loan tranche in order to reduce the Company’s exposure to higher interest rates for the last-of-layer tranche. As of* December 31, 2023and2022,* the last-of-layer loan tranche had a fair value basis adjustment of $2.0 million and $31.0 million, respectively. The interest rate swap converts this last-of-layer tranche into a floating rate instrument. The Company’s risk management objective with respect to this last-of-layer interest rate swap is to reduce interest rate exposure as to the last-of-layer tranche.

Interest rate swap contracts involve the risk of dealing with institutional derivative counterparties and their ability to meet contractual terms. Institutional counterparties must have a strong credit profile and be approved by the Company’s Board of Directors. The Company’s credit exposure on interest rate swaps is limited to the net favorable value and interest payments of all swaps by each counterparty. Credit exposure* may*be reduced by the amount of collateral pledged by the counterparty. Bancorp’s interest rate swaps have been assigned by the counterparties to a derivatives clearing organization and daily margin is indirectly maintained with the derivatives clearing organization.

The notional amount and net unrealized loss of the Company’s fair value derivative financial instruments as of* December 31, 2023,and December 31, 2022,*were as follows:

(1)-the amount is included in other non-interest income.

(2)-the amount of periodic net settlement of interest rate swaps was included in interest income.

Included in the total notional amount of $1.16 billion and $874.0 million of the fair value interest rate contracts entered into with financial counterparties as of* December 31, 2023and2022,* was a notional amount of $846.9 million and $449.3 million of interest rate swaps that cleared through the CCP, respectively. Applying variation margin payments as settlement to CCP cleared derivative transactions resulted in a reduction in derivative asset fair values of $257 thousand and $25.8 million as of* December 31, 2023and2022,* respectively.

The Company enters into foreign exchange forward contracts with various counterparties to mitigate the risk of fluctuations in foreign currency exchange rates for foreign exchange certificates of deposit or foreign exchange contracts entered into with our clients. These contracts arenot designated as hedging instruments and are recorded at fair value in our Consolidated Balance Sheets. Changes in the fair value of these contracts as well as the related foreign exchange certificates of deposit and foreign exchange contracts are recognized immediately in net income as a component of non-interest income. Period end gross positive fair values are recorded in other assets and gross negative fair values are recorded in other liabilities.

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The notional amount and fair value of the Company’s derivative financial instrumentsnot designated as hedging instruments as of* December 31, 2023,and December 31, 2022,*were as follows:

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17. Fair Value Measurements and Fair Value of Financial Instruments

The Company uses fair value to measure certain assets and liabilities on a recurring basis, primarily securities available for-sale and derivatives. For assets measured at the lower of cost or fair value, the fair value measurement criteria* mayor may**not* be met during a reporting period and such measurements are therefore considered “nonrecurring” for purposes of disclosing our fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for individually evaluated loans and other real estate owned and also to record impairment on certain assets, such as goodwill, CDI, and other long-lived assets.

The Company used valuation methodologies to measure assets at fair value under ASC Topic820 and ASC Topic825, as amended by ASU2016-01 and ASU2018-03, to estimate the fair value of financial instrumentsnot recorded at fair value. The fair value of the Company’s assets and liabilities is classified and disclosed inone of the followingthree categories:

The classification of assets and liabilities within the hierarchy is based on whether inputs to the valuation methodology used are observable or unobservable, and the significance of those inputs in the fair value measurement. The Company’s assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurements as follows:

Financial assets and liabilities measured at fair value on a recurring basis

The Company uses the following methodologies to measure the fair value of its financial assets and liabilities on a recurring basis:

Securities Available for Sale and Equity Securities. For certain actively traded agency preferred stocks, mutual funds, U.S. Treasury securities, and other equity securities, the Company measures the fair value based on quoted market prices in active exchange markets at the reporting date, a Level1 measurement. The Company also measures securities by using quoted market prices for similar securities or dealer quotes, a Level2 measurement. This category generally includes U.S. Government agency securities, state and municipal securities, mortgage-backed securities (“MBS”), commercial MBS, collateralized mortgage obligations, asset-backed securities, corporate bonds and trust preferred securities.

Warrants. The Company measures the fair value of warrants based on unobservable inputs based on assumption and management judgment, a Level3 measurement.

