CATHAY GENERAL BANCORP

Previous wording

Net income for the quarter ended June 30, 2025, was $77.5 million, an increase of $10.7 million, or 16.0%, compared to net income of $66.8 million for the same quarter a year ago. Diluted earnings per share for the quarter ended June 30, 2025, was $1.10 per share compared to $0.92 per share for the same quarter a year ago.

Current wording

Net income for the quarter ended September 30, 2025, was $77.7 million, an increase of $10.2 million, or 15.1%, compared to net income of $67.5 million for the same quarter a year ago. Diluted earnings per share for the quarter ended September 30, 2025, was $1.13 per share compared to $0.94 per share for the same quarter a year ago.

Previous wording

Return on average stockholders’ equity was 10.72% and return on average assets was 1.33% for the quarter ended June 30, 2025, compared to a return on average stockholders’ equity of 9.63% and a return on average assets of 1.15% for the same quarter a year ago.

Current wording

Return on average stockholders’ equity was 10.60% and return on average assets was 1.29% for the quarter ended September 30, 2025, compared to a return on average stockholders’ equity of 9.50% and a return on average assets of 1.15% for the same quarter a year ago.

Previous wording

Net interest income before provision for credit losses increased $15.9 million, or 9.6%, to $181.2 million during the second quarter of 2025, compared to $165.3 million during the same quarter a year ago. The increase was due primarily to a decrease in interest expense from deposits, offset by a decrease in interest income from loans and securities.

Current wording

Net interest income before provision for credit losses increased $20.4 million, or 12.1%, to $189.6 million during the third quarter of 2025, compared to $169.2 million during the same quarter a year ago. The increase was due primarily to a decrease in interest expense from deposits, offset by a small decrease in interest income from loans and securities.

Previous wording

The net interest margin was 3.27% for the second quarter of 2025 compared to 3.01% for the second quarter of 2024.

Current wording

The net interest margin was 3.31% for the third quarter of 2025 compared to 3.04% for the third quarter of 2024.

Previous wording

For the second quarter of 2025, the yield on average interest-earning assets was 5.83%, the cost of funds on average interest-bearing liabilities was 3.37%, and the average cost of interest-bearing deposits was 3.35%. In comparison, for the second quarter of 2024, the yield on average interest-earning assets was 6.05%, the cost of funds on average interest-bearing liabilities was 3.97%, and the average cost of interest-bearing deposits was 3.94%. The decrease in the yield on average interest-bearing liabilities and on average interest-earning assets resulted mainly from lower interest rates on deposits and lower interest rates on loans and securities, respectively. The net interest spread, defined as the difference between the yield on average interest-earning assets and the cost of funds on average interest-bearing liabilities, was 2.46% for the quarter ended June 30, 2025, compared to 2.08% for the same quarter a year ago.

Current wording

For the third quarter of 2025, the yield on average interest-earning assets was 5.84%, the cost of funds on average interest-bearing liabilities was 3.32%, and the average cost of interest-bearing deposits was 3.28%. In comparison, for the third quarter of 2024, the yield on average interest-earning assets was 6.10%, the cost of funds on average interest-bearing liabilities was 3.99%, and the average cost of interest-bearing deposits was 3.95%. The decrease in the yield on average interest-bearing liabilities and on average interest-earning assets resulted mainly from lower interest rates on deposits and lower interest rates on loans and securities, respectively. The net interest spread, defined as the difference between the yield on average interest-earning assets and the cost of funds on average interest-bearing liabilities, was 2.52% for the quarter ended September 30, 2025, compared to 2.11% for the same quarter a year ago.

Previous wording

The Company recorded a provision for credit losses of $11.2 million in the second quarter of 2025 compared with $6.6 million in the second quarter of 2024. As of June 30, 2025, the allowance for credit losses, comprised of the reserve for loan losses and the reserve for unfunded loan commitments, increased $12.0 million to $183.4 million, or 0.93% of gross loans, compared to $171.4 million, or 0.88% of gross loans, as of December 31, 2024. The change in the allowance for credit losses during the six months ended June 30, 2025, consisted of a $26.7 million provision for credit losses, and $14.7 million in net charge-offs.

