CATHAY GENERAL BANCORP 10-K

Item 9A. Controls and Procedures Disclosure Controls and Procedures The Company's principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) as of the end of the period covered by this Annual Report on Form 10-K. Based upon their evaluation, the principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. There have not been any changes in the Company’s disclosure controls and procedures that occurred during its fourth fiscal quarter of 2023 that have materially affected, or are reasonably likely to materially affect, these controls and procedures. 83 Table of Contents Management ’ s Report on Internal Control over Financial Reporting The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As of December 31, 2023, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, the Company assessed the effectiveness of its internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control — Integrated Framework (2013),” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management determined that the Company maintained effective internal control over financial reporting as of December 31, 2023. KPMG LLP, the independent registered public accounting firm that audited the Company’s Consolidated Financial Statements included in this Annual Report on Form 10-K, has also issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023. The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, is included in this Item under the heading “Report of Independent Registered Public Accounting Firm” below. Changes in Internal Control over Financial Reporting There have been no changes in the Company’s internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act, that occurred during the fourth fiscal quarter of 2023 that have materially affected, or are reasonably likely to materially effect, the Company’s internal control over financial reporting. 84 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Cathay General Bancorp: Opinion on Internal Control Over Financial Reporting We have audited Cathay General Bancorp and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated February 28, 2024 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Los Angeles, California February 28, 2024 85 Table of Contents Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections Not applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this item concerning our, directors, compliance with Section 16 of the Securities Exchange Act of 1934, the code of ethics that applies to our principal executive officer, principal financial officer and principal accounting officer, and matters relating to corporate governance is incorporated herein by reference from the information set forth under the captions “Proposal One—Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Board of Directors and Corporate Governance” and “Code of Ethics” in our Definitive Proxy Statement relating to our 2024 Annual Meeting of Stockholders (our “Proxy Statement”). The information required by this item concerning our executive officers is set forth in Part I – Item 1. Business – Executive Officers of the Registrant in this Annual Report on Form 10-K. Item 11. Executive Compensation The information required by this item is incorporated herein by reference from the information set forth under the captions “Board of Directors and Corporate Governance—Compensation of Directors,” “Executive Compensation,” and “Potential Payments Upon Termination or Change in Control” in our Proxy Statement. 86 Table of Contents Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Securities Authorized for Issuance under Equity Compensation Plans The following table sets forth certain information as of December 31, 2023, with respect to compensation plans under which equity securities of the Company were authorized for issuance. Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights Weighted-average Exercise Price of Outstanding Options, Warrants, and Rights Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans [Excluding Securities Reflected in Column (a)] (a) (b) (c) Equity Compensation Plans Approved by Security Holders — $ — 1,456,944 Equity Compensation Plans Not Approved by Security Holders — — — Total — $ — 1,456,944 Security Ownership of Certain Beneficial Owners and Management The information required by this item is incorporated herein by reference from the information set forth under the captions “Security Ownership of Certain Beneficial Owners” and “Proposal One—Election of Directors— Security Ownership of Nominees, Continuing Directors, and Named Executive Officers” in our Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item is incorporated herein by reference to the information set forth under the captions “Transactions with Related Persons, Promoters and Certain Control Persons” and “Board of Directors and Corporate Governance— Director Independence” in our Proxy Statement. Item 14. Principal Accounting Fees and Services The information required by this item is incorporated herein by reference from the information set forth under the caption “Principal Accounting Fees and Services” in our Proxy Statement. PART IV Item 15. Exhibits, Financial Statement Schedules Documents Filed as Part of this Report (a)(1) Financial Statements See “Index to Consolidated Financial Statements” on page F-1. (a)(2) Financial Statement Schedules Schedules have been omitted since they are not applicable, they are not required, or the information required to be set forth in the schedules is included in the Consolidated Financial Statements or Notes thereto. 87 Table of Contents (b) Exhibits The exhibits listed in the accompanying Index to Exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K. The following is a list of such Exhibits: INDEX OF EXHIBITS Exhibit No. Description of Exhibits 3.1 Restated Certificate of Incorporation. Previously filed with the Securities and Exchange Commission on February 29, 2016, as an exhibit to Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2015, and incorporated herein by reference. 3.1.1 Amendment to Restated Certificate of Incorporation. Previously filed with the Securities and Exchange Commission on February 29, 2016, as an exhibit to Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2015, and incorporated herein by reference. 3.2 Amended and Restated Bylaws, effective February 16, 2017. Previously filed with the Securities and Exchange Commission on February 17, 2017, as an exhibit to the Bancorp’s Current Report on Form 8-K and incorporated herein by reference. 3.3 Certificate of Designation of Series A Junior Participating Preferred Stock. Previously filed with the Securities and Exchange Commission on February 28, 2012, as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference. 3.4 Certificate of Designation of Fixed Rate Cumulative Perpetual Preferred Stock, Series B. Previously filed with the Securities and Exchange Commission on March 3, 2014, as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference. 4.1 Indenture, dated as of March 30, 2007, between Cathay General Bancorp and LaSalle Bank National Association (including form of debenture). Previously filed with the Securities and Exchange Commission on March 1, 2013, as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2012, and incorporated herein by reference. 4.1.1 Amended and Restated Declaration of Trust of Cathay Capital Trust III, dated as of March 30, 2007. Previously filed with the Securities and Exchange Commission on March 1, 2013, as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2012 and incorporated herein by reference. 4.1.2 Guarantee Agreement, dated as of March 30, 2007, between Cathay General Bancorp and LaSalle Bank National Association. Previously filed with the Securities and Exchange Commission on March 1, 2013, as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2012 and incorporated herein by reference. 4.1.3 Form of Capital Security Certificate of Cathay Capital Trust III (included within Exhibit 4.1.1). 88 Table of Contents 4.2+ Description of the Bancorp’s Common Stock. 10.1** Form of Indemnification Agreement between the Bancorp and its directors and certain officers. Previously filed with the Securities and Exchange Commission on March 1, 2022, as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021, and incorporated herein by reference. 10.2** Cathay Bank Employee Stock Ownership Plan, as amended and restated effective December 22, 2015. Previously filed with the Securities and Exchange Commission on March 1, 2018, as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2017, and incorporated herein by reference. 10.2.1** Amendment No. 1 to the Cathay Bank Employee Stock Ownership Plan, as amended and restated effective December 22, 2015. Previously filed with the Securities and Exchange Commission on March 1, 2018, as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2017, and incorporated herein by reference. 10.2.2** Amendment No. 2 to the Cathay Bank Employee Stock Ownership Plan, as amended and restated effective December 22, 2015. Previously filed with the Securities and Exchange Commission on March 1, 2018, as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2017, and incorporated herein by reference. 10.2.3** Amendment No. 3 to the Cathay Bank Employee Stock Ownership Plan, as amended and restated effective December 22, 2015. Previously filed with the Securities and Exchange Commission on August 9, 2018, as an exhibit to the Bancorp’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, and incorporated herein by reference. 10.3 Dividend Reinvestment Plan and Stock Purchase Plan (Amended and Restated) of the Bancorp. Previously filed with the Securities and Exchange Commission on July 27, 2015, as an exhibit to Registration Statement No. 333-205888, and incorporated herein by reference. 10.4** Cathay Bank Bonus Deferral Agreement (Amended and Restated). Previously filed with the Securities and Exchange Commission on March 1, 2013, as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2012 and incorporated herein by reference. 10.5.1** Cathay General Bancorp 2005 Incentive Plan (As Amended and Restated). Previously filed with the Securities and Exchange Commission on February 29, 2016 as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31,2015 and incorporated herein by reference. 10.5.2** Executive Officer Annual Cash Bonus Program under the Company’s 2005 Incentive Plan (As Amended and Restated). Previously filed with the Securities and Exchange Commission on March 2, 2020 as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2018, and incorporated herein by reference. 10.5.3** Form of Cathay General Bancorp 2005 Incentive Plan (As Amended and Restated) Restricted Stock Unit Agreement (Performance Shares – EPS), used to award performance-based restricted stock units. Previously filed with the Securities and Exchange Commission on December 21, 2016, as an exhibit to the Bancorp’s Current Report on Form 8-K and incorporated herein by reference. 89 Table of Contents 10.5.4** Form of Cathay General Bancorp 2005 Incentive Plan (As Amended and Restated) Restricted Stock Unit Agreement (Performance Shares – TSR), used to award performance-based restricted stock units. Previously filed with the Securities and Exchange Commission on December 21, 2016, as an exhibit to the Bancorp’s Current Report on Form 8-K and incorporated herein by reference. 10.5.5** Form of Cathay General Bancorp 2005 Incentive Plan (As Amended and Restated) Restricted Stock Unit Agreement (Performance Shares – ROA), used to award performance-based restricted stock units. Previously filed with the Securities and Exchange Commission on December 21, 2016, as an exhibit to the Bancorp’s Current Report on Form 8-K and incorporated herein by reference. 10.5.6** Form of Cathay General Bancorp 2005 Incentive Plan (As Amended and Restated) Restricted Stock Unit Agreement (Clawback Rider), used in connection with award of performance-based restricted stock units. Previously filed with the Securities and Exchange Commission on December 21, 2016, as an exhibit to the Bancorp’s Current Report on Form 8-K and incorporated herein by reference. 10.5.7** Form of Cathay General Bancorp 2005 Incentive Plan (As Amended and Restated) Restricted Stock Unit Agreement (Time-Based Shares). Previously filed with the Securities and Exchange Commission on March 30, 2017, as an exhibit to the Bancorp’s Current Report on Form 8-K, and incorporated herein by reference. 10.5.8** Form of Cathay General Bancorp 2005 Incentive Plan (As Amended and Restated) Restricted Stock Unit Agreement (Clawback Rider), used in connection with award of time-based restricted stock units. Previously filed with the Securities and Exchange Commission on March 30, 2017, as an exhibit to the Bancorp’s Current Report on Form 8-K and incorporated herein by reference. 10.5.9** Form of Cathay General Bancorp 2005 Incentive Plan (As Amended and Restated) Restricted Stock Unit Agreement (Immediate Vesting/Deferred Distribution). Previously filed with the Securities and Exchange Commission on May 10, 2018, as an exhibit to the Bancorp’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, and incorporated herein by reference. 10.6** Amended and Restated Change of Control Employment Agreement for Dunson K. Cheng dated as of December 18, 2008. Previously filed with the Securities and Exchange Commission on March 3, 2014 as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference. 10.6.1** Amended and Restated Change of Control Employment Agreement for Heng W. Chen dated as of December 18, 2008. Previously filed with the Securities and Exchange Commission on March 3, 2014 as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference. 90 Table of Contents 10.6.2** Amended and Restated Change of Control Employment Agreement for Kim R. Bingham dated as of December 18, 2008. Previously filed with the Securities and Exchange Commission on March 3, 2014, as an exhibit to the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference. 10.7** Form of Change of Control Employment Agreement to be entered into with Executive Officers on or after July 16, 2020. Previously filed with the Securities and Exchange Commission on August 7, 2020 as an exhibit to the Bancorp’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference. 10.8** Change of Control Employment Agreement for Chang M. Liu dated as of July 16, 2020. Previously filed with the Securities and Exchange Commission on November 9, 2020 as an exhibit to the Bancorp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference. 10.9** Employment Agreement for Chang M. Liu dated as of July 16, 2020. Previously filed with the Securities and Exchange Commission on November 9, 2020 as an exhibit to the Bancorp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference. 21.1+ Subsidiaries of the Bancorp. 23.1+ Consent of Independent Registered Public Accounting Firm. 31.1+ Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2+ Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1++ Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2++ Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97.1+ Incentive-Based Compensation Clawback Policy. 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101) ** Management contract or compensatory plan or arrangement. + Filed herewith. ++ Furnished herewith pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended. Item 16. Form 10-K Summary. None. 91 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Cathay General Bancorp By: /s/ Chang M. Liu Chang M. Liu President and Chief Executive Officer Date: February 28, 2024 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Chang M. Liu President and Chief Executive Officer, and Director February 28, 2024 Chang M. Liu (principal executive officer) /s/ Heng W. Chen Executive Vice President, February 28, 2024 Heng W. Chen Chief Financial Officer/Treasurer (principal financial officer) (principal accounting officer) /s/ Dunson K. Cheng Executive Chairman of February 28, 2024 Dunson K. Cheng the Board /s/ Peter Wu Vice Chairman of the Board February 28, 2024 Peter Wu /s/ Anthony M. Tang Vice Chairman of the Board February 28, 2024 Anthony M. Tang /s/ Kelly L. Chan Director February 28, 2024 Kelly L. Chan /s/ Nelson Chung Director February 28, 2024 Nelson Chung 92 Table of Contents /s/ Felix S. Fernandez Director February 28, 2024 Felix S. Fernandez /s/ Jane Jelenko Director February 28, 2024 Jane Jelenko /s/ Maan-Huei Hung Director February 28, 2024 Maan-Huei Hung /s/ Joseph C.H. Poon Director February 28, 2024 Joseph C.H. Poon /s/ Richard Sun Director February 28, 2024 Richard Sun /s/ Shally Wang Director February 28, 2024 Shally Wang 93 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets at December 31, 2023 and 2022 F-5 Consolidated Statements of Operations and Comprehensive Income for each of the years ended December 31, 2023, 2022, and 2021 F-6 Consolidated Statements of Changes in Stockholders' Equity for each of the years ended December 31, 2023, 2022, and 2021 F-7 Consolidated Statements of Cash Flows for each of the years ended December 31, 2023, 2022, and 2021 F-8 Notes to Consolidated Financial Statements F-9 Parent-only condensed financial information of Cathay General Bancorp is included in Note 21 to the Consolidated Financial Statements in this Annual Report on Form 10-K F-58 F-1 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Cathay General Bancorp: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Cathay General Bancorp and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F-2 Table of Contents Allowance for loan losses for loans evaluated on a collective basis modeled using an econometric methodology. As discussed in Note 5 to the consolidated financial statements, the Company’s total allowance for loan losses as of December 31, 2023 was $154.6 million, a substantial portion of which relates to the allowance for loan losses on loans evaluated on a collective basis over residential mortgages, commercial and industrial loans, construction loans, commercial real estate for multifamily loans, commercial real estate for owner-occupied loans, and other commercial real estate loans (hereafter “six portfolios”) using a methodology that includes econometric regression models, risk ratings, and certain qualitative loss factors (together the collective ALL). As discussed in Note 1, the collective ALL includes the measure of expected credit losses on a collective basis by pooling those loans that share similar risk characteristics into these six portfolios. The collective ALL methodology uses historical credit loss experience as a basis for estimation of expected credit losses at the collective pool basis over the contractual term of the loans, adjusted for expected prepayments when appropriate. The Company calculates the collective ALL by estimating the probability of default during the reasonable and supportable forecast period using separate econometric regression models developed to correlate macroeconomic variables to historical credit performance for each of the six portfolios. 