Currency Option Contracts and Foreign Exchange Contracts. The Company measures the fair value of currency option and foreign exchange contracts based on observable market rates on a recurring basis, a Level2 measurement.

Interest Rate Swaps. The Company measures the fair value of interest rate swaps usingthird party models with observable market data, a Level2 measurement.

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The following tables present the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of* December 31, 2023,and at December 31, 2022:*

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Assets measured at estimated fair value on a non-recurring basis.

Certain assets or liabilities are required to be measured at estimated fair value on a nonrecurring basis subsequent to initial recognition. Generally, these adjustments are the result of lower-of-cost-or-fair value or other impairment write-downs of individual assets. In determining the estimated fair values during the period, the Company determined that substantially all the changes in estimated fair value were due to declines in market conditions versus instrument specific credit risk. For the year ended* December 31, 2023,and December 31, 2022,there wereno* material adjustments to fair value for the Company’s assets and liabilities measured at fair value on a nonrecurring basis in accordance with GAAP.

For financial assets measured at fair value on a nonrecurring basis that were still reflected in the Consolidated Balance Sheets as of* December 31, 2023,and2022,* the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets at* December 31, 2023,and at December 31, 2022,*and the total losses for the periods indicated:

(1) Other real estate owned balance of $19.4 million in the Consolidated Balance Sheets is net of estimated disposal costs.

(1) Other real estate owned balance of $4.1 million in the Consolidated Balance Sheets is net of estimated disposal costs.

The significant unobservable (Level3) inputs used in the fair value measurement of collateral for collateral-dependent individually evaluated loans was primarily based on the appraised value of collateral adjusted by estimated sales cost and commissions. The Company generally obtains new appraisal reports everytwelve months as appropriate. As the Company’s primary objective in the event of default would be to monetize the collateral to settle the outstanding balance of the loan, less marketable collateral would receive a larger discount. In the current year, the Company used borrower specific collateral discounts with various discount levels.

The fair value of individually evaluated loans is calculated based on the net realizable fair value of the collateral or the observable market price of the most recent sale or quoted price from loans held for sale. The Company doesnot record loans at fair value on a recurring basis. Nonrecurring fair value adjustments to collateral dependent non-accrual loans are recorded based on the current appraised value of the collateral, a Level2 measurement, or management’s judgment and estimation of value using discounted future cash flows or old appraisals which are then adjusted based on recent market trends, a Level3 measurement.

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The significant unobservable inputs (Level3) used in the fair value measurement of other real estate owned (“OREO”) are primarily based on the appraised value of OREO adjusted by estimated sales cost and commissions. The Company applies estimated sales cost and commissions ranging from 3% to 6% of the collateral value of individually evaluated loans, quoted price, or loan sale price of loans held for sale, and appraised value of OREO.

The significant unobservable inputs in the Black-Scholes option pricing model for the fair value of warrants are the expected life of warrant ranging fromone tosix years, risk-free interest rate from 4.25% to 5.11%, and stock volatility of the Company from 20.14% to 27.69% as of* December 31, 2022.There wereno warrants outstanding as of December 31, 2023.*

Fair value is estimated in accordance with ASC Topic825. Fair value estimates are made at specific points in time, based on relevant market information and information about the financial instrument. These estimates donot reflect any premium or discount that could result from offering for sale atone time the Bank’s entire holdings of a particular financial instrument. Becauseno market exists for a significant portion of the Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involved uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated:

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The following tables present the level in the fair value hierarchy for the estimated fair values of certain financial instruments as of* December 31, 2023,and December 31, 2022.*

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18. Revenue from Contracts with Clients

The Company’s revenue from contracts with clients consists primarily of service charges and fees related to deposit accounts and wealth management fees.

The following is a summary of revenue from contracts with clients that are in-scope andnot in-scope under ASC606:

(1) Other service fees comprise of fees related to letters of credit, wire fees, fees on foreign exchange transactions and other immaterial individual revenue streams.

(2) These amounts primarily represent revenue from contracts with customers that are out of the scope of ASC 606.

The major revenue streams by fee type that are within the scope of ASC606 presented in the above tables are described in additional detail below:

Fees and Services Charges on Deposit Accounts

Fees and service charges on deposit accounts include charges for analysis, overdraft, cash checking, ATM, and safe deposit activities executed by our deposit clients, as well as interchange income earned through card payment networks for the acceptance of card-based transactions. Fees earned from our deposit clients are governed by contracts that provide for overall custody and access to deposited funds and other related services and can be terminated at will by either party. Fees received from deposit clients for the various deposit activities are recognized as revenue once the performance obligations are met.