Current wording

The Company recorded a provision for credit losses of $28.7 million in the third quarter of 2025 compared with $14.5 million in the third quarter of 2024. Provision for credit losses of $28.7 million for the third quarter of 2025 included an additional reserve of $9.1 million for two movie theatre loans and $3.8 million from a change in the CECL model. As of September 30, 2025, the allowance for credit losses, comprised of the reserve for loan losses and the reserve for unfunded loan commitments, increased $25.1 million to $196.5 million, or 0.98% of gross loans, compared to $171.4 million, or 0.88% of gross loans, as of December 31, 2024. The change in the allowance for credit losses during the nine months ended September 30, 2025, consisted of a $55.4 million provision for credit losses, and $30.4 million in net charge-offs.

Previous wording

Non-interest income, which includes revenues from depository service fees, letters of credit commissions, securities gains (losses), wealth management fees, and other sources of fee income, was $15.4 million for the second quarter of 2025, an increase of $2.2 million, or 16.7%, compared to $13.2 million for the second quarter of 2024. The increase was primarily due to an increase of $2.4 million in derivative fees when compared to the same quarter a year ago.

Current wording

Non-interest income, which includes revenues from depository service fees, letters of credit commissions, securities gains (losses), wealth management fees, and other sources of fee income, was $21.0 million for the third quarter of 2025, an increase of $0.6 million, or 2.9%, compared to $20.4 million for the third quarter of 2024. The increase was primarily due to an increase of $0.5 million in other operating income related to a legal settlement when compared to the same quarter a year ago.

Previous wording

Non-interest expense decreased $10.3 million, or 10.4%, to $89.1 million in the second quarter of 2025 compared to $99.4 million in the same quarter a year ago. The decrease in non-interest expense in the second quarter of 2025 was primarily due to a decrease of $12.2 million in amortization expense of investments in low-income housing and alternative energy partnerships, offset by an increase of $2.7 million in salaries and employee benefits when compared to the same quarter a year ago. The efficiency ratio was 45.34% in the second quarter of 2025 compared to 55.65% for the same quarter a year ago.

Current wording

Non-interest expense decreased $8.8 million, or 9.1%, to $88.1 million in the third quarter of 2025 compared to $96.9 million in the same quarter a year ago. The decrease in non-interest expense in the third quarter of 2025 was primarily due to a decrease of $11.9 million in amortization expense of investments in low-income housing and alternative energy partnerships, offset by an increase of $2.6 million in salaries and employee benefits and an increase of $1.0 million in computer and equipment expense when compared to the same quarter a year ago. The efficiency ratio was 41.84% in the third quarter of 2025 compared to 51.11% for the same quarter a year ago.

Previous wording

The effective tax rate for the second quarter of 2025 was 19.6% compared to 7.9% for the second quarter of 2024. The effective tax rate includes the impact of low-income housing tax credits in 2025 and solar tax credits and low-income housing tax credits in 2024.

Current wording

The effective tax rate for the third quarter of 2025 was 17.2% compared to 13.6% for the third quarter of 2024. The effective tax rate includes the impact of low-income housing tax credits in 2025 and solar tax credits and low-income housing tax credits in 2024.

Previous wording

As a result of the enactment of the single factor apportionment by the State of California in June 2025, the Company recorded a $3.4 million write down of its deferred tax assets during the second quarter of 2025.

Current wording

As a result of the enactment of the single sales factor apportionment by the State of California in June 2025, the Company recorded a $3.4 million write down of its deferred tax assets during the nine months ended September 30, 2025.

Previous wording

Net income for the six months ended June 30, 2025, was $147.0 million, an increase of $8.7 million, or 6.3%, compared to net income of $138.3 million for the same period a year ago. Diluted earnings per share for the six months ended June 30, 2025, was $2.09 per share compared to $1.90 per share for the same period a year ago.

Current wording

Net income for the nine months ended September 30, 2025, was $224.6 million, an increase of $18.8 million, or 9.1%, compared to net income of $205.8 million for the same period a year ago. Diluted earnings per share for the nine months ended September 30, 2025, was $3.21 per share compared to $2.83 per share for the same period a year ago.

Previous wording

Return on average stockholders’ equity was 10.28% and return on average assets was 1.27% for the six months ended June 30, 2025, compared to a return on average stockholders’ equity of 10.01% and a return on average assets of 1.19% for the same period a year ago.

Current wording

Return on average stockholders’ equity was 10.39% and return on average assets was 1.28% for the nine months ended September 30, 2025, compared to a return on average stockholders’ equity of 9.84% and a return on average assets of 1.18% for the same period a year ago.