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. 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 collective ALL incorporates reasonable and supportable forecasts of various macroeconomic variables over a two-year reasonable and supportable forecast period, reverting linearly to long-term loss rates over the one-year reversion period. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics as well as for changes in environmental conditions. The adjustments, or qualitative loss factors, consider idiosyncratic risk factors, conditions that may not be reflected in quantitatively derived results, or other relevant factors to seek to ensure the allowance for credit losses reflects the Company’s best estimate of current expected credit losses. We identified the assessment of the collective ALL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment due to significant measurement uncertainty. This included our assessment of the collective ALL methodology, including the econometric models used to estimate expected credit losses and their significant assumptions. Such significant assumptions included portfolio segmentation, the weighting of the economic forecast scenarios, the selection of macroeconomic variables, the length of the reasonable and supportable forecast period, and risk ratings. The assessment also included the evaluation of the qualitative loss factors. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ALL, including controls related to the: ● development of the collective ALL methodology ● continued use and appropriateness of changes in the econometric models ● identification and determination of the significant assumptions used in the econometric models ● continued use and appropriateness of changes in certain qualitative loss factors ● determination of risk ratings ● analysis of the collective ALL results, trends, and ratios. F-3 Table of Contents We evaluated the Company’s process to develop the collective ALL by testing certain sources of data, factors, and assumptions used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in: ● evaluating the collective ALL methodology for compliance with U.S. generally accepted accounting principles ● evaluating judgments made relative to the development and performance monitoring of the econometric models by comparing them to Company-specific metrics and trends and the applicable industry and regulatory practices ● assessing the conceptual soundness and performance testing of the econometric models by inspecting the model validation documentation to determine whether the models are suitable for their intended use ● evaluating the judgments made by the Company in selecting the macroeconomic variables, including the reasonable and supportable forecast period and economic scenario weightings used, by comparing them to the Company’s business environment and relevant industry practice ● determining whether the loan portfolio is segmented by similar risk characteristics by comparing to specific portfolio risk characteristics and trends ● testing individual risk ratings for a selection of loans by evaluating the financial performance of the borrower, sources of repayment, and any relevant guarantees or underlying collateral ● evaluating the methodology used to develop certain qualitative loss factors and the effect of those qualitative loss factors on the collective ALL compared with relevant credit risk factors and consistency with credit trends and identified limitations of the econometric models. We also assessed the sufficiency of audit evidence obtained related to the collective ALL by evaluating the: ● cumulative results of the audit procedures ● qualitative aspects of the Company’s accounting practices ● potential bias in the accounting estimates /s/ KPMG LLP We have served as the Company’s auditor since 1991. Los Angeles, California February 28, 2024 F-4 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 2023 2022 (In thousands, except share and per share data) Assets Cash and due from banks $ 173,988 $ 195,440 Short-term investments and interest-bearing deposits 654,813 966,962 Securities available-for-sale (amortized cost of $ 1,726,080 in 2023 and $ 1,622,173 in 2022) 1,604,570 1,473,348 Loans 19,548,140 18,254,024 Less: Allowance for loan losses ( 154,562 ) ( 146,485 ) Unamortized deferred loan fees, net ( 10,720 ) ( 6,641 ) Loans, net 19,382,858 18,100,898 Equity securities 40,406 22,158 Federal Home Loan Bank stock 17,746 17,250 Other real estate owned, net 19,441 4,067 Affordable housing investments and alternative energy partnerships, net 315,683 327,128 Premises and equipment, net 91,097 94,776 Customers’ liability on acceptances 3,264 2,372 Accrued interest receivable 97,673 82,428 Goodwill 375,696 375,696 Other intangible assets, net 4,461 5,757 Right-of-use assets- operating leases 32,076 29,627 Other assets 267,762 250,069 Total assets $ 23,081,534 $ 21,947,976 Liabilities and Stockholders’ Equity Deposits: Non-interest-bearing demand deposits $ 3,529,018 $ 4,168,989 Interest-bearing deposits: NOW deposits 2,370,685 2,509,736 Money market deposits 3,049,754 3,812,724 Savings deposits 1,039,203 1,000,460 Time deposits 9,336,787 7,013,370 Total deposits 19,325,447 18,505,279 Advances from the Federal Home Loan Bank 540,000 485,000 Other borrowings for affordable housing investments 15,787 22,600 Long-term debt 119,136 119,136 Acceptances outstanding 3,264 2,372 Lease liabilities - operating leases 34,797 32,518 Other liabilities 306,528 307,031 Total liabilities 20,344,959 19,473,936 Commitments and contingencies — — Stockholders’ Equity Common stock, $ 0.01 par value, 100,000,000 shares authorized, 91,392,480 issued and 72,668,927 outstanding at December 31, 2023, and 91,090,614 issued and 72,742,151 outstanding at December 31, 2022 914 911 Additional paid-in-capital 987,953 981,119 Accumulated other comprehensive income loss, net ( 85,416 ) ( 102,295 ) Retained earnings 2,500,341 2,244,855 Treasury stock, at cost ( 18,723,553 shares at December 31, 2023, and 18,348,463 shares at December 31, 2022) ( 667,217 ) ( 650,550 ) Total equity 2,736,575 2,474,040 Total liabilities and equity $ 23,081,534 $ 21,947,976 See accompanying notes to Consolidated Financial Statements. F-5 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Year Ended December 31, 2023 2022 2021 (In thousands, except share and per share data) Interest and Dividend Income Loan receivable $ 1,130,242 $ 801,981 $ 649,224 Investment securities 51,717 28,240 14,151 Federal Home Loan Bank stock 1,349 1,103 991 Deposits with banks 58,914 19,957 2,145 Total interest and dividend income 1,242,222 851,281 666,511 Interest Expense Time deposits 331,997 56,354 40,542 Other deposits 135,965 48,942 21,259 Advances from the Federal Home Loan Bank 22,164 5,880 1,182 Long-term debt 6,480 5,546 5,773 Short-term borrowings 3,870 862 — Total interest expense 500,476 117,584 68,756 Net interest income before provision for credit losses 741,746 733,697 597,755 Provision/(reversal) for credit losses 25,978 14,543 ( 16,008 ) Net interest income after provision for credit losses 715,768 719,154 613,763 Non-Interest Income Net gains/(losses) from equity securities 18,248 392 ( 1,426 ) Securities (losses)/gains, net ( 3,000 ) — 853 Letters of credit commissions 6,716 6,351 7,103 Depository service fees 6,432 6,523 5,584 Wealth management fees 17,506 16,436 15,056 Other operating income 22,390 27,112 27,433 Total non-interest income 68,292 56,814 54,603 Non-Interest Expense Salaries and employee benefits 154,149 142,546 132,795 Occupancy expense 22,270 22,808 20,318 Computer and equipment expense 17,478 13,603 13,549 Professional services expense 32,491 28,237 23,666 Data processing service expense 14,728 13,181 13,607 FDIC and State assessments 23,588 8,037 7,132 Marketing expense 5,887 6,863 6,913 Other real estate owned expense 761 127 343 Amortization of investments in low income housing and Alternative energy partnerships 86,616 42,065 45,447 Amortization of core deposit premium 1,310 1,892 687 Cost associated with debt redemption — — 732 Acquisition, integration and reorganization costs 671 4,127 1,425 Other operating expense 20,529 19,946 19,909 Total non-interest expense 380,478 303,432 286,523 Income before income tax expense 403,582 472,536 381,843 Income tax expense 49,458 111,894 83,539 Net income $ 354,124 $ 360,642 $ 298,304 Other Comprehensive Income/(Loss), Net of Tax: Net holding gains/(losses) on securities available-for-sale 18,642 ( 105,043 ) ( 11,989 ) Net holding (losses)/gains on cash flow hedge derivatives ( 1,763 ) 5,813 3,614 Total other comprehensive income/(loss), net of tax 16,879 ( 99,230 ) ( 8,375 ) Total comprehensive income $ 371,003 $ 261,412 $ 289,929 Net Income Per Common Share Basic $ 4.88 $ 4.85 $ 3.81 Diluted $ 4.86 $ 4.83 $ 3.80 Cash dividends paid per common share $ 1.36 $ 1.36 $ 1.27 Average Common Shares Outstanding: Basic 72,573,025 74,337,265 78,268,369 Diluted 72,862,628 74,664,735 78,570,638 See accompanying notes to Consolidated Financial Statements. F-6 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS ’ EQUITY Accumulated Common Stock Additional Other Total (In thousands, except number of shares) Number of Paid-in Comprehensive Retained Treasury Stockholders' Shares Amount Capital Income/(Loss) Earnings Stock Equity Balance at December 31, 2020 79,508,265 $ 906 $ 964,734 $ 5,310 $ 1,789,325 $ ( 342,131 ) $ 2,418,144 Cumulative effect of change in accounting principle related to ASC 326 (1) — — — — ( 3,139 ) — ( 3,139 ) Dividend Reinvestment Plan 84,011 1 3,562 — — — 3,563 Restricted stock units vested 123,893 2 — — — — 2 Shares withheld related to net share settlement of RSUs — — ( 2,632 ) — — — ( 2,632 ) Stock issued to directors 20,750 — 850 — — — 850 Purchases of treasury stock ( 3,986,057 ) — — — — ( 167,104 ) ( 167,104 ) Stock -based compensation — — 5,960 — — — 5,960 Cash dividends of $ 1.27 per share — — — — ( 99,322 ) — ( 99,322 ) Other comprehensive income/(loss) — — — ( 8,375 ) — — ( 8,375 ) Net income — — — — 298,304 — 298,304 Balance at December 31, 2021 75,750,862 $ 909 $ 972,474 $ ( 3,065 ) $ 1,985,168 $ ( 509,235 ) $ 2,446,251 Dividend Reinvestment Plan 86,501 1 3,718 — — — 3,719 Restricted stock units vested 112,473 1 — — — — 1 Shares withheld related to net share settlement of RSUs — — ( 2,905 ) — — — ( 2,905 ) Stock issued to directors 19,780 — 849 — — — 849 Purchases of treasury stock ( 3,227,465 ) — — — — ( 141,315 ) ( 141,315 ) Stock -based compensation — — 6,983 — — — 6,983 Cash dividends of $ 1.36 per share — — — — ( 100,955 ) — ( 100,955 ) Other comprehensive income/(loss) — — — ( 99,230 ) — — ( 99,230 ) Net income — — — — 360,642 — 360,642 Balance at December 31, 2022 72,742,151 $ 911 $ 981,119 $ ( 102,295 ) $ 2,244,855 $ ( 650,550 ) $ 2,474,040 Dividend Reinvestment Plan 93,182 1 3,490 — — — 3,491 Restricted stock units vested 183,324 2 — — — — 2 Shares withheld related to net share settlement of RSUs — — ( 4,490 ) — — — ( 4,490 ) Stock issued to directors 25,360 — 850 — — — 850 Purchases of treasury stock ( 375,090 ) — — — — ( 16,667 ) ( 16,667 ) Stock -based compensation — — 6,984 — — — 6,984 Cash dividends of $ 1.36 per share — — — — ( 98,638 ) — ( 98,638 ) Other comprehensive income/(loss) — — — 16,879 — — 16,879 Net income — — — — 354,124 — 354,124 Balance at December 31, 2023 72,668,927 $ 914 $ 987,953 $ ( 85,416 ) $ 2,500,341 $ ( 667,217 ) $ 2,736,575 (1) Represents the impact of the adoption of Accounting Standards Update ASU 2016-13, Financial Instruments — Credit Losses (Topic 326) on January 1, 2021. See accompanying notes to Consolidated Financial Statements. F-7 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2023 2022 2021 (In thousands) Cash Flows from Operating Activities Net income $ 354,124 $ 360,642 $ 298,304 Adjustments to reconcile net income to net cash provided by operating activities: Provision/(reversal) for credit losses 25,978 14,543 ( 16,008 ) Provision for losses on other real estate owned — — 17 Deferred tax (benefit)/ provision ( 4,782 ) ( 2,088 ) 9,168 Depreciation and amortization 8,371 9,958 7,956 Amortization of right-of-use asset 9,733 9,845 8,160 Change in operating lease liabilities 2,279 ( 4,629 ) ( 2,790 ) Net gains on sale and transfers of other real estate owned — ( 6 ) ( 57 ) Net gains on sale of loans — ( 1 ) ( 357 ) Proceeds from sales of loans — 33 5,351 Originations of loans held for sale — — ( 4,994 ) Loss on sales or disposal of fixed assets 6 67 55 Amortization of alternative energy partnerships, venture capital and other investments 86,616 42,065 45,447 Net gain on sales and calls of securities — ( 101 ) ( 853 ) Amortization/accretion of security premiums/discount, net ( 11,373 ) 2,465 7,865 Unrealized (gain)/loss on equity securities ( 18,248 ) ( 291 ) 2,036 Write-off of AFS debt securities 3,000 — — Stock-based compensation and stock issued to officers as compensation 7,836 7,832 6,810 Net change in accrued interest receivable and other assets ( 54,369 ) ( 80,411 ) ( 34,196 ) Net change in other liabilities ( 24,429 ) 107,467 2,403 Net cash provided by operating activities 384,742 467,390 334,317 Cash Flows from Investing Activities Purchase of investment securities available-for-sale ( 618,334 ) ( 711,707 ) ( 560,140 ) Proceeds from repayment, maturity, and call of investment securities available-for-sale 522,815 213,936 424,386 Proceeds from sale of investment securities available-for-sale — — 21,102 Proceeds from sale of equity securities — 553 — Benefits received from bank owned life insurance policies — 4,013 2,752 Purchase of Federal Home Loan Bank stock ( 29,381 ) ( 9,776 ) — Redemption of Federal Home Loan Bank stock 28,885 9,776 — Net increase in loans ( 1,327,048 ) ( 1,272,268 ) ( 715,862 ) Purchase of premises and equipment ( 3,401 ) ( 3,390 ) ( 3,728 ) Proceeds from sales of other real estate owned — 307 795 Net increase in investment in affordable housing and alternative energy partnerships ( 50,616 ) ( 6,995 ) ( 29,229 ) Acquisitions, net of cash acquired — ( 73,882 ) — Net cash used for investing activities ( 1,477,080 ) ( 1,849,433 ) ( 859,924 ) Cash Flows from Financing Activities Increase/(decrease) in deposits 820,041 ( 128,803 ) 1,949,728 Advances from Federal Home Loan Bank 14,035,000 5,480,000 50,000 Repayment of Federal Home Loan Bank borrowings ( 13,980,000 ) ( 5,015,000 ) ( 180,000 ) Cash dividends paid ( 98,638 ) ( 100,955 ) ( 99,322 ) Purchase of treasury stock ( 16,667 ) ( 141,316 ) ( 167,104 ) Proceeds from shares issued under Dividend Reinvestment Plan 3,491 3,720 3,563 Taxes paid related to net share settlement of RSUs ( 4,490 ) ( 2,905 ) ( 2,632 ) Net cash provided by financing activities 758,737 94,741 1,554,233 (Decrease)/increase in cash, cash equivalents, and restricted cash ( 333,601 ) ( 1,287,302 ) 1,028,626 Cash, cash equivalents, and restricted cash, beginning of the year 1,162,402 2,449,704 1,421,078 Cash, cash equivalents, and restricted cash, end of the period $ 828,801 $ 1,162,402 $ 2,449,704 Supplemental Cash Flow Information Cash paid during the year for: Interest $ 484,861 $ 105,521 $ 75,486 Income taxes $ 70,332 $ 96,881 $ 92,691 Non-cash investing and financing activities: Net change in unrealized holding gain/(loss) on securities available-for-sale, net of tax $ 18,642 $ ( 105,043 ) $ ( 11,989 ) Net change in unrealized holding (loss)/gain on cash flow hedge derivatives $ ( 1,763 ) $ 5,813 $ 3,614 Transfers to other real estate owned from loans held-for-investment $ 15,374 $ — $ 205 Loans transferred from held-for-investment to held-for-sale $ — $ 32 $ — See accompanying notes to Consolidated Financial Statements. F-8 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies The accompanying Consolidated Financial Statements include the accounts of Cathay General Bancorp (the “Bancorp”), a Delaware corporation, its wholly-owned subsidiaries, Cathay Bank (the “Bank”), a California state-chartered bank, and eleven limited partnerships investing in affordable housing projects (together, the “Company,” “we,” “us,” or “our”). All significant inter-company transactions and balances have been eliminated in consolidation. The Consolidated Financial Statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the