CATHAY GENERAL BANCORP

Previous wording

The following discussion is intended to provide information to facilitate the understanding and assessment of the consolidated financial condition and results of operations of the Bancorp and its subsidiaries. It should be read in conjunction with this Annual Report and the audited Consolidated Financial Statements and Notes appearing elsewhere in this Annual Report. The following discussion and analysis of our financial condition and results of operations contains forward-looking statements. These statements are based on current expectations and assumptions, which are subject to risks and uncertainties. See “Forward-Looking Statements” and “Risk Factors Summary.” Actual results could differ materially because of various factors, including but not limited to those discussed in “Risk Factors,” under Part I, Item 1A of this Annual Report.

Current wording

The following discussion is intended to provide information to facilitate the understanding and assessment of the consolidated financial condition and results of operations of the Bancorp and its subsidiaries for the year ended December 31,2025, as compared to 2024. It should be read in conjunction with this Annual Report and the audited Consolidated Financial Statements and Notes appearing elsewhere in this Annual Report. For discussion and analysis of the Company’s 2024 results, as compared to 2023, refer to Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 28, 2025. The following discussion and analysis of our financial condition and results of operations contains forward-looking statements. These statements are based on current expectations and assumptions, which are subject to risks and uncertainties. See “Forward-Looking Statements” and “Risk Factors Summary.” Actual results could differ materially because of various factors, including but not limited to those discussed in “Risk Factors,” under Part I, Item 1A of this Annual Report.

Previous wording

In addition, the Company’s Board of Directors has established a written credit policy that includes a credit review and control system that the Board of Directors believes should be effective in ensuring that the Bank maintains an appropriate allowance for credit losses. The Board of Directors provides oversight for the allowance evaluation process, including quarterly evaluations, and determines whether the allowance is appropriate to absorb losses in the credit portfolio. The determination of the amount of the allowance for credit losses and the provision for credit losses are based on management’s current judgment about the credit quality of the loan portfolio and takes into consideration known relevant internal and external factors that affect collectability when determining the appropriate level for the allowance for credit losses. The nature of the process by which the Bank determines the appropriate allowance for credit losses requires the exercise of considerable judgment. Additions to the allowance for credit losses are made by charges to the provision for credit losses. While management utilizes its business judgment based on the information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors, many of which are beyond the Bank’s control, including but not limited to the performance of the Bank’s loan portfolio, the economy and market conditions, macroeconomic forecasts, and the view of the regulatory authorities toward loan classifications. Identified credit exposures that are determined to be uncollectible are charged against the allowance for credit losses. Recoveries of previously charged off amounts, if any, are credited to the allowance for credit losses. A weakening of the economy or other factors that adversely affect asset quality could result in an increase in the number of delinquencies, bankruptcies, or defaults, and a higher level of non-performing assets, net charge-offs, and provision for credit losses in future periods.

Current wording

Additions to the allowance for credit losses are made by charges to the provision for credit losses. While management utilizes its business judgment based on the information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors, many of which are beyond the Bank’s control, including but not limited to the performance of the Bank’s loan portfolio, the economy and market conditions, macroeconomic forecasts, and the view of the regulatory authorities toward loan classifications. Identified credit exposures that are determined to be uncollectible are charged against the allowance for credit losses. Recoveries of previously charged off amounts, if any, are credited to the allowance for credit losses. A weakening of the economy or other factors that adversely affect asset quality could result in an increase in the number of delinquencies, bankruptcies, or defaults, and a higher level of non-performing assets, net charge-offs, and provision for credit losses in future periods.

Previous wording

The allowance for loan losses was $161.8 million and the allowance for off-balance sheet unfunded credit commitments was $9.7 million at December 31, 2024, which represented the amount believed by management to be appropriate to absorb lifetime credit losses in the loan portfolio, including unfunded credit commitments. The allowance for loan losses represented 0.83% of period-end gross loans and 93.39% of non-performing loans at December 31, 2024. The comparable ratios were 0.79% of period-end gross loans and 209.33% of non-performing loans at December 31, 2023.

Current wording

The allowance for loan losses was $195.9 million and the allowance for off-balance sheet unfunded credit commitments was $12.4 million at December 31, 2025, which represented the amount believed by management to be appropriate to absorb lifetime credit losses in the loan portfolio, including unfunded credit commitments. The allowance for loan losses represented 0.97% of period-end gross loans and 172.82% of non-performing loans at December 31, 2025. The comparable ratios were 0.83% of period-end gross loans and 93.39% of non-performing loans at December 31, 2024.