Wealth Management Fees

The Company employs financial consultants to provide investment planning services for clients including wealth management services, asset allocation strategies, portfolio analysis and monitoring, investment strategies, and risk management strategies. The fees the Company earns are variable and are generally received monthly. The Company recognizes revenue for the services performed at quarter end based on actual transaction details received from the broker dealer the Company engages.

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Practical Expedients and Exemptions

The Company applies the practical expedient in ASC606-10-50-14 and doesnot disclose the value of unsatisfied performance obligations as the Company’s contracts with clients generally have a term that is less thanone year, are open-ended with a cancellation period that is less thanone year or allow the Company to recognize revenue in the amount to which the Company has the right to invoice.

In addition, given the short-term nature of the Company’s contracts, the Company also applies the practical expedient in ASC606-10-32-18 and doesnot adjust the consideration from clients for the effects of a significant financing component, if at contract inception, the period between when the entity transfers the goods or services and when the client pays for that good or service isone year or less.

19. Employee Benefit Plans

Employee Stock Ownership Plan.Under the Company’s Amended and Restated Cathay Bank Employee Stock Ownership Plan (“ESOP”), the Company can make annual contributions to a trust in the form of either cash or common stock of the Bancorp for the benefit of eligible employees. Employees are eligible to participate in the ESOP after completingtwo years of service for salaried full-time employees or1,000 hours for each oftwo consecutive years for salaried part-time employees. The amount of the annual contribution is discretionary except that it must be sufficient to enable the trust to meet its current obligations. The Company also pays for the administration of this plan and of the trust. The Company hasnot made contributions to the trust since2004 and doesnot expect to make any contributions in the future. Effective* June 17, 2004,the ESOP was amended to provide the participants the election either to reinvest the dividends on the Company stock allocated to their accounts or to have these dividends distributed to the participant. The ESOP trust purchased 16,555 shares in2023,* 18,808 shares in2022, and 18,338 shares in2021, of the Bancorp’s common stock at an aggregate cost of $613 thousand in2023, $814 thousand in2022, and $781 thousand in2021. The distribution of benefits to participants totaled 33,554 shares in2023, 29,363 shares in2022, and 47,617 shares in2021. As of* December 31, 2023,*the ESOP owned 676,594 shares, or 0.93%, of the Company’s outstanding common stock.

401(k) Plan. * In1997,* the Board approved the Company’s401(k) Profit Sharing Plan, which began on* March**1,* 1997. Salaried employees who have completedone month of service and have attained the age of21 are eligible to participate. Enrollment dates are on thefirst of each month. Participants* maycontribute up to 75% of their eligible compensation for the year butnot* to exceed the dollar limit set by the Internal Revenue Code. Participants* maychange their contribution election on the enrollment dates. Effective October 1, 2022,the vesting schedule for the matching contribution is 0% for less thanthree* years of service and 100% afterthree years of service. Effective on* June 1, 2018,the Company matches 100% on thefirst* 5.0% of eligible compensation contributed per pay period by the participant, on thefirst day of the following month after30 days of service. The Company’s contribution amounted to $4.5 million in2023, $3.9 million in2022, and $3.6 million in2021. The Plan allows participants to withdraw all or part of their vested amount in the Plan due to certain financial hardship as set forth in the Internal Revenue Code and Treasury Regulations. Participants* may*also borrow up to 50% of the vested amount, with a maximum of $50 thousand. The minimum loan amount is $1 thousand.

Bank-Owned Life Insurance.As of December 31, 2023and2022, cash surrender value of bank-owned life insurance was $50.9 million and $49.9 million, respectively. The Bank is the beneficiary under the policy. In the event of the death of a covered officer, we will receive the specified insurance benefit from the insurance carrier and pay a fixed dollar amount to the beneficiary designated by the officer.

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20. Equity Incentive Plans

Pursuant to the Company’s2005 Incentive Plan, as amended and restated in* May 2015,the Company may*grant incentive stock options (employees only), non-statutory stock options, common stock awards, restricted stock, RSUs, stock appreciation rights and cash awards to non-employee directors and eligible employees.