Previous wording

The following table sets forth information concerning average interest-earning assets, average interest-bearing liabilities, and the average yields and rates paid on those assets and liabilities for the six months ended June 30, 2025, and 2024. The average outstanding amounts included in the table are daily averages.

Current wording

The following table sets forth information concerning average interest-earning assets, average interest-bearing liabilities, and the average yields and rates paid on those assets and liabilities for the nine months ended September 30, 2025, and 2024. The average outstanding amounts included in the table are daily averages.

Previous wording

The following table summarizes the changes in interest income and interest expense attributable to changes in volume and changes in interest rates for the six months ended June 30, 2025 and 2024:

Current wording

The following table summarizes the changes in interest income and interest expense attributable to changes in volume and changes in interest rates for the nine months ended September 30, 2025 and 2024:

Previous wording

Total assets were $23.72 billion as of June 30, 2025, an increase of $669.2 million, or 2.9%, from $23.05 billion as of December 31, 2024.

Current wording

Total assets were $24.07 billion as of September 30, 2025, an increase of $1.02 billion, or 4.4%, from $23.05 billion as of December 31, 2024.

Previous wording

Securities available-for-sale represented 6.9% of total assets as of June 30, 2025, compared to 6.7% of total assets as of December 31, 2024. Securities available-for-sale were $1.65 billion as of June 30, 2025, compared to $1.55 billion as of December 31, 2024.

Current wording

Securities available-for-sale represented 6.8% of total assets as of September 30, 2025, compared to 6.7% of total assets as of December 31, 2024. Securities available-for-sale were $1.64 billion as of September 30, 2025, compared to $1.55 billion as of December 31, 2024.

Previous wording

Securities available-for-sale having a carrying value of $17.7 million as of June 30, 2025, and $17.8 million as of December 31, 2024, were pledged to secure public deposits and other borrowings.

Current wording

Securities available-for-sale having a carrying value of $19.5 million as of September 30, 2025, and $17.8 million as of December 31, 2024, were pledged to secure public deposits and other borrowings.

Previous wording

Gross loans held for investment were $19.78 billion at June 30, 2025, an increase of $408.7 million, or 2.11%, from $19.38 billion at December 31, 2024. The increase was primarily due to an increase of $329.3 million, or 3.3%, in commercial real estate loans, an increase of $96.7 million, or 3.1%, in commercial loans and an increase of $3.0 million, or 0.1% in residential mortgage loans, offset, in part, by a decrease of $18.5 million, or 5.8% in real estate construction loans.

Current wording

Gross loans held for investment were $20.10 billion at September 30, 2025, an increase of $728.8 million, or 3.8%, from $19.38 billion at December 31, 2024. The increase was primarily due to an increase of $451.1 million, or 4.5%, in commercial real estate loans, an increase of $126.0 million, or 2.2% in residential mortgage loans, an increase of $114.9 million, or 3.7%, in commercial loans, and an increase of $36.6 million, or 11.4% in real estate construction loans.

Previous wording

The ratio of non-performing assets to total assets was 0.84% as of June 30, 2025, compared to 0.85% as of December 31, 2024. Total non-performing assets increased $3.2 million, or 1.6% to $199.5 million at June 30, 2025, compared to $196.3 million at December 31, 2024, primarily due to an increase of $5.0 million, or 3.0%, in non-accrual loans and, an increase of $2.3 million, or 57.8%, in accruing loans past due 90 days or more, offset by a decrease of $4.1 million, or 17.7%, in other real estate owned.

Current wording

The ratio of non-performing assets to total assets was 0.83% as of September 30, 2025, compared to 0.85% as of December 31, 2024. Total non-performing assets increased $2.4 million, or 1.2% to $198.7 million at September 30, 2025, compared to $196.3 million at December 31, 2024, primarily due to an increase of $9.9 million, or 43.0%, in other real estate owned, offset by a decrease of $3.9 million, or 97.3%, in accruing loans past due 90 days or more, and a decrease of $3.6 million, or 2.1%, in non-accrual loans.

Previous wording

As a percentage of gross loans, excluding loans held for sale, plus OREO, our non-performing assets were 1.01% as of June 30, 2025, compared to 1.01% as of December 31, 2024. The non-performing loan portfolio coverage ratio, defined as the allowance for credit losses to non-performing loans, increased to 101.60% as of June 30, 2025, from 98.98% as of December 31, 2024.