banking industry. Organization and Background . The Bancorp’s primary business is to act as the holding company for the Bank. The Bank is a commercial bank, servicing primarily the individuals, professionals, and small to medium-sized businesses in the local markets in which its branches are located. Its operations include the acceptance of checking, savings, and time deposits, and the making of commercial, real estate, and consumer loans. The Bank also offers trade financing, letters of credit, wire transfer, foreign currency spot and forward contracts, Internet banking, investment services, and other customary banking services to its clients. The Bank owns 100 % of the common securities of Cathay Holdings LLC. Use of Estimates. The preparation of the Consolidated Financial Statements in accordance with GAAP requires management of the Company to make several estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The significant estimates subject to change relate to the allowance for credit losses. Concentrations. The Bank was incorporated in California and started its business from California. Therefore, loans originated, and deposits solicited were mainly from California. As of December 31, 2023, gross loans were primarily comprised of 49.8 % of commercial real estate loans, 29.9 % of residential mortgage loans, and 16.9 % of commercial loans. As of December 31, 2023, approximately 50.5 % of the Bank’s residential mortgages were for properties located in California. Securities Available for Sale. Effective January 1, 2021, upon the adoption of ASU 2016 - 13, debt securities Available For Sale (“AFS”) are measured at fair value and subject to impairment testing. When an AFS debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factors and then, ( 1 ) recognize an allowance for credit loss by a charge to earnings for the credit-related component (if any) of the decline in fair value, and ( 2 ) recognize in other comprehensive income (loss) any non-credit related components of the fair value change. If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation reserve would be reduced, but not more than the amount of the current existing reserve for that security. Interest income includes amortization of premiums and discounts as an adjustment of yield on a level-yield basis. Premiums on callable debt securities are amortized to their earliest call date. Gains and losses on sales are recorded on the trade date and determined using the specific identification method. F- 9 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) A debt security is placed on nonaccrual status at the time any principal or interest payments become delinquent by 90 days or greater. Interest accrued but not received for a security placed on non-accrual is reversed against interest income. No interest was reversed against interest income during the period. Allowance for Credit Losses on Available for Sale Securities. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If an entity intends to sell the debt security, or more likely than not will be required to sell the security before recovery of its amortized cost basis, any allowance for credit losses shall be written off and the amortized cost basis shall be written down to the debt security's fair value at the reporting date with any incremental impairment reported in earnings. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, the payment structure of the security, failure of the issuer of the security to make scheduled interest or principal payments, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. Any fair value changes that have not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for credit loss expense. Losses are charged against the allowance when management believes the uncollectability of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. The amortized cost of the Company’s AFS debt securities exclude accrued interest, which is included in “accrued interest receivable” on the Consolidated Balance Sheets. The Company has made an accounting policy election not to measure an allowance for credit losses for accrued interest receivables on AFS debt securities since the Company timely reverses any previously accrued interest when the debt security remains in default for an extended period. As each AFS debt security has a unique security structure, where the accrual status is clearly determined when certain criteria listed in the terms are met, the Company assesses the default status of each security as defined by the debt security’s specific security structure. Trading securities are reported at fair value, with unrealized gains or losses included in income. Investment in Federal Home Loan Bank ( “ FHLB ” ) Stock. As a member of the FHLB system the Bank is required to maintain an investment in the capital stock of the FHLB. The amount of investment is also affected by the outstanding advances under the line of credit the Bank maintains with the FHLB. FHLB stock is carried at cost and is pledged as collateral to the FHLB. FHLB stock is periodically evaluated for impairment based on ultimate recovery of par value. The carrying amount of the FHLB stock were $ 17.7 million and $ 17.3 million at December 31, 2023, and 2022, respectively. As of December 31, 2023, the Company owned 177,458 shares of FHLB stock, which exceeded the minimum stock requirement of 150,000 shares. F- 10 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) Loans Held for Investment. Loans receivable that the Company has the intent and ability to hold for the foreseeable future or until maturity are stated at their outstanding principal, reduced by an allowance for loan losses and net of deferred loan fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Nonrefundable fees and direct costs associated with the origination or purchase of loans are deferred and netted against outstanding loan balances. The deferred net loan fees and costs are recognized in interest income as an adjustment to yield over the loan term using the effective interest method or straight-line method. Discounts or premiums on purchased loans are accreted or amortized to interest income using the effective interest method or straight-line method over the remaining period to contractual maturity. Interest on loans is calculated using the simple-interest method on daily balances of the principal amounts outstanding based on an actual or 360 -day basis. Generally, loans are placed on nonaccrual status when they become 90 days past due. Loans are considered past due when contractually required principal or interest payments have not been made on the due dates. Loans are also placed on nonaccrual status when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that full collection of principal or interest becomes uncertain, regardless of the length of past due status. Once a loan is placed on nonaccrual status, interest accrual is discontinued, and all unpaid accrued interest is reversed against interest income. As a result, accrued interest receivable does not carry a credit loss reserve. Interest payments received on nonaccrual loans are reflected as a reduction of principal and not as interest income. A loan is returned to accrual status when the borrower has demonstrated a satisfactory payment trend subject to management’s assessment of the borrower’s ability to repay the loan. Loans held for sale . Loans held for sale are carried at the lower of aggregate cost or fair value. Gains and losses are recorded in non-interest income based on the difference between sales proceeds, net of sales commissions, and carrying value. When a determination is made at the time of commitment to originate or purchase loans as held-for-investment, it is the Company’s intent to hold these loans to maturity or for the “foreseeable future,” subject to periodic review under the Company’s management evaluation processes, including asset/liability management. When the Company subsequently changes its intent to hold certain loans, the loans are transferred from the loans held-for-investment portfolio at amortized cost to the loans held-for-sale portfolio at lower of aggregate cost or fair value and the existing ACL on the loans transferred is reversed. Allowance for Credit Losses ( “ ACL ” ) on Loans Held for Investment. The Company adopted ASU 2016 - 13, Financial Instruments – Credit Losses (Topic 326 ) on January 1, 2021 which introduced a new current expected credit loss (“CECL”) approach for financial instruments measured at amortized cost and other commitments to extend credit. CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset. The forward-looking concept of CECL requires loss estimates to consider historical experience, GDP, unemployment rates, CRE and home price indexes, and reasonable and supportable economic forecasts of future events and circumstances. The ACL is the combination of the allowance for loan losses and the reserve for unfunded loan commitments. The allowance for loan losses is reported as a reduction of the amortized cost basis of loans, while the reserve for unfunded loan commitments is included within "other liabilities" on the Consolidated Balance Sheets. The amortized cost basis of loans does not include accrued interest receivable, which is included in "accrued interest receivable" on the Consolidated Balance Sheets. The "Provision for credit losses" on the Consolidated Statements of Operations and Comprehensive Income is a combination of the provision for loan losses and the provision for unfunded loan commitments. F- 11 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) Under the Company’s CECL approach, management estimates the ACL using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable economic forecasts that vary by loan portfolio. We use economic forecasts from Moody’s Analytics in this process. The economic forecast is updated monthly; therefore, the one used for each quarter-end calculation is generally based on a one -month lag based on the timing of when the forecast is released. The Company does not consider a one -month lag to create a material difference but considers any subsequent material changes to our estimated loss forecasts as deemed appropriate. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in gross domestic product (or “GDP”), unemployment rates, property values, or other relevant factors. Under the CECL methodology, quantitative and qualitative loss factors are applied to our population of loans on a collective pool basis when similar risk characteristics exist. The Company evaluates loans for expected credit losses on an individual basis if, based on current information and events, the loan does not share similar credit risk characteristics with other loans. The Company may choose to measure expected credit losses on an individual loan basis by using one of the following methods: ( 1 ) the present value of the expected future cash flows of the loan discounted at the loan’s original effective interest rate, or ( 2 ) if the loan is collateral dependent, the fair value of the collateral less costs to sell. For loans that are not collateral-dependent, the Company uses the present value of future cash flows. Under the Company’s CECL methodology, nine portfolio segments with similar risk characteristics are evaluated for expected loss. Six portfolios are modeled using econometric models 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 to the fourth quarter of 2022. Loss given default rates are computed based on the net charge-offs recognized divided by the exposure at default of defaulted loans starting with the fourth quarter of 2007 through the fourth quarter of 2022. The probability of default and the loss given default rates are applied to the expected amount at default at the loan level based on contractual scheduled payments and estimated prepayments. The amounts so calculated comprise the quantitative portion of the allowance for credit losses. The Company’s CECL methodology utilizes an eight -quarter reasonable and supportable (“R&S”) forecast period, and a four -quarter reversion period. Management relies on multiple forecasts, blending them into a single loss estimate. Generally speaking, the blended scenario approach would include the Baseline, the Alternative Scenario 1 – Upside – 10th Percentile and the Alternative Scenario 3 – Downside – 90th Percentile forecasts. After the R&S period, the Company reverts linearly for the four -quarter reversion period to the long-term loss rates for each of the six portfolios of loans. The Company’s CECL methodology estimates expected credit losses over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company. F- 12 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The simplified approach portfolios include Small Business Administration (“SBA”) loans, Home Equity Lines of Credit (“HELOCs”) and cash-secured loans, which are not modelled econometrically due to the low loss history for these three pools of loans. The forecasted loss rate is based on the forecasted GDP and unemployment rates during the first eight quarters of the portfolio’s contractual life, reversion loss rates for the next four quarters of the portfolio’s contractual life on a linear declining rate, and the long-term loss rate projected over the remainder of the portfolio’s contractual life. Under the Company’s CECL methodology, the qualitative portion of the reserve on pooled loans represents management’s judgment of additional considerations to account for internal and external risk factors that are not adequately measured in the quantitative reserve. The qualitative loss factors consider idiosyncratic risk factors, conditions that may not be reflected in quantitatively derived results, or other relevant factors to seek to ensure the allowance for credit losses reflects our best estimate of current expected credit losses. The qualitative reserves include reserves for policy exceptions, experience of management and staff, level of competition in the lending environment, weak risk identification, lack of historical loss experience with residential mortgage loans made to non-U.S. residents, oil & gas, the higher risk characteristics of purchased syndicated loans, model uncertainty, and loans with potential risk of loss given the current environment, including CRE and Office loans, but have not degraded to the point of qualifying for a specific reserve. Current and forecasted economic trends and underlying market values for collateral dependent loans also are considered within the econometric models described above. The Company’s CECL methodology requires a significant amount of management judgment in determining the appropriate allowance for credit losses. Several of the steps in the methodology involve judgment and are subjective in nature including, among other things: segmenting the loan portfolio; determining the period over which loss history to consider; selecting predictive econometric regression models that use appropriate macroeconomic variables; determining the methodology to forecast prepayments; selecting the most appropriate economic forecast scenario; determining the length of the R&S forecast and reversion periods; estimating expected utilization rates on unfunded loan commitments; and assessing relevant and appropriate qualitative factors. In addition, the CECL methodology is dependent on economic forecasts that are inherently imprecise and will change from period to period. Although the allowance for credit losses is considered by management to be appropriate, there can be no assurance that it will be sufficient to absorb future losses. Management believes the allowance for credit losses is appropriate for the current expected credit losses in our loan portfolio and associated unfunded commitments, and the risk ratings and inherent loss rates currently assigned are reasonable and appropriate as of the reporting date. It is possible that others, given the same information, may at any point in time reach different conclusions that could result in a significant impact to the Company’s financial statements. Individually Evaluated Loans . Loans that do not share similar risk characteristics with other financial assets are individually evaluated for impairment and excluded from loan pools used within the collective evaluation of estimated credit losses. We defined the following criteria for what constitutes a “default”, which results in a loan no longer sharing similar risk characteristics with other loans, and therefore requires an individual evaluation for expected credit losses. The criteria for default may include any one of the following: on nonaccrual status, modifications to borrowers experiencing financial difficulty, or payment delinquency of 90 days or more. F- 13 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The Company has adopted ASU 2022 - 02, “Financial Instruments – Troubled Debt Restructurings and Vintage Disclosures” effective January 1, 2023. As part of the adoption, the Company has elected to apply the pending content prospectively and the practical expedient to exclude the accrued interest receivable balance from the disclosed amortized cost basis of loan modifications to debtors experiencing financial difficulty, consistent with our ACL approach discussed further below in this footnote. Under the new guidance on loan modifications made to borrowers experiencing financial difficulty, when a loan held for investment is modified and is considered to be a continuation of the original loan, the Company uses the post-modification contractual rate to derive the effective interest rate when using a discounted cash flow method to determine the allowance for credit loss. The amendments in this new guidance eliminate the previous TDR recognition and measurement guidance and, instead, require that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. Under the prior TDR guidance, a TDR is a formal modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms, including a change in the stated interest rate, a reduction in the loan balance or accrued interest, or an extension of the maturity date. Although these loan modifications were considered TDRs, TDR loans that had, pursuant to the Bank’s policy, performed under the restructured terms and had demonstrated sustained performance under the modified terms for six months were returned to accrual status. The sustained performance considered by management pursuant to its policy included the periods prior to the modification if the prior performance met or exceeded the modified terms. This would include cash paid by the borrower prior to the restructuring to set up interest reserves. Loans classified as TDRs were reported as individually evaluated loans. The allowance for credit loss on a TDR was measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. Under the prior guidance when the value of a concession was measured using the discounted cash flow method, the allowance for credit loss was determined by discounting the expected future cash flows at the original interest rate of the loan. F- 14 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) Unfunded Loan Commitments. Unfunded loan commitments are generally related to providing credit facilities to clients of the Bank and are not actively traded financial instruments. These unfunded commitments are disclosed as off-balance sheet financial instruments in Note 14 in the Notes to Consolidated Financial Statements. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company, using the same loss factors as used for the allowance for loan losses. The reserve for unfunded loan commitments uses the expected historical usage rate of the unfunded commitments during the contractual life of the commitments. The allowance for unfunded commitments is included in “other liabilities” on the Consolidated Balance Sheets. Changes in the allowance for unfunded commitments are included in the provision for loan losses. Letter of Credit Fees . Issuance and commitment fees received for the issuance of commercial or standby letters of credit are recognized over the term of the instruments. Other Real Estate Owned ( “ OREO ” ). Real estate acquired in the settlement of loans is initially recorded at fair value, less estimated costs to sell. Specific valuation allowances on other real estate owned are recorded through charges to operations to recognize declines in fair value subsequent to foreclosure. Gain or loss on sale is recognized when certain criteria relating to the buyer’s initial and continuing investment in the property are met. Investments in Affordable Housing Partnerships and Other Tax Credit Investments. The Company is a limited partner in limited partnerships that invest in low-income housing projects that are intended to qualify for Federal and/or State income tax credits and limited partnerships that invests in alternative energy systems that are intended to qualify for alternative energy tax credits. As further discussed in Note 6 to the Consolidated Financial Statements, the partnership interests are accounted for utilizing the equity method of accounting. As of December 31, 2023, eleven of the limited partnerships in which the Company has an equity interest were determined to be variable interest entities for which the Company is the primary beneficiary. The Company therefore consolidated the financial statements of these ten limited partnerships into the Consolidated Financial Statements. The tax credits from these partnerships are recognized in the consolidated financial statements to the extent they are utilized on the Company’s income tax returns. The investments are reviewed for impairment on an annual basis or on an interim basis if an event occurred that would trigger potential impairment. Investments in Venture Capital. The Company invests in limited partnerships that invest in nonpublic companies. These are commonly referred to as venture capital investments. These limited partnership interests are carried under the cost method with impairment charged against net income. Premises and Equipment. Premises and equipment are carried at cost, less accumulated depreciation. Depreciation is computed on the straight-line method based on the following estimated useful lives of the assets: Type Estimated Useful Life (years) Buildings 15 to 45 Building improvements 5 to 20 Furniture, fixtures, and equipment 3 to 25 Leasehold improvements Shorter of useful lives or the terms of the leases Improvements are capitalized and amortized to occupancy expense based on the above table. Construction in process is carried at cost and includes land acquisition cost, architectural fees, general contractor fees, capitalized interest and other costs related directly to the construction of a property. F- 15 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) Goodwill and Other Intangible Assets. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in an acquisition. Goodwill and other intangible assets are assessed for impairment annually as of December 31 or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. The Company performed its annual impairment test and determined no impairment existed as of December 31, 2023 and 2022. Other intangible assets. Other intangible assets are mainly comprised of core deposit intangible, which represents the purchase price over the fair value of the deposits acquired from other financial institutions, is amortized over its estimated useful life to its residual value in proportion to the economic benefits consumed. If a pattern of consumption cannot be reliably determined, straight-line amortization is used. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the premium balance over its remaining life can be recovered through the remaining deposit portfolio and amortizes core deposit premium over its estimated useful life. Bank-Owned Life Insurance. We have purchased single premium life insurance policies (“bank-owned life insurance”) on certain officers. The Bank is the beneficiary under each policy. In the event of the death of a covered officer, we will receive the specified insurance benefit from the insurance carrier and pay a fixed dollar amount to the beneficiary designated by the officer. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due, if any, that are probable at settlement. Stock-Based Compensation. Stock option compensation expense is calculated based on the fair value of the award at the grant date for those options expected to vest and is recognized as an expense over the vesting period of the grant using the straight-line method. The Company uses the Black-Scholes option pricing model to estimate the value of granted options. This model takes into account the option exercise price, the expected life, the current price of the underlying stock, the expected volatility of the Company’s stock, expected dividends on the stock and a risk-free interest rate. The Company estimates the expected volatility based on the Company’s historical stock prices for the period corresponding to the expected life of the stock options. Restricted stock units are valued at the closing price of the Company’s stock on the date of the grant. Derivatives . The Company follows ASC Topic 815 that establishes accounting and reporting standards for financial derivatives, including certain financial derivatives embedded in other contracts, and hedging activities. It requires the recognition of all financial derivatives as assets or liabilities in the Company’s Consolidated Balance Sheets at fair value. The accounting treatment of changes in fair value is dependent upon whether or not a financial derivative is designated as a hedge and, if so, the type of hedge. Fair value is determined using third -party models with observable market data. For derivatives designated as cash flow hedges, changes in fair value are recognized in other comprehensive income/(loss) and are reclassified to earnings when the hedged transaction is reflected in earnings. For derivatives designated as fair value hedges, changes in the fair value of the derivatives are reflected in current earnings, together with changes in the fair value of the related hedged item if there is a highly effective correlation between changes in the fair value of the interest rate swaps and changes in the fair value of the underlying asset or liability that is intended to be hedged. If there is not a highly effective correlation between changes in the fair value of the interest rate swap and changes in the fair value of the underlying asset or liability that is intended to be hedged, then only the changes in the fair value of the interest rate swaps are reflected in the Company’s consolidated financial statements. Foreign Exchange Forwards and Foreign Currency Option Contracts. We enter into foreign exchange forward contracts and foreign currency option contracts with correspondent banks to mitigate the risk of fluctuations in foreign currency exchange rates for foreign currency certificates of deposit, foreign exchange contracts or foreign currency option contracts entered into with our clients. These contracts are not designated as hedging instruments and are recorded at fair value in our Consolidated Balance Sheets. Changes in the fair value of these contracts as well as the related foreign currency certificates of deposit, foreign exchange contracts or foreign currency option contracts, are recognized immediately in net income as a component of non-interest income. Period end gross positive fair values are recorded in other assets and gross negative fair values are recorded in other liabilities. F- 16 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) Income Taxes. The provision for income taxes is based on income reported for financial statement purposes, and differs from the amount of taxes currently payable, since certain income and expense items are reported for financial statement purposes in different periods than those for tax reporting purposes. The Company accounts for income taxes using the asset and liability approach, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance is established for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Comprehensive Income/(loss). Comprehensive income/(loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income/(loss) generally includes net income/(loss), unrealized gains and losses on investments in securities available-for-sale, and cash flow hedges. Comprehensive income/(loss) and its components are reported and displayed in the Company’s Consolidated Statements of Operations and Comprehensive Income. Net Income per Common Share . Earnings per share (“EPS”) is computed on a basic and diluted basis. Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shares in the earnings of the Company. Potential dilution is excluded from computation of diluted per-share amounts when a net loss from operations exists. Foreign Currency Translation. The Company considers the functional currency of its foreign operations to be the United States dollar. Accordingly, the Company remeasures monetary assets and liabilities at year-end exchange rates, while nonmonetary items are remeasured at historical rates. Income and expense accounts are remeasured at the average rates in effect during the year, except for depreciation, which is remeasured at historical rates. Foreign currency transaction gains and losses are recognized in income in the period of occurrence. Statement of Cash Flows . Cash and cash equivalents include short-term highly liquid investments that generally have an original maturity of three months or less. Segment Reporting. Through our branch network and lending units, we provide a broad range of financial services to individuals and companies. These services include demand, time and savings deposits; and commercial and industrial, real estate and consumer lending. While our chief decision makers monitor the revenue streams of our various products and services, operations are managed, and financial performance is evaluated on a company-wide basis. Accordingly, we consider all of our operations to be aggregated in one reportable operating segment. Accounting Pronouncements Adopted in 2023 In March 2022, the FASB issued ASU 2022 - 01, “Derivatives and Hedging (Topic 815 ): Fair Value Hedging - Portfolio Layer Method.” Under prior guidance, entities can apply the last-of-layer hedging method to hedge the exposure of a closed portfolio of prepayable financial assets to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022 - 01 expands the last-of-layer method, which permits only one hedge layer, to allow multiple hedged layers of a single closed portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. ASU 2022 - 01 also (i) expands the scope of the portfolio layer method to include non-prepayable financial assets, (ii) specifies eligible hedging instruments in a single-layer hedge, (iii) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method and (iv) specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. The adoption of ASU 2022 - 01 did not have a significant impact on our financial statements. F- 17 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) In March 2022, ASU 2022 - 02, “Financial Instruments - Credit Losses (Topic 326 ): Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022 - 02 eliminates the accounting guidance for troubled debt restructurings in Accounting Standards Codification (“ASC”) Subtopic 310 - 40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU 2022 - 02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326 - 20, Financial Instruments - Credit Losses - Measured at Amortized Cost. As part of the adoption, the Company has elected to apply the pending content prospectively and the practical expedient to exclude the accrued interest receivable balance from the disclosed amortized cost basis of loan modifications to debtors experiencing financial difficulty, consistent with our ACL approach discussed further below in Note 5. Other Accounting Standards Pending Adoption In March 2023, ASU 2023 - 02, “Investments-Equity Method and Joint Ventures (Topic 323 ): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method". ASU 2023 - 02 permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. ASU 2023 - 02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The Company is still evaluating the impact on it’s consolidated financial statements. In June 2022, ASU 2022 - 03, “Fair Value Measurement (Topic 820 ): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022 - 03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. ASU 2022 - 03 also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires certain new disclosures for equity securities subject to contractual sale restrictions. ASU 2022 - 03 will be effective for us on January 1, 2024. The adoption of ASU 2022 - 03 is not expected to have a significant impact on our financial statements. 