Previous wording

For the year ended December 31, 2024, we reported net income of $286.0 million, or $3.95 per diluted share, compared to net income of $354.1 million, or $4.86 per diluted share, in 2023, and net income of $360.6 million, or $4.83 per diluted share, in 2022. The $68.1 million decrease in net income from 2023 to 2024 was primarily the result of decreases in net-interest income, and non-interest income and increase in provision for credit losses, partially offset by decreases in non-interest expense. The return on average assets in 2024 was 1.22%, compared to 1.56% in 2023, and to 1.69% in 2022. The return on average stockholders’ equity was 10.18% in 2024, compared to 13.56% in 2023, and to 14.70% in 2022.

Current wording

For the year ended December 31, 2025, we reported net income of $315.1 million, or $4.54 per diluted share, compared to net income of $286.0 million, or $3.95 per diluted share, in 2024, and net income of $354.1 million, or $4.86 per diluted share, in 2023. The $29.1 million increase in net income from 2024 to 2025 was primarily the result of an increase in net interest income and non interest income and a decrease in non interest expense, offset by an increase in provision for credit losses. The return on average assets in 2025 was 1.33%, compared to 1.22% in 2024, and to 1.56% in 2023. The return on average stockholders’ equity was 10.87% in 2025, compared to 10.18% in 2024, and to 13.56% in 2023.

Previous wording

Net interest income decreased $67.7 million, or 9.1%, from $741.7 million in 2023 to $674.1 million in 2024. The decrease in net interest income was due primarily to the increase in interest expense from time deposits offset by an increase in interest income from loans.

Current wording

Net interest income increased $68.4 million, or 10.1%, from $674.1 million in 2024 to $742.5 million in 2025. The increase in net interest income was due primarily to the decrease in interest expense from time deposits partially offset by a decrease in interest income from loans.

Previous wording

Average loans for 2024 were $19.43 billion, a $671.3 million, or a 3.6% increase from $18.76 billion in 2023. Compared with 2023, average commercial real estate loans increased $675.2 million, or 7.3%, average residential mortgage loans increased $246.2 million, or 4.4%, average equity lines decreased $41.3 million, or 14.9% and average construction loans decreased $162.9 million, or 31.3%. Average investment securities were $1.62 billion in 2024, an increase of $62.6 million, or 4.0%, from 2023. Average interest-bearing cash on deposits with financial institutions decreased $43.2 million, or 3.8%, to $1.10 billion in 2024 from $1.14 billion in 2023.

Current wording

Average loans for 2025 were $19.72 billion, a $287.8 million, or a 1.5% increase from $19.43 billion in 2024. Compared with 2024, average commercial real estate loans increased $418.0 million, or 4.2%, average residential mortgage loans decreased $68.7 million, or 1.2%, average construction loans decreased $29.1 million, or 8.2%, and average commercial loans decreased $25.2 million, or 0.8%. Average investment securities were $1.59 billion in 2025, a decrease of $28.8 million, or 1.8%, from 2024. Average interest-bearing cash on deposits with financial institutions increased $63.4 million, or 5.8%, to $1.16 billion in 2025 from $1.10 billion in 2024.

Previous wording

Interest income increased $92.8 million, or 7.5%, from $1.24 billion in 2023 to $1.33 billion in 2024 primarily due to increases in loan rates:

Current wording

Interest income decreased $25.7 million, or 1.9%, from $1.33 billion in 2024 to $1.31 billion in 2025 primarily due to decreases in loan rates:

Previous wording

Interest expense increased by $160.4 million, or 32.1%, to $660.9 million in 2024, compared with $500.5 million in 2023, primarily due to increased average interest-bearing deposits. The overall increase in interest expense was primarily due to increases in rates on interest bearing deposits, and rate increases in other borrowings and long term debt as discussed below:

Current wording

Interest expense decreased by $94.1 million, or 14.2%, to $566.8 million in 2025, compared with $660.9 million in 2024. The overall decrease in interest expense was primarily due to decreases in rates on interest bearing deposits, and rate decreases in other borrowings and long term debt as discussed below:

Previous wording

Net interest margin, defined as net interest income to average interest-earning assets, was 3.04% in 2024 compared to 3.45% in 2023.

Current wording

Net interest margin, defined as net interest income to average interest-earning assets, was 3.30% in 2025 compared to 3.04% in 2024.