Current wording

As a percentage of gross loans, excluding loans held for sale, plus OREO, our non-performing assets were 0.99% and 1.01% as of September 30, 2025, and December 31, 2024, respectively. The non-performing loan portfolio coverage ratio, defined as the allowance for credit losses to non-performing loans, increased to 118.56% as of September 30, 2025, from 98.98% as of December 31, 2024.

Previous wording

As of June 30, 2025, total non-accrual loans were $174.2 million, an increase of $5.0 million, or 3.0%, from $169.2 million at December 31, 2024, and an increase of $66.9 million, or 62.4%, from $107.3 million at June 30, 2024. The allowance for the collateral-dependent loans is calculated based on the difference between the outstanding loan balance and the value of the collateral as determined by recent appraisals, sales contracts, or other available market price information, less cost to sell. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as non-performing. We continue to monitor the collateral coverage of these loans, based on recent appraisals, on a quarterly basis and adjust the allowance accordingly.

Current wording

As of September 30, 2025, total non-accrual loans were $165.6 million, a decrease of $3.6 million, or 2.1%, from $169.2 million at December 31, 2024, and an increase of $2.8 million, or 1.7%, from $162.8 million at September 30, 2024. The allowance for the collateral-dependent loans is calculated based on the difference between the outstanding loan balance and the value of the collateral as determined by recent appraisals, sales contracts, or other available market price information, less cost to sell. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as non-performing. We continue to monitor the collateral coverage of these loans, based on recent appraisals, on a quarterly basis and adjust the allowance accordingly.

Previous wording

For non-accrual loans, the amounts previously charged-off represent 15.8% of the contractual balances for non-accrual loans as of June 30, 2025, and 11.7% as of December 31, 2024. As of June 30, 2025, $119.6 million, or 68.7%, of the $174.2 million of non-accrual loans were secured by real estate compared to $109.4 million, or 64.7%, of the $169.2 million of non-accrual loans that were secured by real estate as of December 31, 2024. The Bank generally seeks to obtain current appraisals, sales contracts, or other available market price information intended to provide updated factors in evaluating potential loss.

Current wording

For non-accrual loans, the amounts previously charged-off represent 13.0% of the contractual balances for non-accrual loans as of September 30, 2025, and 11.7% as of December 31, 2024. As of September 30, 2025, $131.9 million, or 79.7%, of the $165.6 million of non-accrual loans were secured by real estate compared to $109.4 million, or 64.7%, of the $169.2 million of non-accrual loans that were secured by real estate as of December 31, 2024. The Bank generally seeks to obtain current appraisals, sales contracts, or other available market price information intended to provide updated factors in evaluating potential loss.

Previous wording

The allowance for loan losses to non-performing loans was 96.12% as of June 30, 2025, compared to 93.39% as of December 31, 2024. The increase was due primarily to a net increase in the allowance for loan losses.

Current wording

The allowance for loan losses to non-performing loans was 112.61% as of September 30, 2025, compared to 93.39% as of December 31, 2024. The increase was due primarily to a net increase in the allowance for loan losses.

Previous wording

As of June 30, 2025, construction loans of $247.2 million were disbursed with pre-established interest reserves of $32.5 million, compared to $227.9 million with pre-established interest reserves of $31.3 million at December 31, 2024. The balance for construction loans with interest reserves that have been extended was $4.2 million with pre-established interest reserves of $0.5 million at June 30, 2025, compared to $4.2 million with pre-established interest reserves of $53 thousand at December 31, 2024. Land loans of $6.1 million were disbursed with pre-established interest reserves of $1.0 million at June 30, 2025, compared to no land loans disbursements with pre-established interest reserves at December 31, 2024. There were no land loans with interest reserves which have been extended as of June 30, 2025, and December 31, 2024.

Current wording

As of September 30, 2025, construction loans of $246.8 million were disbursed with pre-established interest reserves of $37.6 million, compared to $227.9 million with pre-established interest reserves of $31.3 million at December 31, 2024. The balance for construction loans with interest reserves that have been extended was $3.2 million with pre-established interest reserves of $512 thousand at September 30, 2025, compared to $4.2 million with pre-established interest reserves of $53 thousand at December 31, 2024. Land loans of $9.2 million were disbursed with pre-established interest reserves of $1.0 million at September 30, 2025, compared to no land loans disbursements with pre-established interest reserves at December 31, 2024. There were no land loans with interest reserves which have been extended as of September 30, 2025, and December 31, 2024.