2. Business Combinations The Company’s subsidiary bank, Cathay Bank completed the purchase of HSBC Bank USA, National Association’s West Coast mass retail market consumer banking business and retail business banking business on February 7, 2022. As a result of the acquisition, Cathay Bank added 10 retail branches in California and additional loans with principal balance of $ 646.1 million and deposits with a balance of $ 575.2 million. F- 18 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the February 7, 2022 acquisition date. The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. We have included the financial results of the business combinations in the Consolidated Statements of Operations and Comprehensive Income beginning on the acquisition date. The fair value of the assets and the liabilities acquired as of February 7, 2022 are shown below: Balance Sheet (In thousands) Assets: Cash and cash equivalents $ 473 Loans 641,839 Right-of-use assets - operating leases 6,453 Core deposit intangible 3,138 Other 561 Total assets $ 652,464 Liabilities assumed: Deposits $ 575,163 Lease liabilities 6,453 Total liabilities assumed $ 581,616 Net assets acquired $ 70,848 Total cash paid at closing $ 74,355 Goodwill $ 3,507 3. Cash, Cash Equivalents and Restricted Cash The Company manages its cash and cash equivalents based upon the Company’s operating, investment, and financing activities. Cash and cash equivalents, for the purpose of reporting cash flows, consist of cash and due from banks and short-term investments and interest-bearing deposits. Cash and due from banks include cash on hand, cash items in transit, cash due from the Federal Reserve Bank of San Francisco (“FRBSF”) and other financial institutions. Short-term investments and interest-bearing deposits include cash placed with other banks with original maturity of three months or less. The Company had average excess balance with FRBSF of $ 1.09 billion and $ 1.24 billion as of December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the Company had $ 53.8 million and $ 88.9 million, respectively, as cash margin that serves as collateral on deposit in a cash margin account for interest rate swaps of which $ 8.6 million and $ 8.2 million is restricted. As of December 31, 2023 and December 31, 2022, the Company held $ 6.4 million and $ 25.4 million, respectively, in a restricted escrow account with a major bank for its alternative energy investments. F- 19 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) 4. Investment Securities Investment Securities. The following tables reflect the amortized cost, gross unrealized gains, gross unrealized losses, and fair values of debt securities available-for-sale as of December 31, 2023 and December 31, 2022: As of December 31, 2023 Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value (In thousands) Securities Available-for-Sale U.S. treasury securities $ 495,167 $ 153 $ 20 $ 495,300 U.S. government agency entities 48,282 117 230 48,169 Mortgage-backed securities 892,942 223 106,442 786,723 Collateralized mortgage obligations 31,238 — 3,194 28,044 Corporate debt securities 258,451 22 12,139 246,334 Total $ 1,726,080 $ 515 $ 122,025 $ 1,604,570 As of December 31, 2022 Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value (In thousands) Securities Available-for-Sale U.S. treasury securities $ 241,611 $ — $ 1,111 $ 240,500 U.S. government agency entities 63,347 384 121 63,610 U.S. government sponsored entities 30,000 — — 30,000 Mortgage-backed securities 993,883 194 126,983 867,094 Collateralized mortgage obligations 34,552 — 3,491 31,061 Corporate debt securities 258,780 112 17,809 241,083 Total $ 1,622,173 $ 690 $ 149,515 $ 1,473,348 The amortized cost and fair value of securities available-for-sale as of December 31, 2023, by contractual maturities, are set forth in the table below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or repayment penalties. Securities Available-for-Sale As of December 31, 2023 Amortized Cost Fair Value (In thousands) Due in one year or less $ 525,406 $ 524,948 Due after one year through five years 227,132 215,834 Due after five years through ten years 149,042 141,044 Due after ten years 824,500 722,744 Total $ 1,726,080 $ 1,604,570 There were no sales of investment securities during the years ended December 31, 2023 and 2022. We received proceeds of $ 21.1 million from sales of investment securities for the year ended December 31, 2021. Gross realized gain on sale of investment securities was $ 853 thousand for the year ended December 31, 2021. F- 20 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) Allowance for Credit Losses The securities that were in an unrealized loss position as of December 31, 2023, were evaluated to determine whether the decline in fair value below the amortized cost basis resulted from a credit loss or other factors. For a discussion of the factors and criteria the Company uses in analyzing securities for impairment related to credit losses, see Note 1 Summary of Significant Accounting Policies - Allowance for Credit Losses on Available for Sale Securities to the Consolidated Financial Statements. The Company concluded the unrealized losses were primarily attributed to yield curve movement, together with widened liquidity spreads and credit spreads. The issuers have not, to the Company’s knowledge, established any cause for default on these securities. The Company expects to recover the amortized cost basis of its securities and has no present intent to sell and will not be required to sell available-for-sale securities that have declined below their cost before their anticipated recovery. Accordingly, no allowance for credit losses was recorded as of December 31, 2023 and 2022, against these securities, and there was no provision for credit losses recognized for the years ended December 31, 2023, 2022 and 2021. The tables below show the related fair value and the gross unrealized losses of the Company’s investment portfolio, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2023, and December 31, 2022: As of December 31, 2023 Less than 12 months 12 months or longer Total Fair Gross Unrealized Fair Gross Unrealized Fair Gross Unrealized Value Losses Value Losses Value Losses (In thousands) Securities Available-for-Sale U.S. treasury securities $ 49,831 $ 20 $ — $ — $ 49,831 $ 20 U.S. government agency entities 18,301 108 1,313 122 19,614 230 Mortgage-backed securities — — 768,274 106,442 768,274 106,442 Collateralized mortgage obligations — — 28,044 3,194 28,044 3,194 Corporate debt securities 64,448 552 166,864 11,587 231,312 12,139 Total $ 132,580 $ 680 $ 964,495 $ 121,345 $ 1,097,075 $ 122,025 As of December 31, 2022 Less than 12 months 12 months or longer Total Fair Gross Unrealized Fair Gross Unrealized Fair Gross Unrealized Value Losses Value Losses Value Losses (In thousands) Securities Available-for-Sale U.S. treasury securities $ 240,500 $ 1,111 $ — $ — $ 240,500 $ 1,111 U.S. government agency entities — — 1,806 121 1,806 121 Mortgage-backed securities 394,123 33,042 452,739 93,941 846,862 126,983 Collateralized mortgage obligations 24,427 1,614 6,634 1,877 31,061 3,491 Corporate debt securities 109,995 3,256 100,977 14,553 210,972 17,809 Total $ 769,045 $ 39,023 $ 562,156 $ 110,492 $ 1,331,201 $ 149,515 As of December 31, 2023 the Company had 192 AFS debt securities in a gross unrealized loss position with no credit impairment, consisting of 154 mortgage-backed securities, 24 corporate debt securities, one U.S. treasury securities, five collateralized mortgage obligations and eight U.S. government agencies. In comparison, as of December 31, 2022, the Company had 159 mortgage-backed securities, 22 corporate debt securities, six U.S. treasury securities, five collateralized mortgage obligations and three U.S. government agencies. Securities available-for-sale having a carrying value of $ 134.2 million and $ 145.7 million as of December 31, 2023, and December 31, 2022, respectively, were pledged to secure public deposits, and other borrowings. Equity securities were $ 40.4 million and $ 22.2 million as of December 31, 2023 and 2022, respectively. The Company recognized a net unrealized gain of $ 18.2 million, $ 291 thousand and $ 1.4 million for the years ended December 31, 2023, 2022 and 2021, respectively. The Company received proceeds of $ 553 thousand and realized a loss of $ 101 thousand on the sale of equity securities for the year ended December 31, 2022. F- 21 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) 5. Loans Most of the Company’s business activities are with clients located in the high-density Asian-populated areas of Southern and Northern California; New York City, New York; Houston and Dallas, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Rockville, Maryland; and Las Vegas, Nevada. The Company also has loan clients in Hong Kong. The Company has no specific industry concentration, and generally its loans, when secured, are secured by real property or other collateral of the borrowers. The Company generally expects loans to be paid off from the operating profits of the borrowers, from refinancing by another lender, or through sale by the borrowers of the secured collateral. The following table presents the composition of the Company’s loans as of December 31, 2023, and 2022, were as follows: As of December 31, 2023 2022 (In thousands) Loans: Commercial loans $ 3,305,048 $ 3,318,778 Construction loans 422,647 559,372 Commercial real estate loans 9,729,581 8,793,685 Residential mortgage loans 5,838,747 5,252,952 Equity lines 245,919 324,548 Installment and other loans 6,198 4,689 Gross loans 19,548,140 18,254,024 Less: Allowance for loan losses ( 154,562 ) ( 146,485 ) Unamortized deferred loan fees ( 10,720 ) ( 6,641 ) Total loans, net $ 19,382,858 $ 18,100,898 The Company pledged real estate loans of $ 14.15 billion as of December 31, 2023, and $ 13.07 billion as of December 31, 2022, to the Federal Home Loan Bank of San Francisco under its blanket lien pledging program. The Company pledged commercial loans of $ 388 thousand as of December 31, 2023, and $ 583 thousand as of December 31, 2022, to the Federal Reserve Bank’s Discount Window under the Borrower-in-Custody program. Loans serviced for others as of December 31, 2023, totaled $ 203.0 million and were comprised of $ 70.7 million of residential mortgages, $ 76.1 million of commercial real estate loans, $ 11.8 million of construction loans, and $ 44.4 million of commercial loans. As of December 31, 2022, loans serviced for others, totaled $ 181.4 million and were comprised of $ 80.2 million of residential mortgages, $ 51.6 million of commercial real estate loans, $ 2.5 million of construction loans and $ 47.1 million of commercial loans. F- 22 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The Company has entered into transactions with its directors, executive officers, or principal holders of its equity securities, or the associates of such persons (“Related Parties”). All loans to Related Parties were current as of December 31, 2023 and 2022. An analysis of the activity with respect to loans to Related Parties for the years indicated is as follows: December 31, 2023 2022 (In thousands) Balance at beginning of year $ 33,217 $ 38,532 Additional loans made 20,160 25,050 Payment received ( 7,670 ) ( 30,365 ) Balance at end of year $ 45,707 $ 33,217 As of December 31, 2023, recorded investment in non-accrual loans totaled $ 66.7 million compared to $ 68.9 million as of December 31, 2022. The average balance of non-accrual loans was $ 71.8 million and $ 71.4 million as of December 31, 2023 and 2022, respectively. Interest recognized on non-accrual loans totaled $ 321 thousand, $ 435 thousand and $ 1.1 million for the years ended December 31, 2023, 2022 and 2021. For non-accrual loans, the amounts previously charged-off represent 15.8 % of the contractual balances for non-accrual loans as of December 31, 2023 and 14.1 % as of December 31, 2022. The following tables present the average balance and interest income recognized on non-accrual loans for the periods indicated: For the year ended December 31, 2023 Average Recorded Investment Interest Income Recognized (In thousands) Commercial loans $ 18,008 $ 3 Construction loans 6,336 — Commercial real estate loans 35,742 318 Residential mortgage and equity lines 11,743 — Installment and other loans 1 — Total $ 71,830 $ 321 Average Recorded Investment Interest Income Recognized Commercial loans $ 28,109 $ 4 Construction loans 28,983 — Commercial real estate loans 14,251 405 Residential mortgage and equity lines 28 26 Total $ 71,371 $ 435 F- 23 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The following table presents non-accrual loans and the related allowance as of December 31, 2023 and 2022: As of December 31, 2023 Unpaid Principal Balance Recorded Investment Allowance (In thousands) With no allocated allowance: Commercial loans $ 26,310 $ 14,404 $ — Construction loans 7,736 7,736 — Commercial real estate loans 41,725 32,030 — Residential mortgage and equity lines 12,957 12,511 — Installment and other loans — — — Subtotal $ 88,728 $ 66,681 $ — With allocated allowance: Commercial loans $ — $ — $ — Commercial real estate loans — — — Residential mortgage and equity lines — — — Subtotal $ — $ — $ — Total non-accrual loans $ 88,728 $ 66,681 $ — As of December 31, 2022 Unpaid Principal Balance Recorded Investment Allowance (In thousands) With no allocated allowance: Commercial loans $ 27,341 $ 12,949 $ — Commercial real estate loans 37,697 32,205 — Residential mortgage and equity lines 9,626 8,978 Installment and other loans 9 8 — Subtotal $ 74,673 $ 54,140 $ — With allocated allowance: Commercial loans $ 14,643 $ 12,823 $ 3,734 Commercial real estate loans 1,896 1,891 207 Subtotal $ 16,539 $ 14,714 $ 3,941 Total non-accrual loans $ 91,212 $ 68,854 $ 3,941 The following table is a summary of non-accrual loans as of December 31, 2023, 2022, and 2021 and the related net interest foregone for the years then ended: As of December 31, 2023 2022 2021 (In thousands) Non-accrual portfolio loans $ 66,681 $ 68,854 $ 65,846 Contractual interest due 6,270 4,620 4,032 Interest recognized 321 435 1,074 Net interest foregone $ 5,949 $ 4,185 $ 2,958 F- 24 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The following tables present the aging of the loan portfolio by type as of December 31, 2023, and December 31, 2022: As of December 31, 2023 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Non-accrual Loans Total Past Due Loans Not Past Due Total Type of Loans: (In thousands) Commercial loans $ 11,771 $ 7,770 $ 508 $ 14,404 $ 34,453 $ 3,270,595 $ 3,305,048 Construction loans 25,389 22,998 — 7,736 56,123 366,524 422,647 Commercial real estate loans 27,900 1,503 6,649 32,030 68,082 9,661,499 9,729,581 Residential mortgage loans and equity lines 59,606 6,670 — 12,511 78,787 6,005,879 6,084,666 Installment and other loans 32 — — — 32 6,166 6,198 Total loans $ 124,698 $ 38,941 $ 7,157 $ 66,681 $ 237,477 $ 19,310,663 $ 19,548,140 As of December 31, 2022 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Non-accrual Loans Total Past Due Loans Not Past Due Total Type of Loans: (In thousands) Commercial loans $ 8,192 $ 3,235 $ 10,208 $ 25,772 $ 47,407 $ 3,271,371 $ 3,318,778 Construction loans — — — — — 559,372 559,372 Commercial real estate loans 25,772 — 1,372 34,096 61,240 8,732,445 8,793,685 Residential mortgage loans and equity lines 47,043 5,685 — 8,978 61,706 5,515,794 5,577,500 Installment and other loans 5 1 — 8 14 4,675 4,689 Total loans $ 81,012 $ 8,921 $ 11,580 $ 68,854 $ 170,367 $ 18,083,657 $ 18,254,024 The Company has adopted ASU 2022 - 02, “Financial Instruments – Troubled Debt Restructurings and Vintage Disclosures” effective January 1, 2023. As part of the adoption, the Company has elected to apply the pending content prospectively and the practical expedient to exclude the accrued interest receivable balance from the disclosed amortized cost basis of loan modifications to debtors experiencing financial difficulty, consistent with our ACL approach discussed further below in this footnote. Under the new guidance on loan modifications made to borrowers experiencing financial difficulty, when a loan held for investment is modified and is considered to be a continuation of the original loan, the Company uses the post-modification contractual rate to derive the effective interest rate when using a discounted cash flow method to determine the allowance for credit loss. The amendments in this new guidance eliminate the previous TDR recognition and measurement guidance and, instead, require that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. Under the prior TDR guidance, a TDR is a formal modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms, including a change in the stated interest rate, a reduction in the loan balance or accrued interest, or an extension of the maturity date. Although these loan modifications were considered TDRs, TDR loans that had, pursuant to the Bank’s policy, performed under the restructured terms and had demonstrated sustained performance under the modified terms for six months were returned to accrual status. The sustained performance considered by management pursuant to its policy included the periods prior to the modification if the prior performance met or exceeded the modified terms. This would include cash paid by the borrower prior to the restructuring to set up interest reserves. Loans classified as TDRs were reported as individually evaluated loans. The allowance for credit loss on a TDR was measured using the same method as all other loans held for investment, except when the value of a concession could not be measured using a method other than the discounted cash flow method. Under the prior guidance when the value of a concession was measured using the discounted cash flow method, the allowance for credit loss was determined by discounting the expected future cash flows at the original interest rate of the loan. F- 25 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) Upon adoption of ASU 2022 - 02, the Company establishes a specific reserve for individually evaluated loans that do not share similar risk characteristics with the loans included in the quantitative baseline. These individually evaluated loans are removed from the pooling approach for the quantitative baseline, and include non-accrual loans, loan modifications made to borrowers experiencing financial difficulty, and other loans as deemed appropriate by management. The Company applies the loan refinancing and restructuring guidance provided in ASU 2022 - 02 to determine whether a modification made to a borrower results in a new loan or a continuation of an existing loan. If economic conditions or other factors worsen relative to the assumptions the Company utilized, the expected loan losses will increase accordingly in future periods. As of December 31, 2022, under the prior TDR guidance, there was accruing TDRs of $ 15.1 million and non-accrual TDRs of $ 6.3 million. As of December 31, 2022, the Company allocated zero in reserves to accruing TDRs and $ 427 thousand to non-accrual TDRs. The following table presents TDRs that were modified during 2022, their specific reserve as of December 31, 2022, and charge-offs during 2022: Loans Modified as TDRs During the Year Ended December 31, 2022 No. of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Specific Reserve Charge-offs (Dollars in thousands) Commercial loans 4 $ 6,115 $ 6,115 $ 427 $ — Commercial real estate loans 3 3,676 3,669 — — Residential mortgage and equity lines 8 2,189 2,162 — — Total 15 $ 11,980 $ 11,946 $ 427 $ — The following table presents TDRs that were modified during 2021, their specific reserve as of December 31, 2021, and charge-offs during 2021: Loans Modified as TDRs During the Year Ended December 31, 2021 No. of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Specific Reserve (1) Charge-off (Dollars in thousands) Commercial loans 3 $ 2,150 $ 2,150 $ — $ — Residential mortgage and equity lines 2 3 3 — — Total 5 $ 2,153 $ 2,153 $ — $ — F- 26 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) Modifications of the loan terms in the three and twelve months ended December 31, 2023, were in the form of payment deferrals, term extensions, and interest rate reductions, or a combination thereof. The following table presents the amortized cost of loans modified to borrowers experiencing financial difficulty disaggregated by class of financing receivable and type of concession granted and the financial effects of the modifications for the twelve months ended December 31, 2023 by loan class and modification type: Financial Effects of Loan Modifications Payment Delay Combo-Rate Reduction/Term Extension/Payment Delay Total Modification as a % of Loan Class Weighted-Average Rate Reduction Weighted-Average Term Extension (in Years) Weighted-Average Payment Deferral (in Years) Loan Type Commercial loans $ — $ 2,650 $ 2,650 0.08 % 1.10 % 2.2 0.9 Residential mortgage loans 222 — 222 0.00 % 0.10 % 0.0 2.0 Total $ 222 $ 2,650 $ 2,872 The Company considers a loan to be in payment default once it is 60 to 90 days contractually past due under the modified terms. The Company tracks the performance of modified loans. A modified loan may become delinquent and may result in a payment default subsequent to modification. There were no loans that received a modification for the twelve months ended December 31, 2023 that subsequently defaulted. The following table presents the performance of loans that were modified during the twelve months ended December 31, 2023. Twelve Months Ended December 31, 2023 Current 30–89 Days Past Due 90+ Days Past Due Total (In thousands) Loan Type Commercial loans $ 2,650 $ — $ — $ 2,650 Residential mortgage loans 222 — — 222 Total $ 2,872 $ — $ — $ 2,872 F- 27 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) A summary of TDRs by type of concession and by type of loans as of December 31, 2022, is set forth in the table below: December 31, 2022 Accruing TDRs Payment Deferral Rate Reduction Rate Reduction and Payment Deferral Total (In thousands) Commercial loans $ 2,588 $ — $ — $ 2,588 Commercial real estate loans 2,791 — 5,855 8,646 Residential mortgage loans 2,181 445 1,285 3,911 Total accruing TDRs $ 7,560 $ 445 $ 7,140 $ 15,145 December 31, 2022 Non-accrual TDRs Payment Deferral Rate Reduction Rate Reduction and Payment Deferral Total (In thousands) Commercial loans $ 3,629 $ — $ — $ 3,629 Commercial real estate loans 1,098 — — 1,098 Residential mortgage loans 1,621 — — 1,621 Total non-accrual TDRs $ 6,348 $ — $ — $ 6,348 Modifications of the loan terms in the twelve months ended December 31, 2022, were in the form of extensions of maturity dates, which ranged generally from three to twelve months from the modification date. We expect that the TDRs on accruing status as of December 31, 2022, which were all performing in accordance with their restructured terms, will continue to comply with the restructured terms because of the reduced principal or interest payments on these loans. F- 28 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The Company considers a loan to be in payment default once it is 60 to 90 days contractually past due under the modified terms. The Company did not have any loans that were modified as a TDR during the previous twelve months and which had subsequently defaulted as of December 31, 2022. Under the Company’s internal underwriting policy, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification in order to determine whether a borrower is experiencing financial difficulty. As of December 31, 2023, there were no commitments to lend additional funds to borrowers experiencing financial difficulty and whose loans were modified. As part of the on-going monitoring of the credit quality of our loan portfolio, the Company utilizes a risk grading matrix to assign a risk rating to each loan. Loans are risk rated based on analysis of the current state of the borrower’s credit quality. The analysis of credit quality includes a review of sources of repayment, the borrower’s current financial and liquidity status and other relevant information. The risk rating categories can be generally described by the following grouping for non-homogeneous loans: ● Pass/Watch – These loans range from minimal credit risk to higher than average, but still acceptable, credit risk. The loans have sufficient sources of repayment to repay the loans in full, in accordance with all the terms and conditions and remains currently well protected by collateral values. ● Special Mention – Borrower is fundamentally sound, and the loan is currently protected but adverse trends are apparent that, if not corrected, may affect ability to repay. Primary source of loan repayment remains viable but there is increasing reliance on collateral or guarantor support. ● Substandard – These loans are inadequately protected by current sound worth, paying capacity or collateral. Well-defined weaknesses exist that could jeopardize repayment of debt. Loss may not be imminent, but if weaknesses are not corrected, there is a good possibility of some loss. ● Doubtful – The possibility of loss is extremely high, but due to identifiable and important pending events (which may strengthen the loan), a loss classification is deferred until the situation is better defined. ● Loss – These loans are considered uncollectible and of such little value that to continue to carry the loans as an active asset is no longer warranted. F- 29 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The following table summarizes the Company’s loan held for investment as of December 31, 2023 and 2022, presented by loan portfolio segments, internal risk ratings and vintage year. The vintage year is the year of origination, renewal or major modification: Loans Amortized Cost Basis by Origination Year December 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Converted to Term Loans Total (In thousands) Commercial loans Pass/Watch $ 381,705 $ 323,939 $ 326,650 $ 96,725 $ 75,281 $ 136,162 $ 1,775,162 $ 8,308 $ 3,123,932 Special Mention 4,488 4,875 8,559 23,380 — — 75,419 — 116,721 Substandard 1,752 653 9,895 2,462 763 5,775 40,131 116 61,547 Doubtful — — — — — — — — — Total $ 387,945 $ 329,467 $ 345,104 $ 122,567 $ 76,044 $ 141,937 $ 1,890,712 $ 8,424 $ 3,302,200 YTD gross write-offs $ — $ 977 $ 1,312 $ 384 $ 3,672 $ 6,044 $ 1,520 $ — $ 13,909 Construction loans Pass/Watch $ 29,550 $ 131,984 $ 153,977 $ 19,461 $ 13,298 $ 3,131 $ — $ — $ 351,401 Special Mention 1,911 — 11,707 25,389 — 22,998 — — 62,005 Substandard — — — — 7,736 — — — 7,736 Total $ 31,461 $ 131,984 $ 165,684 $ 44,850 $ 21,034 $ 26,129 $ — $ — $ 421,142 YTD gross write-offs $ — $ — $ — $ — $ — $ 4,221 $ — $ — $ 4,221 Commercial real estate loans Pass/Watch $ 2,121,489 $ 1,959,239 $ 1,585,010 $ 887,508 $ 1,019,952 $ 1,726,015 $ 184,601 $ — $ 9,483,814 Special Mention 37,604 18,910 38,405 3,499 10,303 17,210 1,384 — 127,315 Substandard — 11,870 12,170 2,965 17,293 66,205 — — 110,503 Total $ 2,159,093 $ 1,990,019 $ 1,635,585 $ 893,972 $ 1,047,548 $ 1,809,430 $ 185,985 $ — $ 9,721,632 YTD gross write-offs $ — $ — $ 208 $ — $ 969 $ 4,164 $ — $ — $ 5,341 Residential mortgage loans Pass/Watch $ 1,140,998 $ 1,128,526 $ 902,613 $ 524,315 $ 541,005 $ 1,583,118 $ — $ — $ 5,820,575 Special Mention — — — 33 — 1,619 — — 1,652 Substandard 7 652 3,325 2,577 1,334 9,311 — — 17,206 Total $ 1,141,005 $ 1,129,178 $ 905,938 $ 526,925 $ 542,339 $ 1,594,048 $ — $ — $ 5,839,433 YTD gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Equity lines Pass/Watch $ — $ 98 $ — $ — $ — $ — $ 227,502 $ 16,628 $ 244,228 Special Mention — 3 — — — — — — 3 Substandard — — — — — — 2,511 173 2,684 Total $ — $ 101 $ — $ — $ — $ — $ 230,013 $ 16,801 $ 246,915 YTD gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Installment and other loans Pass/Watch $ 5,114 $ 981 $ 3 $ — $ — $ — $ — $ — $ 6,098 Total $ 5,114 $ 981 $ 3 $ — $ — $ — $ — $ — $ 6,098 YTD gross write-offs $ — $ 15 $ — $ — $ — $ — $ — $ — $ 15 Total loans $ 3,724,618 $ 3,581,730 $ 3,052,314 $ 1,588,314 $ 1,686,965 $ 3,571,544 $ 2,306,710 $ 25,225 $ 19,537,420 Total YTD gross write-offs $ — $ 992 $ 1,520 $ 384 $ 4,641 $ 14,429 $ 1,520 $ — $ 23,486 F- 30 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) Loans Amortized Cost Basis by Origination Year December 31, 2022 2022 2021 2020 2019 2018 Prior Revolving Loans Revolving Converted to Term Loans Total (In thousands) Commercial loans Pass/Watch $ 488,748 $ 446,647 $ 180,226 $ 119,355 $ 107,896 $ 106,649 $ 1,753,509 $ 6,560 $ 3,209,590 Special Mention 1,212 4,696 2,818 68 308 4,354 41,110 — 54,566 Substandard 25 12,750 342 4,859 2,766 6,985 22,084 133 49,944 Doubtful — — — 1,504 2,185 — 234 — 3,923 Total $ 489,985 $ 464,093 $ 183,386 $ 125,786 $ 113,155 $ 117,988 $ 1,816,937 $ 6,693 $ 3,318,023 YTD gross write-offs $ 96 $ 587 $ 120 $ 71 $ 1,786 $ 360 $ 202 $ — $ 3,222 Construction loans Pass/Watch $ 99,798 $ 264,197 $ 113,312 $ 20,479 $ 3,067 $ — $ — $ — $ 500,853 Special Mention — 360 9,449 11,643 22,945 — — — 44,397 Substandard — — — 1,736 9,309 — — — 11,045 Total $ 99,798 $ 264,557 $ 122,761 $ 33,858 $ 35,321 $ — $ — $ — $ 556,295 YTD gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate loans Pass/Watch $ 2,087,650 $ 1,728,607 $ 975,953 $ 1,094,505 $ 908,748 $ 1,420,982 $ 178,116 $ — $ 8,394,561 Special Mention 22,150 57,015 25,593 32,119 17,999 63,782 1,600 — 220,258 Substandard 12,320 7,861 14,392 19,972 34,899 81,844 2,631 — 173,919 Total $ 2,122,120 $ 1,793,483 $ 1,015,938 $ 1,146,596 $ 961,646 $ 1,566,608 $ 182,347 $ — $ 8,788,738 YTD gross write-offs $ — $ — $ — $ — $ 2,152 $ — $ — $ — $ 2,152 Residential mortgage loans Pass/Watch $ 1,228,391 $ 964,799 $ 580,990 $ 600,786 $ 417,565 $ 1,444,320 $ — $ — $ 5,236,851 Special Mention — — 33 — 752 905 — — 1,690 Substandard 206 762 2,028 1,966 1,799 8,785 — — 15,546 Total $ 1,228,597 $ 965,561 $ 583,051 $ 602,752 $ 420,116 $ 1,454,010 $ — $ — $ 5,254,087 YTD gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Equity lines Pass/Watch $ 731 $ — $ — $ — $ — $ — $ 302,825 $ 21,460 $ 325,016 Special Mention 5 — — — — — — — 5 Substandard 12 — — — — — 1,043 220 1,275 Total $ 748 $ — $ — $ — $ — $ — $ 303,868 $ 21,680 $ 326,296 YTD gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Installment and other loans Pass/Watch $ 1,792 $ 2,152 $ — $ — $ — $ — $ — $ — $ 3,944 Total $ 1,792 $ 2,152 $ — $ — $ — $ — $ — $ — $ 3,944 YTD gross write-offs $ 116 $ — $ — $ — $ — $ — $ — $ — $ 116 Total loans $ 3,943,040 $ 3,489,846 $ 1,905,136 $ 1,908,992 $ 1,530,238 $ 3,138,606 $ 2,303,152 $ 28,373 $ 18,247,383 Total YTD gross write-offs $ 212 $ 587 $ 120 $ 71 $ 3,938 $ 360 $ 202 $ — $ 5,490 Revolving loans that are converted to term loans presented in the table above are excluded from the term loans by vintage year columns. F- 31 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The following table details activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2023, and 2022. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. Commercial Residential Installment Commercial Construction Real Estate Mortgage and Other Loans Loans Loans and Equity Lines Loans Total Allowance for loan losses (In thousands) 2021 Ending Balance $ 43,394 $ 6,302 $ 61,081 $ 25,379 $ 1 $ 136,157 Provision/(reversal) for expected credit losses 6,798 4,109 9,079 ( 7,221 ) 148 12,913 Charge-offs ( 3,222 ) — ( 2,152 ) — ( 116 ) ( 5,490 ) Recoveries 2,465 6 358 74 2 2,905 Net (Charge-offs)/Recoveries $ ( 757 ) $ 6 $ ( 1,794 ) $ 74 $ ( 114 ) $ ( 2,585 ) 2022 Ending Balance $ 49,435 $ 10,417 $ 68,366 $ 18,232 $ 35 $ 146,485 Provision/(reversal) for expected credit losses 15,275 1,984 8,570 ( 177 ) 3 25,655 Charge-offs ( 13,909 ) ( 4,221 ) ( 5,341 ) — ( 15 ) ( 23,486 ) Recoveries 2,990 — 2,833 85 — 5,908 Net (Charge-offs)/Recoveries $ ( 10,919 ) $ ( 4,221 ) $ ( 2,508 ) $ 85 $ ( 15 ) $ ( 17,578 ) 2023 Ending Balance $ 53,791 $ 8,180 $ 74,428 $ 18,140 $ 23 $ 154,562 Allowance for unfunded credit commitments, 2021 Ending Balance $ 3,725 $ 3,375 $ — $ — $ — $ 7,100 Provision for expected credit losses 1,115 515 — — — 1,630 Allowance for unfunded credit commitments 2022 Ending Balance $ 4,840 $ 3,890 $ — $ — $ — $ 8,730 Provision/(reversal) for expected credit losses 2,048 ( 1,725 ) — — — 323 Allowance for unfunded credit commitments 2023 Ending Balance $ 6,888 $ 2,165 $ — $ — $ — $ 9,053 Residential mortgage loans in process of formal foreclosure proceedings were $ 242 thousand as of December 31, 2023, and $ 456 thousand as of December 31, 2022. 6. Investments in Affordable Housing and Alternative Energy Partnerships The Company holds ownership interests in a number of limited partnerships that were formed to develop and operate housing for lower-income tenants throughout the United States and alternative energy partnerships that qualify for energy tax credits. The Company evaluates its interests in these partnerships to determine whether they meet the definition of a Variable Interest Entity (“VIE”) and whether the Company is required to consolidate these entities. A VIE is consolidated by its primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) a variable interest that could potentially be significant to the VIE. To determine whether or not a variable interest the Company holds could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regarding the nature, size and form of the Company's involvement with the VIE. While the Company has determined that its interests in these entities meet the definition of a variable interest in accordance with ASC 810, the Company has determined that the Company is not the primary beneficiary in all but eleven of these partnerships because the Company does not have the power to direct the activities that most significantly impact the economic performance of the entities including operational and credit risk management activities. As the Company is not the primary beneficiary, the Company did not consolidate the entities. The investment in these entities approximates the maximum exposure to loss as a result of the Company’s involvement with these unconsolidated entities. The balance of the Company’s investments in these entities was $ 315.7 million and $ 327.1 million as of December 31, 2023, and 2022, respectively. F- 32 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The Company’s investments in these partnerships, net, are presented in the table below: As of December 31, 2023 2022 (In thousands) Investments in affordable housing partnerships, net $ 295,740 $ 289,920 Other borrowings for affordable housing limited partnerships $ 15,787 $ 22,600 Investments in affordable housing and alternative energy partnerships, unfunded commitments $ 106,452 $ 133,491 Investments in alternative energy tax credit partnerships, net $ 19,943 $ 37,208 As of December 31, 2023, eleven of the limited partnerships in which the Company has an equity interest were determined to be variable interest entities for which the Company is the primary beneficiary. The consolidation of these limited partnerships in the Company’s Consolidated Financial Statements increased total assets and liabilities by $ 25.3 million as of December 31, 2023, and by $ 31.3 million as of December 31, 2022. Recourse in other borrowings for affordable housing limited partnerships is limited to the assets of the limited partnerships. Investments in alternative energy partnerships were $ 19.9 million and $ 37.2 million as of December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, $ 6.4 million and $ 25.4 million, respectively, of this investment were in an escrow account with a major bank. Unfunded commitments for affordable housing limited partnerships and alternative energy tax credit partnerships were recorded under other liabilities. As of December 31, 2023, the Company’s unfunded commitments related to investments in qualified affordable housing and alternative energy partnerships, net, are estimated to be paid as follows: Amount Year Ending December 31, (In thousands) 2024 $ 49,810 2025 $ 34,871 2026 $ 15,194 2027 $ 1,400 2028 $ 1,019 Thereafter $ 4,158 Total unfunded commitments $ 106,452 Each of the partnerships must meet regulatory requirements for affordable housing and alternative energy projects, including long-term minimum compliance periods (such as a 15 -year minimum compliance period for certain affordable housing tax credits) to fully utilize the tax credits. If the partnerships cease to qualify during the compliance period, the credits may be denied for any period in which the projects are not in compliance and a portion of the credits previously taken is subject to recapture with interest. The remaining tax credits to be utilized over a multiple-year period are $ 249.6 million for Federal and $ 6.2 million for state as of December 31, 2023. The possible inability to realize these tax credits and other returns from our investments in these partnerships can have a negative impact on our financial results. The risk of not being able to realize the tax credits and other returns depends on many factors, including changes in the applicable provisions of the tax code, the ability of the projects to be completed and properly managed and other factors that are outside of our control. Losses in excess of the Bank’s investment in three limited partnerships have not been recorded in the Company’s Consolidated Financial Statements because the Company had fully satisfied all capital commitments required under the respective limited partnership agreements. In 2023 and 2022, non-interest expense included $ 7.7 million and $ 6.2 million in impairment charges