Previous wording

The provision for credit losses represents the charge against current earnings that is determined by management, through a credit review process, as the amount needed to maintain an allowance for loan losses and an allowance for off-balance sheet unfunded credit commitments that management believes to be sufficient to absorb credit losses inherent in the Bank’s loan portfolio and credit commitments. The Bank recorded a provision for credit losses of $37.5 million in 2024 compared with a provision for credit losses of $26.0 million in 2023, and a provision for credit losses of $14.5 million in 2022. Net charge-offs for 2024 were $29.7 million, or 0.15% of average loans, compared to net charge-offs of $17.6 million for 2023, or 0.09% of average loans, and net charge-offs of $2.6 million for 2022, or 0.01% of average loans.

Current wording

The provision for credit losses represents the charge against current earnings that is determined by management, through a credit review process, as the amount needed to maintain an allowance for loan losses and an allowance for off-balance sheet unfunded credit commitments that management believes to be sufficient to absorb credit losses inherent in the Bank’s loan portfolio and credit commitments. The Bank recorded a provision for credit losses of $72.6 million in 2025 compared with a provision for credit losses of $37.5 million in 2024, and a provision for credit losses of $26.0 million in 2023. Net charge-offs for 2025 were $35.7 million, or 0.18% of average loans, compared to net charge-offs of $29.7 million for 2024, or 0.15% of average loans, and net charge-offs of $17.6 million for 2023, or 0.09% of average loans.

Previous wording

Non-interest income decreased $12.6 million, or 18.5%, to $55.7 million for 2024, from $68.3 million in 2023, compared to $56.8 million in 2022. Non-interest income includes depository service fees, letters of credit commissions, securities gains (losses), gains (losses) from loan sales, gains from sale of premises and equipment, gains on acquisition, and other sources of fee income. These other fee-based services include wire transfer fees, safe deposit fees, fees on loan-related activities, fee income from our Wealth Management division, and foreign exchange fees.

Current wording

Non-interest income increased $19.8 million, or 35.5%, to $75.4 million for 2025, from $55.7 million in 2024, compared to $68.3 million in 2023. Non-interest income includes depository service fees, letters of credit commissions, net gains (losses) from equity securities, securities gains (losses), gains (losses) from loan sales, gains from sale of premises and equipment, and other sources of fee income. These other fee-based services include wire transfer fees, safe deposit fees, fees on loan-related activities, fee income from our Wealth Management division, and foreign exchange fees.

Previous wording

The increase in non-interest income from 2022 to 2023 was primarily due to a $17.9 million increase in unrealized gain on equity securities, and a $1.1 million increase in wealth management fees, offset, in part, by a $3.0 million increase in securities losses, a $3.2 million decrease in derivative fees and a $1.7 million decrease in BOLI death benefit.

Current wording

The increase in non-interest income from 2024 to 2025 was primarily due to a $14.9 million increase in unrealized gain on equity securities, $2.8 million in gain on interest rate swaps, $1.2 million in gain on sale of loans, and $1.1 million increase in letters of credit commissions, offset, in part, by a $1.1 million decrease in securities gains.

Previous wording

Non-interest expense totaled $374.7 million in 2024 compared to $380.5 million in 2023. The decrease of $5.8 million, or 1.5%, in non-interest expense in 2024 compared to 2023 was primarily due to a combination of the following:

Current wording

Non-interest expense totaled $355.1 million in 2025 compared to $374.7 million in 2024. The decrease of $19.6 million, or 5.2%, in non-interest expense in 2025 compared to 2024 was primarily due to a combination of the following:

Previous wording

The efficiency ratio, defined as non-interest expense divided by the sum of net interest income before provision for loan losses plus non-interest income, increased to 51.35% in 2024 compared to 46.97% in 2023 due primarily to lower net interest income offset by a decrease in non-interest expense as explained above.

Current wording

The efficiency ratio, defined as non-interest expense divided by the sum of net interest income before provision for loan losses plus non-interest income, decreased to 43.41% in 2025 compared to 51.35% in 2024 due primarily to higher net interest income and non-interest income and lower non-interest expense as explained above.

Previous wording

Income tax expense was $31.6 million in 2024, compared to $49.5 million in 2023, and $111.9 million in 2022. The effective tax rate was 9.9% for 2024, 12.3% for 2023, and 23.7% for 2022. The effective tax rate includes the impact of low-income housing and alternative energy investments.

Current wording

Income tax expense was $75.1 million in 2025, compared to $31.6 million in 2024, and $49.5 million in 2023. The effective tax rate was 19.2% for 2025, 9.9% for 2024, and 12.3% for 2023. The effective tax rate includes the impact of low-income housing and alternative energy investments.