Previous wording

At June 30, 2025, the Bank had one loan on non-accrual status with $53 thousand in available interest reserves. At June 30, 2025, $4.2 million non-accrual residential construction loans had been originated with pre-established interest reserves. At December 31, 2024, there were no non-accrual non-residential construction loans, residential construction loans, or land loans that were originated with pre-established interest reserves. While we typically expect loans with interest reserves to be repaid in full according to the original contractual terms, some loans may require one or more extensions beyond the original maturity before full repayment. Typically, these extensions are required due to construction delays, delays in the sale or lease of the property, or some combination of these two factors.

Current wording

At September 30, 2025, and December 31, 2024, the Bank had no loan on non-accrual status with available interest reserves. There were no non-accrual residential construction loans, non-accrual non-residential construction loans, and non-accrual land loans that were originated with pre-established interest reserves as of September 30, 2025, and December 31, 2024. While we typically expect loans with interest reserves to be repaid in full according to the original contractual terms, some loans may require one or more extensions beyond the original maturity before full repayment. Typically, these extensions are required due to construction delays, delays in the sale or lease of the property, or some combination of these two factors.

Previous wording

The federal banking regulatory agencies issued final guidance on December 6, 2006, regarding risk management practices for financial institutions with high or increasing concentrations of commercial real estate (“CRE”) loans on their balance sheets. The regulatory guidance reiterates the need for sound internal risk management practices for those institutions that have experienced rapid growth in CRE lending, have notable exposure to specific types of CRE, or are approaching or exceeding the supervisory criteria used to evaluate the CRE concentration risk, but the guidance is not to be construed as a limit for CRE exposure. The supervisory criteria are: (1) total reported loans for construction, land development, and other land represent 100% of the institution’s total risk-based capital, and (2) both total CRE loans represent 300% or more of the institution’s total risk-based capital and the institution’s CRE loan portfolio has increased 50% or more within the last thirty-six months. The Bank’s loans for construction, land development, and other land represented 13% and 15% of the Bank’s total risk-based capital as of June 30, 2025, and December 31, 2024, respectively. Total CRE loans represented 291% of total risk-based capital as of June 30, 2025, and 289% as of December 31, 2024, which were within the Bank’s internal limit of 400%, of total capital.

Current wording

The federal banking regulatory agencies issued final guidance on December 6, 2006, regarding risk management practices for financial institutions with high or increasing concentrations of commercial real estate (“CRE”) loans on their balance sheets. The regulatory guidance reiterates the need for sound internal risk management practices for those institutions that have experienced rapid growth in CRE lending, have notable exposure to specific types of CRE, or are approaching or exceeding the supervisory criteria used to evaluate the CRE concentration risk, but the guidance is not to be construed as a limit for CRE exposure. The supervisory criteria are: (1) total reported loans for construction, land development, and other land represent 100% of the institution’s total risk-based capital, and (2) both total CRE loans represent 300% or more of the institution’s total risk-based capital and the institution’s CRE loan portfolio has increased 50% or more within the last thirty-six months. The Bank’s loans for construction, land development, and other land represented 15% of the Bank’s total risk-based capital as of September 30, 2025, and December 31, 2024. Total CRE loans represented 290% of total risk-based capital as of September 30, 2025, and 289% as of December 31, 2024, which were within the Bank’s internal limit of 400%, of total capital.

Previous wording

There were 47% of total CREC loans concentrated in California as of June 30, 2025, and December 31, 2024. Changes in California’s economy and real estate values could have a significant impact on the collectability of these loans and the required level of allowance for loan losses.

Current wording

There were 46% and 47% of total CREC loans concentrated in California as of September 30, 2025, and December 31, 2024, respectively. Changes in California’s economy and real estate values could have a significant impact on the collectability of these loans and the required level of allowance for loan losses.

Previous wording

The Company focuses on providing financing to experienced real estate investors and developers who have moderate levels of leverage, many of whom are long-time customers of the Bank. CRE loans totaled $7.49 billion as of June 30, 2025, compared with $7.23 billion as of December 31, 2024, and accounted for 38% and 37% of total loans held-for-investment, not including loans held for sale, as of June 30, 2025, and December 31, 2024, respectively. Interest rates on CRE loans may be fixed or variable. As of June 30, 2025, 17% and 41% of our CRE portfolio were variable rate and hybrid loans in their fixed period, respectively. In comparison, as of December 31, 2024, 25% and 37% of our CRE portfolio were variable rate and hybrid loans in their fixed period, respectively. Loans are underwritten with conservative standards for cash flows, debt service coverage and LTV.