As of* December 31, 2023,1,456,944 shares were available under the2005* Incentive Plan for future grants.

In addition to stock options, the Company also grants restricted stock units (“RSUs”) that are generally granted atno cost to the recipient. RSUs generally vest ratably over three years or cliff vest afterone orthree years of continued employment from the date of the grant. While a portion of RSUs* maybe time-vesting awards, others may*vest subject to the attainment of specified performance goals and are referred to as “performance-based RSUs.” All RSUs are subject to forfeiture until vested.

Performance-based RSUs are granted at the target amount of awards. Based on the Company’s attainment of specified performance goals and consideration of market conditions, the number of shares that vest can be adjusted to a minimum ofzero and to a maximum of 150% of the target. The amount of performance-based RSUs that are eligible to vest is determined at the end of each performance period and is then added together to determine the total number of performance shares that are eligible to vest. Performance-based RSUs generally cliff vest three years from the date of grant.

Compensation costs for the time-based awards are based on the quoted market price of the Company’s stock at the grant date. Compensation costs associated with performance-based RSUs are based on grant date fair value, which considers both market and performance conditions. Compensation costs of both time-based and performance-based awards are recognized on a straight-line basis from the grant date until the vesting date of each grant.

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The following table presents RSU activity for2023, 2022, and2021:

The compensation expense recorded for RSUs was $7.0 million in2023, $7.0 million in2022, and $6.0 million in2021. Unrecognized stock-based compensation expense related to RSUs was $9.9 million and $9.0 million as of* December 31, 2023,and2022,* respectively. As of* December 31, 2023,*these costs are expected to be recognized over the next 1.9 years.

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21. Condensed Financial Information of Cathay General Bancorp

The condensed financial information of the Bancorp as of* December 31, 2023,and December 31, 2022,and for the years ended December 31, 2023,*2022 and2021 is as follows:

Balance Sheets

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Statements of Operations

Statements of Cash Flows

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22. Dividend Reinvestment Plan

The Company has a Dividend Reinvestment Plan which allows for participants’ reinvestment of cash dividends and certain optional additional investments in the Bancorp’s common stock. Shares issued under the plan and the consideration received were 93,182 shares for $3.5 million in2023, 86,501 shares for $3.7 million in2022, and 84,011 shares for $3.6 million in2021.

23. Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal 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 direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts, and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The Federal Deposit Insurance Corporation has establishedfive capital ratio categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” A well-capitalized institution must have a common equity tier1 capital ratio equal to or greater than 6.5%, a Tier1 risk-based capital ratio equal to or greater than 8%, a total risk-based capital ratio equal to or greater than 10%, and a Tier1 leverage capital ratio equal to or greater than 5%. As of* December 31, 2023,and2022,* the Bank qualified as well capitalized under the regulatory framework for prompt corrective action.

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The Bancorp’s and the Bank’s capital and leverage ratios as of* December 31, 2023,and December 31, 2022,*are presented in the tables below:

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24. Balance Sheet Offsetting

Certain financial instruments, including resell and repurchase agreements, securities lending arrangements and derivatives,* maybe eligible for offset in the Consolidated Balance Sheets and/or subject to master netting arrangements or similar agreements. The Company’s securities sold with agreements to repurchase and derivative transactions with upstream financial institution counter parties are generally executed under International Swaps and Derivative Association master agreements which include “right of set-off” provisions. In such cases, there is generally a legally enforceable right to offset recognized amounts and there maybe an intention to settle such amounts on a net basis. Nonetheless, the Company doesnot* generally offset such financial instruments for financial reporting purposes.

Financial instruments that are eligible for offset in the Consolidated Balance Sheets, as of* December 31, 2023,and December 31, 2022,*are presented in the following tables:

25. Subsequent Events

On* February 15, 2024,the Company’s Board of Directors declaredfirst* quarter2024 dividends for the Company’s common stock. The common stock cash dividend of $0.34 per share will be paid on* March 11, 2024,to stockholders of record on February 28, 2024.*

The Company has evaluated the effect of events that have occurred subsequent to* December 31, 2023,through the date of issuance of the Consolidated Financial Statements. Based on this evaluation, the Company has determinednone* of these events would require recognition in the Consolidated Financial Statements or disclosure in the notes to the Consolidated Financial Statements.