Previous wording

Total assets were $23.05 billion at December 31, 2024, a decrease of $26.9 million, or 0.1%, from $23.08 billion at December 31, 2023, primarily due to a decrease of $179.2 million in net loans, a decrease of $57.4 million in investment securities and a decrease of $26.1 million in affordable housing investments and alternative energy partnerships offset by an increase of $227.5 million in short-term investments and interest-bearing deposits.

Current wording

Total assets were $24.23 billion at December 31, 2025, an increase of $1.17 billion, or 5.1%, from $23.05 billion at December 31, 2024, primarily due to an increase of $732.7 million in net loans, an increase of $395.7 million in short-term investments and interest-bearing deposits, an increase of $111.1 million in investment securities and offset by a decrease of $62.4 million in other assets.

Previous wording

Investment securities were $1.55 billion and represented 6.7% of total assets at December 31, 2024, compared with $1.60 billion and 7.0% of total assets at December 31, 2023. The following table summarizes the carrying value of our portfolio of securities for each of the past two years:

Current wording

Investment securities were $1.66 billion and represented 6.8% of total assets at December 31, 2025, compared with $1.55 billion and 6.7% of total assets at December 31, 2024. The following table summarizes the carrying value of our portfolio of securities for each of the past two years:

Previous wording

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 have not been recorded through an allowance for credit losses is recognized in other comprehensive income. In the current period, management evaluated the securities in an unrealized loss position and determined that their unrealized losses were a result of the level of market interest rates relative to the types of securities and pricing changes caused by shifting supply and demand dynamics and not a result of downgraded credit ratings or other indicators of deterioration of the underlying issuers' ability to repay. Accordingly, we determined the unrealized losses were not credit-related and recognized the unrealized losses in "other comprehensive income/(loss)" in stockholders' equity. Although we periodically sell securities for portfolio for management purposes, we do not foresee having to sell any impaired securities strictly for liquidity needs and believe that it is more likely than not we would not be required to sell any impaired securities before recovery of their amortized cost.

Current wording

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 have not been recorded through an allowance for credit losses is recognized in other comprehensive income. In the current period, management evaluated the securities in an unrealized loss position and determined that their unrealized losses were a result of the level of market interest rates relative to the types of securities and pricing changes caused by shifting supply and demand dynamics and not a result of downgraded credit ratings or other indicators of deterioration of the underlying issuers' ability to repay. Accordingly, we determined the unrealized losses were not credit-related and recognized the unrealized losses in "other comprehensive income/(loss)" in stockholders' equity. Although we periodically sell securities for portfolio management purposes, we do not foresee having to sell any impaired securities strictly for liquidity needs and believe that it is more likely than not we would not be required to sell any impaired securities before recovery of their amortized cost.

Previous wording

For the year ended December 31, 2024, the Company recognized a net loss of $7.5 million due to the decrease in fair value of equity investments with readily determinable fair values, compared to a net gain of $18.2 million in 2023. Equity securities were $34.4 million as of December 31, 2024, compared to $40.4 million as of December 31, 2023.

Current wording

The Company owns equity securities directly or through limited partnerships that hold equity securities. For the year ended December 31, 2025, the Company recognized a net unrealized gain of $7.4 million due to the increase in fair value of equity investments, compared to a net unrealized loss of $7.5 million in 2024. Equity securities were $51.9 million as of December 31, 2025, compared to $34.4 million as of December 31, 2024. The net unrealized gains recognized for the year ended December 31, 2025, included our share of earnings from an equity method investment in a private investment fund. While this investment has not had a material impact on our historical results, the fund holds concentrated positions in certain private entities. We anticipate that a potential liquidity event or a significant third-party valuation adjustment related to these underlying holdings could have a significant impact on our future financial condition or results of operations. However, the timing and certainty of any such event are outside of our control.

Previous wording

Loans represented 87.4% of average interest-earning assets during 2024, compared with 91.0% during 2023. Gross loans decreased by $172.2 million, or 0.9%, to $19.38 billion at December 31, 2024, compared with $19.55 billion at December 31, 2023. The decrease in gross loans was primarily attributable to the following:

Current wording

Loans represented 89.6% of average interest-earning assets during 2025, compared with 87.4% during 2024. Gross loans increased by $771.2 million, or 4.0%, to $20.15 billion at December 31, 2025, compared with $19.38 billion at December 31, 2024. The increase in gross loans was primarily attributable to the following:

Previous wording

Our lending relates predominantly to activities in the states of California, New York, Texas, Washington, Massachusetts, Illinois, New Jersey, Maryland, and Nevada. We also lend to domestic clients who are engaged in international trade. Loans outstanding in our branch in Hong Kong were $343.3 million as of December 31, 2024, compared to $341.9 million as of December 31, 2023.