Current wording

The Company focuses on providing financing to experienced real estate investors and developers who have moderate levels of leverage, many of whom are long-time customers of the Bank. CRE loans totaled $7.60 billion as of September 30, 2025, compared with $7.23 billion as of December 31, 2024, and accounted for 38% and 37% of total loans held-for-investment, not including loans held for sale, as of September 30, 2025, and December 31, 2024, respectively. Interest rates on CRE loans may be fixed or variable. As of September 30, 2025, 20% and 38% of our CRE portfolio were variable rate and hybrid loans in their fixed period, respectively. In comparison, as of December 31, 2024, 25% and 37% of our CRE portfolio were variable rate and hybrid loans in their fixed period, respectively. Loans are underwritten with conservative standards for cash flows, debt service coverage and LTV.

Previous wording

Owner-occupied properties comprised 23% and 24% of the CRE loans as of June 30, 2025, and December 31, 2024, respectively. The remainder were non-owner-occupied properties, where 50% or more of the debt service for the loan is typically provided by rental income from an unaffiliated third party.

Current wording

Owner-occupied properties comprised 24% of the CRE loans as of both September 30, 2025, and December 31, 2024. The remainder were non-owner-occupied properties, where 50% or more of the debt service for the loan is typically provided by rental income from an unaffiliated third party.

Previous wording

The multifamily residential loan portfolio is largely comprised of loans secured by residential properties with five or more units. Multifamily residential loans totaled $2.80 billion as of June 30, 2025, compared with $2.72 billion as of December 31, 2024, and accounted for 14% of total loans held-for investment, not including loans held for sale, as of both June 30, 2025 and December 31, 2024. The Company offers a variety of first lien mortgages, including fixed and variable-rate loans. As of June 30, 2025, 23% and 40% of our multifamily residential loan portfolio were variable rate and hybrid loans in their fixed period, respectively. In comparison, as of December 31, 2024, 18% and 41% of our multifamily residential loan portfolio were variable rate and hybrid loans in their fixed period, respectively.

Current wording

The multifamily residential loan portfolio is largely comprised of loans secured by residential properties with five or more units. Multifamily residential loans totaled $2.81 billion as of September 30, 2025, compared with $2.72 billion as of December 31, 2024, and accounted for 14% of total loans held-for investment, not including loans held for sale, as of September 30, 2025, and December 31, 2024. The Company offers a variety of first lien mortgages, including fixed and variable-rate loans. As of September 30, 2025, 24% and 38% of our multifamily residential loan portfolio were variable rate and hybrid loans in their fixed period, respectively. In comparison, as of December 31, 2024, 18% and 41% of our multifamily residential loan portfolio were variable rate and hybrid loans in their fixed period, respectively.

Previous wording

Construction and land loans provide financing for diversified projects by real estate property type. Construction and land loans totaled $371.1 million as of June 30, 2025, compared with $403.1 million as of December 31, 2024, and accounted for 2% of total loans held-for-investment, not including loans held for sale, as of June 30, 2025, and December 31, 2024. Construction loan exposure was made up of $301.1 million in outstanding loans, plus $212.1 million in unfunded commitments as of June 30, 2025, compared with $319.6 million in outstanding loans, plus $186.5 million in unfunded commitments as of December 31, 2024. Land loans totaled $70.0 million as of June 30, 2025, compared with $83.4 million as of December 31, 2024.

Current wording

Construction and land loans provide financing for diversified projects by real estate property type. Construction and land loans totaled $425.6 million as of September 30, 2025, compared with $403.1 million as of December 31, 2024, and accounted for 2% of total loans held-for-investment, not including loans held for sale, as of September 30, 2025, and December 31, 2024. Construction loan exposure was made up of $356.2 million in outstanding loans, plus $242.6 million in unfunded commitments as of September 30, 2025, compared with $319.6 million in outstanding loans, plus $186.5 million in unfunded commitments as of December 31, 2024. Land loans totaled $69.4 million as of September 30, 2025, compared with $83.4 million as of December 31, 2024.

Previous wording

The allowance for loan losses was $173.5 million and the allowance for off-balance sheet unfunded credit commitments was $9.9 million at June 30, 2025, which represented the amount estimated by management to be appropriate to absorb expected credit losses inherent in the loan portfolio, including unfunded credit commitments. The allowance for credit losses, which is the sum of the allowances for loan losses and for off-balance sheet unfunded credit commitments, was $183.4 million at June 30, 2025, compared to $171.4 million at December 31, 2024. The allowance for credit losses represented 0.93% of period-end gross loans and 101.60% of non-performing loans at June 30, 2025. The comparable ratios were 0.88% of period-end gross loans and 98.98% of non-performing loans at December 31, 2024.