Current wording

Our lending relates predominantly to activities in the states of California, New York, Texas, Washington, Massachusetts, Illinois, New Jersey, Maryland, and Nevada. We also lend to domestic clients who are engaged in international trade. Loans outstanding in our branch in Hong Kong were $322.3 million as of December 31, 2025, compared to $343.3 million as of December 31, 2024.

Previous wording

The Bank primarily uses client deposits to fund its operations, and to a lesser extent advances from the Federal Home Loan Bank (“FHLB”), and other borrowings. The Bank’s deposits are generally obtained from the Bank’s geographic market area. The Bank utilizes traditional marketing methods to attract new clients and deposits, by offering a wide variety of products and services and utilizing various forms of advertising media. Although the vast majority of the Bank’s deposits are retail in nature, the Bank does engage in certain wholesale activities, primarily accepting deposits generated by brokers. The Bank considers wholesale deposits to be an alternative borrowing source rather than a client relationship and, as such, their levels are determined by management’s decisions as to the most economic funding sources. Brokered-deposits totaled $1.06 billion, or 5.4%, of total deposits, at December 31, 2024, compared to $1.52 billion, or 7.9%, at December 31, 2023.

Current wording

The Bank's primary funding sources are client deposits, supplemented by advances from the Federal Home Loan Bank (“FHLB”) and other borrowings. The Bank’s deposits are generally obtained from the Bank’s geographic market area. The Bank utilizes traditional marketing methods to attract new clients and deposits, by offering a wide variety of products and services and utilizing various forms of advertising media. Although the vast majority of the Bank’s deposits are retail in nature, the Bank does engage in certain wholesale activities, primarily accepting deposits generated by brokers. The Bank considers wholesale deposits to be an alternative borrowing source rather than a client relationship and, as such, their levels are determined by management’s decisions as to the most economic funding sources. Brokered-deposits totaled $1.59 billion, or 7.6%, of total deposits, at December 31, 2025, compared to $1.06 billion, or 5.4%, at December 31, 2024.

Previous wording

The Bank’s total deposits increased $360.8 million, or 1.9%, to $19.69 billion at December 31, 2024, from $19.33 billion at December 31, 2023, primarily due to a $323.0 million, or 10.6% increase in money market deposits, a $233.8 million, or 2.5%, increase in time deposits and a $213.6 million , or 20.6% increase in saving deposits offset, in part, by a $244.7 million, or 6.9%, decrease in non-interest-bearing demand deposits and a $165.0 million, or 7.0%, decrease in NOW deposits.

Current wording

The Bank’s total deposits increased $1.21 billion, or 6.1%, to $20.89 billion at December 31, 2025, from $19.69 billion at December 31, 2024, primarily due to an increase of $427.7 million, or 12.7% in money market deposits, $248.1 million, or 19.8% in saving deposits, $221.3 million, or 6.7% in non-interest bearing deposit, $164.4 million, or 7.5% in NOW deposits, and $146.6 million, or 1.5%, in time deposits.

Previous wording

Average total deposits increased $632.6 million, or 3.3%, to $19.81 billion in 2024, compared with average total deposits of $19.18 billion in 2023.

Current wording

Average total deposits increased $346.8 million, or 1.8%, to $20.16 billion in 2025, compared with average total deposits of $19.81 billion in 2024.

Previous wording

Management considers the Bank’s time deposits of $250 thousand or more, which totaled $5.70 billion at December 31, 2024, to be generally less volatile than other wholesale funding sources primarily because approximately 86.7% of the Bank’s CDs of $250 thousand or more have been on deposit with the Bank for two years or more. Management monitors the CDs of $250 thousand or more portfolio to help identify any changes in the deposit behavior in the market and of the Bank’s clients. As of December 31, 2024, and 2023, the Company had $9.43 billion and $8.71 billion, respectively, of uninsured deposits outstanding.

Current wording

Management considers the Bank’s time deposits of $250 thousand or more, which totaled $5.74 billion at December 31, 2025, to be generally less volatile than other wholesale funding sources primarily because approximately 90.3% of the Bank’s CDs of $250 thousand or more have been on deposit with the Bank for two years or more. Management monitors the CDs of $250 thousand or more portfolio to help identify any changes in the deposit behavior in the market and of the Bank’s clients. As of December 31, 2025, and 2024, the Company had $10.19 billion and $9.43 billion, respectively, of uninsured deposits outstanding.

Previous wording

Each institution should account for the special assessment in accordance with U.S. generally accepted accounting principles (GAAP). In accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 450, Contingencies (FASB ASC Topic 450), an estimated loss from a loss contingency shall be accrued by a charge to income if information indicates that it is probable that a liability has been incurred and the amount of loss is reasonably estimable. Therefore, an institution will recognize in the Call Report and other financial statements the accrual of a liability and estimated loss (i.e., expense) from a loss contingency for the special assessment when the institution determines that the conditions for accrual under GAAP have been met. Each institution should account for any shortfall special assessment in accordance with FASB ASC Topic 450 when the conditions for accrual under GAAP have been met. As a result, the Company recorded an $11.3 million special assessment fee in the fourth quarter of 2023 and an additional $1.8 million in 2024.

Current wording

Each institution should account for the special assessment in accordance with U.S. generally accepted accounting principles (GAAP). In accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 450, Contingencies (FASB ASC Topic 450), an estimated loss from a loss contingency shall be accrued by a charge to income if information indicates that it is probable that a liability has been incurred and the amount of loss is reasonably estimable. Therefore, an institution will recognize in the Call Report and other financial statements the accrual of a liability and estimated loss (i.e., expense) from a loss contingency for the special assessment when the institution determines that the conditions for accrual under GAAP have been met. Each institution should account for any shortfall special assessment in accordance with FASB ASC Topic 450 when the conditions for accrual under GAAP have been met. As a result, the Company has recognized $11.7 million cumulatively related to the special assessment as of December 31, 2025.

Previous wording

As of December 31, 2024, Junior Subordinated Notes totaled $119.1 million with a weighted average interest rate of 7.75%, compared to $119.1 million with a weighted average rate of 7.54% as of December 31, 2023. The Junior Subordinated Notes have a stated maturity term of 30 years and qualify as Total Capital for these periods.

Current wording

As of December 31, 2025, Junior Subordinated Notes totaled $119.1 million with a weighted average interest rate of 6.76%, compared to $119.1 million with a weighted average rate of 7.75% as of December 31, 2024. The Junior Subordinated Notes have a stated maturity term of 30 years and qualify as Total Capital for these periods.

Previous wording

Management seeks to retain our capital at a level sufficient to support future growth, protect depositors and stockholders, and comply with various regulatory requirements. The primary measure of capital adequacy is based on the ratio of risk-based capital to risk-weighted assets. At December 31, 2024, the Company’s Tier 1 risk-based capital ratio of 13.54%, total risk-based capital ratio of 15.08%, and Tier 1 leverage capital ratio of 10.96%, calculated under the Basel III Capital Rules, continue to place the Company in the “well capitalized” category for regulatory purposes, which is defined as institutions with a Tier 1 risk-based capital ratio equal to or greater than 8%, a total risk-based capital ratio equal to or greater than 10%, and a Tier 1 leverage capital ratio equal to or greater than 5%. At December 31, 2023, the Company’s Tier 1 risk-based capital ratio was 12.84%, total risk-based capital ratio was 14.31%, and Tier 1 leverage capital ratio was 10.55%.

Current wording

Management seeks to retain our capital at a level sufficient to support future growth, protect depositors and stockholders, and comply with various regulatory requirements. The primary measure of capital adequacy is based on the ratio of risk-based capital to risk-weighted assets. At December 31, 2025, the Company’s Tier 1 risk-based capital ratio of 13.27%, total risk-based capital ratio of 14.93%, and Tier 1 leverage capital ratio of 10.91%, calculated under the Basel III Capital Rules, continue to place the Company in the “well capitalized” category for regulatory purposes, which is defined as institutions with a Tier 1 risk-based capital ratio equal to or greater than 8%, a total risk-based capital ratio equal to or greater than 10%, and a Tier 1 leverage capital ratio equal to or greater than 5%. At December 31, 2024, the Company’s Tier 1 risk-based capital ratio was 13.54%, total risk-based capital ratio was 15.08%, and Tier 1 leverage capital ratio was 10.96%.

Previous wording

Holders of common stock are entitled to dividends as and when declared by our Board of Directors out of funds legally available for the payment of dividends. Although we have historically paid cash dividends on our common stock, we are not required to do so. We increased the common stock dividend from $0.24 per share in the fourth quarter of 2017, to $0.31 per share in the fourth quarter of 2018, to $0.34 per share in the fourth quarter of 2021. The amount of future dividends will depend on our earnings, financial condition, capital requirements and other factors, and will be determined by our Board of Directors. The terms of our Junior Subordinated Notes also limit our ability to pay dividends. If we are not current in our payment of dividends on our Junior Subordinated Notes, we may not pay dividends on our common stock.