Current wording

The allowance for loan losses was $186.6 million and the allowance for off-balance sheet unfunded credit commitments was $9.9 million at September 30, 2025, which represented the amount estimated by management to be appropriate to absorb expected credit losses inherent in the loan portfolio, including unfunded credit commitments. The allowance for credit losses, which is the sum of the allowances for loan losses and for off-balance sheet unfunded credit commitments, was $196.5 million at September 30, 2025, compared to $171.4 million at December 31, 2024. The allowance for credit losses represented 0.98% of period-end gross loans and 118.56% of non-performing loans at September 30, 2025. The comparable ratios were 0.88% of period-end gross loans and 98.98% of non-performing loans at December 31, 2024.

Previous wording

In calculating our allowance for credit losses in the second quarter of 2025, increased sensitivity to the macroeconomic forecast, particularly unemployment, had a significant impact to the allowance for credit losses. However, the allowance for credit losses in the second quarter of 2025 also reflected the reversal of specific reserves for two loans as the result of charge-offs during the second quarter for a restructuring of one borrower and the other as a result of pledging of additional collateral and the reversal of a reserve for potential losses from tariffs due to additional developments during the second quarter. Our methodology and framework along with the 8-quarter reasonable and supportable forecast period and the 4-quarter reversion period have remained consistent since the implementation of CECL. Certain management assumptions are reassessed every quarter based on current expectations for credit losses, while other assumptions are assessed and updated on at least an annual basis.

Current wording

In calculating our allowance for credit losses in the third quarter of 2025, changes to the qualitative reserves, as well as an increase in individually evaluated reserves accounted for the increased allowance. Our methodology and framework along with the 8-quarter reasonable and supportable forecast period and the 4-quarter reversion period have remained consistent since the implementation of CECL. Certain management assumptions are reassessed every quarter based on current expectations for credit losses, while other assumptions are assessed and updated on at least an annual basis.

Previous wording

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 and three smaller portfolios are evaluated using a simplified loss-rate method that calculates lifetime expected credit losses for the respective pools (simplified approach). The six 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 the six loan portfolios from the fourth quarter of 2007 through the fourth quarter of 2024. Loss given default rates are computed based on the net charge-offs recognized and then applied to the expected exposure at default of defaulted loans starting with the fourth quarter of 2007 through the fourth quarter of 2024. 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.

Current wording

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 and three smaller portfolios are evaluated using a simplified loss-rate method that calculates lifetime expected credit losses for the respective pools (simplified approach). The six 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 the six loan portfolios from the fourth quarter of 2007 through the fourth quarter of 2024. Loss given default rates are computed based on the charge-offs recognized and then applied to the expected exposure at default of defaulted loans starting with the fourth quarter of 2007 through the third quarter of 2025. 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.

Previous wording

Our allowance for credit losses is sensitive to a number of inputs, including macroeconomic forecast assumptions and credit rating migrations during the period. Our macroeconomic forecasts used in determining the June 30, 2025 allowance for credit losses consisted of three scenarios as provided by a reputable third-party economic forecaster. After increasing the weighting of the downside scenario in 2022 to reflect our expectations that a recession was more likely than not, we reduced the weighting of the severe scenario slightly during the third quarter of 2023, in light of the continued strength of the economy. At the end of 2024, with the economy continuing to expand at a solid pace, the downside scenario weighting was once again reduced while giving greater weight to the baseline scenario. This quarter the weighting remains the same as the macroeconomic forecasts continue to capture more of the economic uncertainty. The baseline scenario reflects modest ongoing GDP growth in spite of a slight rise in the unemployment rate, starting from 4.3% in the third quarter of 2025, peaking at 4.8% in the fourth quarter of 2026, and decreasing back down to 4.7% by the end of the R&S period. The upside scenario assumes the impacts of tariffs and deportations on the economy are less than expected and reflects higher GDP growth and lower unemployment rates with the stronger economy resulting in inflation and interest rates a bit higher than in the baseline scenario. The downside scenario assumes the impacts of tariffs and deportations on the economy are significantly worse than expected and contemplates a recession as rising inflation prompts the Federal Reserve to raise the fed funds rate in the third and fourth quarter of 2025. This results in negative GDP growth for three quarters peaking at 4.0% in the first quarter of 2026, rising unemployment that peaks at 8.3% in the third quarter of 2026, a decline in CRE prices of 20.5% and a decline in residential home prices of 11.1% during the forecast period.