Current wording

Holders of common stock are entitled to dividends as and when declared by our Board of Directors out of funds legally available for the payment of dividends. Although we have historically paid cash dividends on our common stock, we are not required to do so. We increased the common stock dividend from $0.24 per share in the fourth quarter of 2017, to $0.31 per share in the fourth quarter of 2018, to $0.34 per share in the fourth quarter of 2021. On February 13, 2026, the Company declared a cash dividend of $0.38 per share for the first quarter of 2026 to common shareholders of record on February26, 2026. The amount of future dividends will depend on our earnings, financial condition, capital requirements and other factors, and will be determined by our Board of Directors. The terms of our Junior Subordinated Notes also limit our ability to pay dividends. If we are not current in our payment of dividends on our Junior Subordinated Notes, we may not pay dividends on our common stock.

Previous wording

Substantially all of the revenues of the Company available for payment of dividends derive from amounts paid to it by the Bank. The Bank paid dividends to the Bancorp totaling $216.0 million during 2024, $134.0 million during 2023, and $232.8 million during 2022.

Current wording

Substantially all of the revenues of the Company available for payment of dividends derive from amounts paid to it by the Bank. The Bank paid dividends to the Bancorp totaling $250.0 million during 2025, $216.0 million during 2024, and $134.0 million during 2023.

Previous wording

Under California State banking law, the Bank may not without regulatory approval pay a cash dividend which exceeds the lesser of the Bank’s retained earnings or its net income for the last three 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, 2024, was restricted to approximately $433.6 million. For additional information on statutory and regulatory limitations on the ability of Bancorp to pay dividends to its shareholders and on the Bank to pay dividends to Bancorp, see “Item 1. Business-Regulation and Supervision — Dividends.”

Current wording

Under California State banking law, the Bank may not without regulatory approval pay a cash dividend which exceeds the lesser of the Bank’s retained earnings or its net income for the last three 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, 2025, was restricted to approximately $376.9 million. For additional information on statutory and regulatory limitations on the ability of Bancorp to pay dividends to its shareholders and on the Bank to pay dividends to Bancorp, see “Item 1. Business-Regulation and Supervision — Dividends.”

Previous wording

Total non-performing portfolio assets increased $103.0 million, or 110.4%, to $196.3 million at December 31, 2024, compared to $93.3 million at December 31, 2023, primarily due to an increase of $102.5 million in total non-accrual loans and $3.6 million in other real estate owned, offset by decrease of $3.1 million in loans 90 days or more past due.

Current wording

Total non-performing portfolio assets decreased $52.6 million, or 26.8%, to $143.7 million at December 31, 2025, compared to $196.3 million at December 31, 2024, primarily due to a decrease of $56.8 million in total non-accrual loans and $3.1 million in loans 90 days or more past due, offset by increase of $7.3 million in other real estate owned.

Previous wording

As a percentage of gross loans, excluding loans held for sale, plus OREO, our non-performing assets increased to 1.01% at December 31, 2024, from 0.48% at December 31, 2023. The non-performing portfolio loan, excluding loans held for sale, coverage ratio, defined as the allowance for credit losses to non-performing loans, excluding loans held for sale, decreased to 98.98% at December 31, 2024, from 221.58% at December 31, 2023. The following table presents the breakdown of total non-accrual, past due, and restructured loans for the past five years:

Current wording

As a percentage of gross loans, excluding loans held for sale, plus OREO, our non-performing assets decreased to 0.71% at December 31, 2025, from 1.01% at December 31, 2024. The non-performing portfolio loan, excluding loans held for sale, coverage ratio, defined as the allowance for credit losses to non-performing loans, excluding loans held for sale, increased to 183.79% at December 31, 2025, from 98.98% at December 31, 2024. The following table presents the breakdown of total non-accrual, past due, and restructured loans for the past five years:

Previous wording

Total non-accrual portfolio loans were $169.2 million at December 31, 2024, increased $102.5 million, or 153.7%, from $66.7 million at December 31, 2023. 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

Total non-accrual portfolio loans were $112.4 million at December 31, 2025, decreased $56.8 million, or 33.6%, from $169.2 million at December 31, 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

As of December 31, 2024, recorded investment in non-accrual loans was $169.2 million compared to $66.7 million as of December 31, 2023. For non-accrual loans, the amounts previously charged off represent 11.7% of the contractual balances for non-accrual loans as of December 31, 2024. As of December 31, 2024, $109.4 million, or 64.7%, of the $169.2 million of non-accrual loans were secured by real estate compared to $52.3 million, or 78.4% of the $66.7 million of non-accrual loans that were secured by real estate as of December 31, 2023. 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

As of December 31, 2025, recorded investment in non-accrual loans was $112.4 million compared to $169.2 million as of December 31, 2024. For non-accrual loans, the amounts previously charged off represent 14.4% of the contractual balances for non-accrual loans as of December 31, 2025. As of December 31, 2025, $90.9 million, or 80.8%, of the $112.4 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 93.39% at December 31, 2024, compared to 209.33% at December 31, 2023, primarily due to an increase in non-performing loans. Non-accrual loans also include those modifications to borrowers experiencing financial difficulties that do not qualify for accrual status.

Current wording

The allowance for loan losses to non-performing loans was 172.82% at December 31, 2025, compared to 93.39% at December 31, 2024, primarily due to a decrease in non-accrual loans. Non-accrual loans also include those modifications to borrowers experiencing financial difficulties that do not qualify for accrual status.

Previous wording

As of December 31, 2024, construction loans of $227.9 million were disbursed with pre-established interest reserves of $31.3 million compared to $220.6 million of such loans disbursed with pre-established interest reserves of $41.3 million at December 31, 2023. The balance for construction loans with interest reserves which have been extended was $4.2 million with pre-established interest reserves of $53 thousand at December 31, 2024, compared to $6.4 million with pre-established interest reserves of $0.5 million at December 31, 2023. There were no land loans disbursed with pre-established interest reserves at December 31, 2024, compared to $12.9 million of land loans disbursed with pre-established interest reserves of $0.4 million at December 31, 2023. There were no land loans with interest reserves which have been extended at December 31, 2024, and December 31, 2023.

Current wording

As of December 31, 2025, construction loans of $225.9 million were disbursed with pre-established interest reserves of $34.0 million compared to $227.9 million of such loans disbursed with pre-established interest reserves of $31.3 million at December 31, 2024. The balance for construction loans with interest reserves which have been extended was $3.3 million with pre-established interest reserves of $95 thousand at December 31, 2025, compared to $4.2 million with pre-established interest reserves of $53 thousand at December 31, 2024. Land loans of $15.3 million were disbursed with pre-established interest reserves of $1.3 million at December 31, 2025, compared to no land loans disbursed with pre-established interest reserves at December 31, 2024. There were no land loans with interest reserves which have been extended at December 31, 2025, and December 31, 2024.

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 15% of total risk-based capital as of December 31, 2024, and 19% as of December 31, 2023. Total CRE loans represented 289% of total risk-based capital as of December 31, 2024, and 292% as of December 31, 2023, which were within the Bank’s internal limit of 400% of total capital. See Part I — Item 1A — “Risk Factors” for a discussion of some of the factors that may affect us.

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 14% of total risk-based capital as of December 31, 2025, and 15% as of December 31, 2024. Total CRE loans represented 287% of total risk-based capital as of December 31, 2025, and 289% as of December 31, 2024, which were within both the Bank’s internal policy limit and supervisory criteria. See Part I — Item 1A — “Risk Factors” for a discussion of some of the factors that may affect us.

Previous wording

The Company’s total CREC loan portfolio is diversified by property type with an average CREC loan size of $1.9 million and $1.8 million as of December 31, 2024, and 2023, respectively. The following table summarizes the Company’s total CREC loans by property type as of December 31, 2024, and 2023:

Current wording

The Company’s total CREC loan portfolio is diversified by property type with an average CREC loan size of $2.0 million and $1.9 million as of December 31, 2025, and 2024, respectively. The following table summarizes the Company’s total CREC loans by property type as of December 31, 2025, and 2024:

Previous wording

The weighted-average loan-to-value (“LTV”) ratio of the total CREC loan portfolio was 49% and 50% as of December 31, 2024, and 2023, respectively. Most of our CREC loan property types had a low weighted-average LTV ratio. Approximately 85% and 83% of total CREC loans had an LTV ratio of 60% or lower as of December 31, 2024, and 2023, respectively.

Current wording

The weighted-average loan-to-value (“LTV”) ratio of the total CREC loan portfolio was 49% as of December 31, 2025, and 2024. Most of our CREC loan property types had a low weighted-average LTV ratio. Approximately 86% and 85% of total CREC loans had an LTV ratio of 60% or lower as of December 31, 2025, and 2024, respectively.