Current wording

Our allowance for credit losses is sensitive to a number of inputs, including macroeconomic forecast assumptions and credit rating migrations during the period. Our macroeconomic forecasts used in determining the September 30, 2025, allowance for credit losses consisted of three scenarios as provided by a reputable third-party economic forecaster. This quarter the scenario weighting remains the same as the macroeconomic forecasts continue to project marginally strong growth while still capturing several of the challenges facing the economy. The baseline scenario reflects modest ongoing GDP growth in spite of a slight rise in the unemployment rate, starting from 4.4% in the fourth quarter of 2025, peaking at 4.8% in the fourth quarter of 2026, and decreasing back down to 4.7% by the end of the R&S period. The upside scenario assumes the impacts of tariffs and deportations on the economy are less than expected and reflects higher GDP growth and lower unemployment rates with the stronger economy resulting in inflation and interest rates a bit higher than in the baseline scenario. The downside scenario assumes the impacts of tariffs, deportations and political tensions on the economy are worse than expected and contemplates a recession as rising inflation prompts the Federal Reserve to raise the fed funds rate during the fourth quarter of 2025. This results in negative GDP growth for three quarters peaking at 4.0% in the second quarter of 2026, rising unemployment that peaks at 8.4% in the fourth quarter of 2026, a decline in CRE prices of 20.4% and a decline in residential home prices of 10.4% during the forecast period.

Previous wording

Keeping all other factors constant, we estimate that if we had applied 100% weighting to the downside scenario, the allowance for credit losses as of June 30, 2025, would have been approximately $111.9 million higher. This estimate is intended to reflect the sensitivity of the allowance for credit losses to changes in our scenario weights and is not intended to be indicative of future changes in the allowance for credit losses.

Current wording

Keeping all other factors constant, we estimate that if we had applied 100% weighting to the downside scenario, the allowance for credit losses as of September 30, 2025, would have been approximately $106.2 million higher. This estimate is intended to reflect the sensitivity of the allowance for credit losses to changes in our scenario weights and is not intended to be indicative of future changes in the allowance for credit losses.

Previous wording

The allowance allocated to commercial loans decreased $17.0 million, or 29.4%, to $40.8 million at June 30, 2025, from $57.8 million at December 31, 2024. The decrease was mainly due to a decrease in specific reserves.

Current wording

The allowance allocated to commercial loans decreased $18.7 million, or 32.4%, to $39.1 million at September 30, 2025, from $57.8 million at December 31, 2024. The decrease was mainly due to charge-offs of $27.6 million which were partially offset by provisions of $7.9 million.

Previous wording

The allowance allocated to construction loans decreased $2.8 million, or 34.1% to $5.4 million at June 30, 2025, from $8.2 million at December 31, 2024. The decrease was mainly due to a decrease in construction loans.

Current wording

The allowance allocated to construction loans decreased $1.8 million, or 22.0% to $6.4 million at September 30, 2025, from $8.2 million at December 31, 2024.

Previous wording

The allowance allocated to commercial real estate loans increased $27.2 million, or 34.2%, to $106.8 million at June 30, 2025, from $79.6 million at December 31, 2024. The increase is due primarily to an increase in commercial real estate loans and non-performing loans.

Current wording

The allowance allocated to commercial real estate loans increased $38.2 million, or 48.0%, to $117.8 million at September 30, 2025, from $79.6 million at December 31, 2024. The increase is due primarily to an increase in commercial real estate loans and non-performing loans and a special $9.1 million reserve for two movie theatre loans acquired through our acquisition of Far East National Bank.

Previous wording

The allowance allocated for residential mortgage loans and equity lines increased $4.3 million, or 26.5% to $20.5 million at June 30, 2025, compared to $16.2 million at December 31, 2024. The increase was due primarily to an increase in residential real estate loans.

Current wording

The allowance allocated for residential mortgage loans and equity lines increased $7.2 million, or 44.4% to $23.4 million at September 30, 2025, compared to $16.2 million at December 31, 2024. The increase was due primarily to an increase in residential real estate loans and use of a longer duration for residential mortgage loans for the allowance calculation at September 30, 2025.