for investments in low-income housing partnerships. F- 33 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The following table summarizes the Company’s usage of affordable housing and other tax credits including energy tax credits. As of December 31, 2023 2022 2021 (In thousands) Affordable housing and other tax credits recognized $ 32,395 $ 29,524 $ 26,459 Alternative energy tax credits recognized $ 41,320 $ 4,707 $ 6,337 7. Premises and Equipment Premises and equipment consisted of the following as of December 31, 2023, and December 31, 2022: As of December 31, 2023 2022 (In thousands) Land and land improvements $ 42,566 $ 42,566 Building and building improvements 81,796 81,613 Furniture, fixtures and equipment 68,371 65,872 Leasehold improvement 18,056 18,009 Construction in process 941 375 211,730 208,435 Less: Accumulated depreciation 120,633 113,659 Premises and equipment, net $ 91,097 $ 94,776 The amount of depreciation included in operating expense was $ 7.1 million, $ 8.0 million and $ 7.7 million for the years ended December 31, 2023, 2022 and 2021, respectively. F- 34 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) 8. Goodwill and Other Intangible Assets Goodwill. Total goodwill was $ 375.7 million as of December 31, 2023 and 2022. Additional information pertaining to the Company’s accounting policy for goodwill is summarized in Note 1 — Summary of Significant Accounting Policies — Goodwill and Other Intangible Assets. The Company completed its annual goodwill impairment testing and additionally reviewed the macroeconomic conditions on its business performance and market capitalization and concluded that goodwill was not impaired as of December 31, 2023 and 2022. Core Deposit Intangibles. As a result of the acquisition of HSBC’s West Coast mass retail market consumer banking business and retail business banking business, the Company added core deposit intangibles of $ 3.1 million in 2022. The following table presents the gross carrying amount and accumulated amortization of core deposits intangible assets as of December 31, 2023 and 2022: December 31, 2023 2022 (In thousands) Gross balance $ 10,562 $ 10,562 Accumulated amortization ( 5,291 ) ( 4,291 ) Impairment ( 1,227 ) ( 918 ) Net carrying balance $ 4,044 $ 5,353 There were $ 1.2 million and $ 918 thousand in impairment write-downs on core deposit intangibles for the year ended December 31, 2023 and 2022, respectively, included in amortization of core deposit intangibles on the Consolidated Statements of Operations and Comprehensive Income. No impairment write-downs were recorded on core deposit intangibles for the years ended December 31, 2021. The Company amortizes the core deposit intangibles based on the projected useful lives of the related deposits. The amortization expense related to the core deposit intangible assets was $ 1.3 million, $ 1.9 million and $ 687 thousand for the years ended December 31, 2023, 2022 and 2021, respectively. Amount (In thousands) 2024 $ 1,001 2025 $ 947 2026 $ 870 2027 $ 870 thereafter $ 356 Total $ 4,044 F- 35 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) 9. Deposits The following table displays deposit balances as of December 31, 2023, and December 31, 2022: As of December 31, 2023 2022 (In thousands) Deposits Non-interest-bearing demand deposits $ 3,529,018 $ 4,168,989 Interest bearing demand deposits 2,370,685 2,509,736 Money market deposits 3,049,754 3,812,724 Savings deposits 1,039,203 1,000,460 Time deposits 9,336,787 7,013,370 Total deposits $ 19,325,447 $ 18,505,279 Time deposits outstanding as of December 31, 2023, mature as follows. Expected Maturity Date at December 31, 2024 2025 2026 2027 2028 Thereafter Total (In thousands) Time deposits $ 9,312,877 $ 18,429 $ 3,203 $ 2,230 $ 23 $ 25 $ 9,336,787 Accrued interest payable on client deposits was $ 28.6 million, $ 13.2 million, and $ 1.7 million as of December 31, 2023, 2022 and 2021, respectively. The following table summarizes the interest expense on deposits by account type for the years ended December 31, 2023, 2022, and 2021: Year Ended December 31, 2023 2022 2021 (In thousands) Interest bearing demand $ 40,952 $ 8,176 $ 2,249 Money market accounts 86,097 39,913 18,241 Saving accounts 8,916 853 769 Time deposits 331,997 56,354 40,542 Total $ 467,962 $ 105,296 $ 61,801 The aggregate amount of domestic time deposits in denominations that meet or exceed the current FDIC insurance limit of $250 thousand was $ 5.30 billion and $ 4.10 billion as of December 31, 2023, and 2022, respectively. Foreign offices’ time deposits of $ 174.2 million and $ 128.6 million as of December 31, 2023, and 2022, respectively, were in denominations of greater than $250 thousand. F- 36 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) 10. Borrowed Funds There were no outstanding securities sold or entered into under agreements to repurchase at December 31, 2023, 2022 and 2021. Securities sold under agreements to repurchase, if any, are accounted for as collateralized financing transactions and recorded at the amounts at which the securities were sold. As of December 31, 2023, there were no over-night borrowings from the FHLB in 2023 and $ 150.0 million in over-night borrowings from the FHLB at a rate of 4.65 % in 2022. As of December 31, 2023, all advances from the FHLB were $ 540.0 million at a weighted average rate of 5.64 % and $ 335.0 million at a weighted average rate of 4.54 % as of December 31, 2022. As of December 31, 2023, final maturity for the FHLB advances were $ 525.0 million that will mature in January 2024 and $ 15.0 million that will mature in September 2024. Our unused borrowing capacity from the Federal Home Loan Bank as of December 31, 2023 was $ 6.60 billion and unpledged securities at December 31, 2023 was $ 1.47 billion. Other Liabilities. On November 23, 2004, the Company entered into an agreement with Mr. Dunson K. Cheng, pursuant to which he agreed to defer any bonus amounts in excess of $ 225 thousand for the year ended December 31, 2005, until the later of January 1 of the first year following his separation from service from the Company or the first day of the seventh month following his separation from service from the Company. Accordingly, an amount equal to $ 610 thousand was deferred in 2004 and was accrued in other liabilities in the Consolidated Balance Sheets. The Company agreed to accrue interest on the deferred portion of the bonus at 7.0 % per annum compounded quarterly. The deferred amount will be increased each quarter by the amount of interest computed for that quarter. On November 23, 2014, the interest rate was reset to 5.06 % based on 275 basis points above the interest rate on the ten -year Treasury Note on that date. On March 13, 2014, the Compensation Committee of the Company awarded Mr. Cheng a cash bonus in the amount of $ 300 thousand for the quarter ended December 31, 2013 and provided as part of the award that payment of the bonus would be deferred until the later of January 1 of the first year following his separation from service from the Company or the first day of the seventh month following his separation from service from the Company. The Company accrues interest on the deferred bonus at 5.02 % per annum compounded quarterly. On March 28, 2019, the interest rate was reset to 5.72 % based on 350 basis points above the interest rate on the five -year Treasury Note on that date. The balance of deferred bonuses was $ 2.4 million and $ 2.3 million at December 31, 2023, and 2022, respectively. Accrued interest of deferred bonuses were $ 122 thousand during 2023, $ 116 thousand during 2022, and $ 110 thousand during 2021. We established three special purpose trusts in 2003 and two in 2007 for the purpose of issuing Guaranteed Preferred Beneficial Interests in their Subordinated Debentures to outside investors (“Capital Securities”). The proceeds from the issuance of the Capital Securities as well as our purchase of the common stock of the special purpose trusts were invested in Junior Subordinated Notes of the Company (“Junior Subordinated Notes”). The trusts exist for the purpose of issuing the Capital Securities and investing in Junior Subordinated Notes. Subject to some limitations, payment of distributions out of the monies held by the trusts and payments on liquidation of the trusts, or the redemption of the Capital Securities, are guaranteed by the Company to the extent the trusts have funds on hand at such time. The obligations of the Company under the guarantees and the Junior Subordinated Notes are subordinate and junior in right of payment to all indebtedness of the Company and will be structurally subordinated to all liabilities and obligations of the Company’s subsidiaries. The Company has the right to defer payments of interest on the Junior Subordinated Notes at any time or from time to time for a period of up to twenty consecutive quarterly periods with respect to each deferral period. Under the terms of the Junior Subordinated Notes, the Company may not, with certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or acquire any of its capital stock if it has deferred payment of interest on any Junior Subordinated Notes. F- 37 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) As of December 31, 2023 and 2022, Junior Subordinated Notes totaled $ 119.1 million, with a weighted average interest rate of 7.54 % and 4.01 %, respectively. The Junior Subordinated Notes have a stated maturity term of 30 years. Interest expense on the Junior Subordinated Notes was $ 6.5 million, $ 5.5 million, and $ 5.8 million for years ended December 31, 2023, 2022 and 2021, respectively. Included in the 2022 and 2023 interest expense is the amortization of the gain on cash flow interest rate swaps, early terminated in 2022. 11. Capital Resources Total equity was $ 2.74 billion as of December 31, 2023, an increase of $ 262.5 million, or 10.6 %, from $ 2.47 billion at December 31, 2022, primarily due to net income of $ 354.1 million, other comprehensive income of $ 16.9 million, stock based compensation of $ 7.0 million, proceeds from dividend reinvestment of $ 3.5 million, stock issued to directors of $ 0.9 million, offset by common stock cash dividends of $ 98.6 million, purchases of treasury stock of $ 16.7 million, and shares withheld related to net share settlement of RSU’s of $ 4.5 million. . The Company paid cash dividends of $ 1.36 per common share in 2023, $ 1.36 per common share in 2022, and $ 1.27 per common share in 2021. On May 26th, 2022, the Board of Directors approved a stock repurchase program to buy back up to $ 125.0 million of the Company’s common stock. Under this program, the Company repurchased 2,522,538 shares for $ 108.4 million at an average cost of $ 42.98 for the year. During 2022, the Company repurchased 3,227,465 shares in total for approximately $ 141.3 million at an average cost of $ 43.79 . On February 21, 2023, the Company completed its May 2022 stock buyback program by repurchasing 375,090 shares at an average cost of $ 44.20 in the first quarter of 2023, for a total of $ 16.6 million. The five special purpose trusts established for the purpose of issuing the Capital Securities are considered variable interest entities. Because the Bancorp is not the primary beneficiary of the trusts, the financial statements of the trusts are not included in the Consolidated Financial Statements of the Company. The Junior Subordinated Notes, all of which were issued before May 19, 2010, are currently included in the Tier 2 capital of the Bancorp for regulatory capital purposes. Under the Dodd-Frank Act, trust preferred securities issued before May 19, 2010, by bank holding companies with assets of less than $15.0 billion as of December 31, 2009, continue to qualify for Tier 1 capital treatment. As of December 31, 2023, and 2022, the Company’s assets exceeded the $15.0 billion threshold and, as a result, the Junior Subordinated Notes no longer qualify as Tier 1 capital for regulatory reporting purposes. F- 38 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The table below summarizes the outstanding Junior Subordinated Notes issued by the Company to each trust as of December 31, 2023 and 2022: As of December 31, 2023 Principal Not Annualized Current Date of Payable/ Issuance Balance of Redeemable Stated Coupon Interest Rate Distribution Trust Name Date Notes Until Maturity Rate Rate Change Date (Dollars in thousands) Cathay Capital Trust I June 26, $ 20,619 June 30, June 30, 3-month 8.81 % December 29, March 30 2003 2008 2033 SOFR 2023 June 30 + 3.15% September 30 + 0.26161% December 30 Cathay Statutory Trust I September 17, 20,619 September 17, September 17, 3-month 8.67 % December 17, March 17 2003 2008 2033 SOFR 2023 June 17 + 3.00% September 17 + 0.26161% December 17 Cathay Capital Trust II December 30, 12,887 March 30, March 30, 3-month 8.56 % December 29, March 30 2003 2009 2034 SOFR 2023 June 30 + 2.90% September 30 + 0.26161% December 30 Cathay Capital Trust III March 28, 46,392 June 15, June 15, 3-month 7.15 % December 14, March 15 2007 2012 2037 SOFR 2023 June 15 + 1.48% September 15 + 0.26161% December 15 Cathay Capital Trust IV May 31, 18,619 September 6, September 6, 3-month 7.06 % December 5, March 6 2007 2012 2037 SOFR 2023 June 6 + 1.40% September 6 Total Junior Subordinated Notes $ 119,136 As of December 31, 2022 Principal Not Annualized Current Date of Payable/ Issuance Balance of Redeemable Stated Coupon Interest Rate Distribution Trust Name Date Notes Until Maturity Rate Rate Change Date (Dollars in thousands) Cathay Capital Trust I June 26, $ 20,619 June 30, June 30, 3-month 6.82 % December 29, March 30 2003 2008 2033 LIBOR 2022 June 30 + 3.15% September 30 December 30 Cathay Statutory Trust I September 17, 20,619 September 17, September 17, 3-month 6.53 % December 18, March 17 2003 2008 2033 LIBOR 2022 June 17 + 3.00% September 17 December 17 Cathay Capital Trust II December 30, 12,887 March 30, March 30, 3-month 6.57 % December 29, March 30 2003 2009 2034 LIBOR 2022 June 30 + 2.90% September 30 December 30 Cathay Capital Trust III March 28, 46,392 June 15, June 15, 3-month 4.77 % December 14, March 15 2007 2012 2037 LIBOR 2022 June 15 + 1.48% September 15 December 15 Cathay Capital Trust IV May 31, 18,619 September 6, September 6, 3-month 4.54 % December 5, March 6 2007 2012 2037 LIBOR 2022 June 6 + 1.4% September 6 December 6 Total Junior Subordinated Notes $ 119,136 F- 39 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) 12. Income Taxes For the years ended December 31, 2023, 2022, and 2021, the current and deferred amounts of the income tax expense are summarized as follows: Year Ended December 31, 2023 2022 2021 (In thousands) Current: Federal $ 5,428 $ 57,029 $ 29,955 State 48,812 56,953 44,416 Total Current $ 54,240 $ 113,982 $ 74,371 Deferred: Federal $ ( 1,676 ) $ ( 1,776 ) $ 5,986 State ( 3,106 ) ( 312 ) 3,182 Total Deferred $ ( 4,782 ) $ ( 2,088 ) $ 9,168 Total income tax expense $ 49,458 $ 111,894 $ 83,539 Temporary differences between the amounts reported in the financial statements and the tax basis of assets and liabilities give rise to deferred taxes. Net deferred tax assets as of December 31, 2023 and 2022, are included in other assets in the accompanying Consolidated Balance Sheets and are as follows: As of December 31, 2023 2022 (In thousands) Deferred Tax Assets Loan loss allowance $ 50,126 $ 47,673 Accrual for bonuses 4,636 2,591 Non-accrual interest 2,164 1,572 Write-down on equity securities and venture capital investments 2,018 1,975 Depreciation and amortization 765 — State tax 5,693 6,251 Unrealized loss on securities available-for-sale, net 31,728 40,400 Tax credits carried forward 9,136 9,136 Net operating loss carried forward 3,787 5,916 Other, net 7,632 4,711 Gross deferred tax assets $ 117,685 $ 120,225 Deferred Tax Liabilities Deferred loan costs $ ( 9,687 ) $ ( 10,025 ) Depreciation and amortization — ( 2,856 ) Unrealized gain on interest rate swaps ( 838 ) ( 1,364 ) Unrealized gain on equity securities ( 4,863 ) — Dividends on Federal Home Loan Bank common stock ( 977 ) ( 981 ) Other, net ( 3,916 ) ( 3,506 ) Gross deferred tax liabilities $ ( 20,281 ) $ ( 18,732 ) Net deferred tax assets $ 97,404 $ 101,493 Amounts for the current year are based upon estimates and assumptions and could vary from amounts shown on the tax returns as filed. F- 40 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) As of December 31, 2023, the Company’s gross net operating loss (“NOL”) carryovers, all of which are subject to limitation under Section 382 of the Internal Revenue Code, totaled approximately $ 2.3 million for which a deferred tax asset of $ 0.5 million has been recorded reflecting the expected benefit of these federal NOL carryovers. At December 31, 2023, the Company has California NOL carryovers of $ 33.5 million for which a California deferred tax asset of $ 3.3 million has been recorded reflecting the expected benefit of these California NOL carryovers. The annual IRC Section 382 limitation is $10.2 million per year until 2021 and decreases to $8.8 million in 2022 and $7.3 million per year thereafter. If not utilized, a portion of the Company’s federal and state NOL’s will begin to expire in 2030. At December 31, 2023, the Company’s federal tax credit carryovers and AMT tax credit carryovers total $ 7.5 million and $ 1.0 million, respectively. If not utilized, the federal tax credit carryovers will begin to expire in 2028. The AMT tax credit carryovers can be carried forward indefinitely. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize all benefits related to these deductible temporary differences. The Company had current income tax receivables of $ 33.7 million as of December 31, 2023, and $ 16.7 million as of December 31, 2022. The Company had $ 15.9 million of tax credits generated in 2023 that will be credited back to 2022. Current income tax receivable is included in other assets in the accompanying Consolidated Balance Sheets. The Company’s tax returns are open for audits by the Internal Revenue Service back to 2020 and by the California Franchise Tax Board back to 2019. The Company is currently under audit by the California Franchise Tax Board for 2020. It is reasonably possible that unrecognized tax benefits could change significantly over the next twelve months. The Company does not expect that any such changes would have a material impact on its annual effective tax rate. Income tax expense results in effective tax rates that differ from the statutory federal income tax rate for the years indicated as follows: Year Ended December 31, 2023 2022 2021 (Dollars in thousands) Tax provision at Federal statutory rate $ 84,752 21.0 % $ 99,233 21.0 % $ 80,187 21.0 % State income taxes, net of Federal income tax benefit 36,107 9.0 44,837 9.5 37,602 9.8 Excess deduction for stock option and RSUs ( 586 ) ( 0.1 ) ( 140 ) — ( 20 ) — Low income housing and other tax credits ( 73,715 ) ( 18.3 ) ( 34,231 ) ( 7.2 ) ( 32,795 ) ( 8.6 ) Other, net 2,900 0.7 2,195 0.4 ( 1,435 ) ( 0.3 ) Total income tax expense $ 49,458 12.3 % $ 111,894 23.7 % $ 83,539 21.9 % F- 41 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) 13. Stockholders ’ Equity and Earnings per Share As a bank holding company, the Bancorp’s ability to pay dividends will depend upon the dividends it receives from the Bank and on the income it may generate from any other activities in which it may engage, either directly or through other subsidiaries. Under California banking law, the Bank may not, without regulatory approval, pay a cash dividend that 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, 2023, is restricted to approximately $ 420.4 million. The amount of retained earnings available for cash dividends is restricted to approximately $ 296.2 million for December 31,2022. Activity in accumulated other comprehensive income, net of tax, and reclassification out of accumulated other comprehensive income for the years ended December 31, 2023, and 2022 was as follows: 2023 2022 Pre-tax Tax expense/ (benefit) Net-of-tax Pre-tax Tax expense/ (benefit) Net-of-tax Beginning balance, loss, net of tax (In thousands) Securities available-for-sale $ ( 104,832 ) $ 211 Cash flow hedge derivatives 2,537 ( 3,276 ) Total $ ( 102,295 ) $ ( 3,065 ) Net unrealized gains/(losses) arising during the period Securities available-for-sale $ 24,315 $ 7,786 $ 16,529 $ ( 149,124 ) $ ( 44,081 ) $ ( 105,043 ) Cash flow hedge derivatives ( 2,503 ) ( 740 ) ( 1,763 ) 10,864 3,211 7,653 Total 21,812 7,046 14,766 ( 138,260 ) ( 40,870 ) ( 97,390 ) Reclassification adjustment for net gains/(losses) in net income Securities available-for-sale 3,000 887 2,113 — — — Cash flow hedge derivatives — — — ( 2,612 ) ( 772 ) ( 1,840 ) Total 3,000 887 2,113 ( 2,612 ) ( 772 ) ( 1,840 ) Total other comprehensive income/(loss) Securities available-for-sale 27,315 8,673 18,642 ( 149,124 ) ( 44,081 ) ( 105,043 ) Cash flow hedge derivatives ( 2,503 ) ( 740 ) ( 1,763 ) 8,252 2,439 5,813 Total $ 24,812 $ 7,933 $ 16,879 $ ( 140,872 ) $ ( 41,642 ) $ ( 99,230 ) Ending balance, gain/(loss), net of tax Securities available-for-sale $ ( 86,190 ) $ ( 104,832 ) Cash flow hedge derivatives 774 2,537 Total $ ( 85,416 ) $ ( 102,295 ) The Board of Directors of the Bancorp is authorized to issue preferred stock in one or more series and to fix the voting powers, designations, preferences or other rights of the shares of each such class or series and the qualifications, limitations, and restrictions thereon. Any preferred stock issued by the Bancorp may rank prior to the Bancorp common stock as to dividend rights, liquidation preferences, or both, may have full or limited voting rights, and may be convertible into shares of the Bancorp common stock. There are no shares of preferred stock currently issued and outstanding. F- 42 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The following is the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the years as indicated: Year Ended December 31, 2023 2022 2021 Per Per Per Income Shares Share Income Shares Share Income Shares Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (In thousands, except shares and per share data) Net income $ 354,124 $ 360,642 $ 298,304 Basic EPS, income $ 354,124 72,573,025 $ 4.88 $ 360,642 74,337,265 $ 4.85 $ 298,304 78,268,369 $ 3.81 Effect of dilutive stock options and RSU 289,603 327,470 302,269 Diluted EPS, income $ 354,124 72,862,628 $ 4.86 $ 360,642 74,664,735 $ 4.83 $ 298,304 78,570,638 $ 3.80 14. Commitments and Contingencies Legal Proceedings. The Company is involved in various claims and legal proceedings that arise in the course of conducting the Company’s business. The outcome of such claims and legal proceedings are inherently difficult to predict. Management, after consultation with legal counsel and based upon its assessment of information currently available to the Company, believes that any liability resulting from the resolution of any claims and proceedings currently pending against the Company will not have a material effect upon the Company’s consolidated financial condition, results of operations, or liquidity taken as a whole. In accordance with ASC 450, “Contingencies,” the Company accrues reserves for outstanding lawsuits, claims and proceedings when a loss contingency is probable and can be reasonably estimated. The Company estimates the amount of loss contingencies using current available information from legal proceedings, advice from legal counsel, and available insurance coverage. Due to the inherent subjectivity of the assessments and unpredictability of the outcomes of the legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to the Company from the legal proceedings in question. Thus, the Company’s exposure and ultimate losses may be higher, and possibly significantly more than the amounts accrued. Lending . In the normal course of business, the Company becomes a party to financial instruments with off-balance sheet risk to meet the financing needs of its clients. These financial instruments include commitments to extend credit in the form of loans or through commercial or standby letters of credit and financial guarantees. Those instruments represent varying degrees of exposure to risk in excess of the amounts included in the accompanying Consolidated Balance Sheets. The contractual or notional amount of these instruments indicates a level of activity associated with a particular class of financial instrument and is not a reflection of the level of expected losses, if any. The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, the Company does not require collateral or other security to support financial instruments with credit risk. F- 43 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) Financial instruments for which contract amounts represent the amount of credit risk include the following: As of December 31, 2023 2022 (In thousands) Commitments to extend credit $ 3,808,619 $ 3,630,304 Standby letters of credit 368,618 315,821 Commercial letters of credit 11,308 29,416 Total $ 4,188,545 $ 3,975,541 Commitments to extend credit are agreements to lend to a client provided there is no violation of any condition established in the commitment agreement. These commitments generally have fixed expiration dates and are expected to expire without being drawn upon. The total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each client’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management’s credit evaluation of the borrowers. As of December 31, 2023, the Company does not have fixed-rate or variable-rate commitments with characteristics similar to options, which provide the holder, for a premium paid at inception to the Company, the benefits of favorable movements in the price of an underlying asset or index with limited or no exposure to losses from unfavorable price movements. As of December 31, 2023, commitments to extend credit of $ 3.81 billion include commitments to fund fixed rate loans of $ 130.3 million and adjustable-rate loans of $ 3.69 billion. As of December 31, 2022 commitments to extend credit of $ 3.63 billion and included commitments to fund fixed rate loans of $ 93.1 million and adjustable-rate loans of $ 3.54 billion. Commercial letters of credit and bill of lading guarantees are issued to facilitate domestic and foreign trade transactions while standby letters of credit are issued to make payments on behalf of clients if certain specified future events occur. The credit risk involved in issuing letters of credit and bill of lading guarantees is essentially the same as that involved in making loans to clients. 15. Leases The Company enters into operating leases in the normal course of business primarily for branch offices, office spaces and certain equipment. The Company may seek to include options to extend or terminate a lease when it is reasonably certain that the Company will exercise those options. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term. The Company uses its incremental borrowing rate to determine the present value of its lease liabilities. The Company has elected to not separate lease and non-lease components. The Company has also elected not to recognize a ROU asset and lease liability for leases with original lease term of 12 months or less (short-term leases). The Company does not possess any leases that have variable lease payments or residual value guarantees as of December 31, 2023 and 2022. F- 44 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The following table represents the operating lease amounts reported on the Consolidated Balance Sheets and other supplemental information as of December 31, 2023, and December 31, 2022: December 31, 2023 December 31, 2022 (Dollars in millions) Operating Leases: ROU assets $ 32.1 $ 29.6 Lease liabilities $ 34.8 $ 32.5 Weighted-average remaining lease term (in years) 4.1 4.0 Weighted-average discount rate 3.8 % 2.9 % Operating cash flows from operating leases $ 11.4 $ 11.4 ROU assets obtained in exchange for lease obligations $ 12.6 $ 5.9 Operating lease expense is recognized on a straight-line basis over the lease term. Operating lease expense was $ 12.8 million, $ 13.1 million and $ 11.6 million for the years ended December 31, 2023, 2022 and 2021, respectively, and includes short-term leases that were immaterial. The following table presents a maturity analysis of the Company’s operating lease liabilities as of December 31, 2023: As of December 31, 2023 Operating Leases (In thousands) 2024 $ 10,800 2025 8,960 2026 7,297 2027 5,238 2028 3,916 Thereafter 1,403 Total lease payments $ 37,614 Less amount of payment representing interest ( 2,817 ) Total present value of lease payments $ 34,797 16. Financial Derivatives The Company does not speculate on the future direction of interest rates. As part of the Company’s asset and liability management, however, the Company enters into financial derivatives to seek to mitigate exposure to interest rate risks related to its interest-earning assets and interest-bearing liabilities. The Company believes that these transactions, when properly structured and managed, may provide a hedge against inherent interest rate risk in assets or liabilities and against risk in specific transactions of the Company. In such instances, the Company may protect its position through the purchase or sale of interest rate futures contracts for a specific cash or interest rate risk position. Other hedging transactions may be implemented using interest rate swaps, interest rate caps, floors, financial futures, forward rate agreements, and options on futures or bonds. Prior to considering any hedging activities, the Company seeks to analyze the costs and benefits of the hedge in comparison to other viable alternative strategies. All hedges will require an assessment of basis risk and must be approved by the Bancorp or the Bank’s Investment Committee. F- 45 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The Company follows ASC Topic 815 that establishes accounting and reporting standards for financial derivatives, including certain financial derivatives embedded in other contracts, and hedging activities. It requires the recognition of all financial derivatives as assets or liabilities in the Company’s Consolidated Balance Sheets and measurement of those financial derivatives at fair value. The accounting treatment of changes in fair value is dependent upon whether or not a financial derivative is designated as a hedge and, if so, the type of hedge. Fair value is determined using third -party models with observable market data. For derivatives designated as cash flow hedges, changes in fair value are recognized in other comprehensive income and are reclassified to earnings when the hedged transaction is reflected in earnings. For derivatives designated as fair value hedges, changes in the fair value of the derivatives are reflected in current earnings, together with changes in the fair value of the related hedged item if there is a highly effective correlation between changes in the fair value of the interest rate swaps and changes in the fair value of the underlying asset or liability that is intended to be hedged. If there is not a highly effective correlation between changes in the fair value of the interest rate swap and changes in the fair value of the underlying asset or liability that is intended to be hedged, then only the changes in the fair value of the interest rate swaps are reflected in the Company’s consolidated financial statements. The Company offers various interest rate derivative contracts to its clients. When derivative transactions are executed with its clients, the derivative contracts are offset by paired trades with third -party financial institutions including with central counterparties (“CCP”). Certain derivative contracts entered with CCPs are settled-to-market daily to the extent the CCP’s rulebooks legally characterize the variation margin as settlement. Derivative contracts are intended to allow borrowers to lock in attractive intermediate and long-term fixed rate financing while not increasing the interest rate risk to the Company. These transactions are generally not linked to specific Company assets or liabilities on the Consolidated Balance Sheets or to forecasted transactions in a hedging relationship and, therefore, are economic hedges. The contracts are marked to market at each reporting period. The changes in fair values of the derivative contracts traded with third -party financial institutions are expected to be largely comparable to the changes in fair values of the derivative transactions executed with clients throughout the terms of these contracts, except for the credit valuation adjustment component. The Company records credit valuation adjustments on derivatives to properly reflect the variances of credit worthiness between the Company and the counterparties, considering the effects of enforceable master netting agreements and collateral arrangements. As of December 31, 2023 and 2022, the Company had outstanding interest rate derivative contracts with certain clients and third -party financial institutions with a notional amount of $ 650.9 million and $ 595.4 million, respectively, with a fair value of $ 38.6 million and $ 50.0 million, respectively, for both clients and third -party financial institutions. As of December 31, 2022, the notional amount of $ 205.6 million of interest rate swaps cleared through the CCP. In May 2014, the Bancorp entered into interest rate swap contracts with the notional amount of $ 119.1 million for a period of ten years. The objective of these interest rate swap contracts, which were designated as hedging instruments in cash flow hedges, was to hedge the quarterly interest payments on the Bancorp’s $ 119.1 million of Junior Subordinated Debentures that had been issued to five trusts, throughout the ten -year period beginning in June 2014 and ending in June 2024, from the risk of variability of these payments resulting from changes in the three -month LIBOR interest rate. The Company early terminated these cash flow derivative swaps in 2022 and realized a gain of $ 4.0 million for the year ended December 31, 2022 and is recognizing the amount as a reduction of long-term debt interest expense over the remaining life of the swaps on a straight-line basis. As of December 31, 2022, the ineffective portion of these interest rates swaps was not significant. The periodic net settlement of the interest rate swaps included in interest expense was a net gain of $ 772 thousand as of December 31, 2022. As of December 31, 2023 and 2022, the Bank’s outstanding fair value interest rate swap contracts matched to individual fixed-rate commercial real estate loans had a notional amount of $ 88.5 million and $ 204.3 million with a fair value of $ 4.2 million and $ 6.6 million, respectively, and for various terms from three to ten years. These contracts have been designated as hedging instruments to hedge the risk of changes in the fair value of the underlying commercial real estate loans due to changes in interest rates. The swap contracts are structured so that the notional amounts reduce over time to match the contractual amortization of the underlying loan and allow prepayments with the same pre-payment penalty amounts as the related loan. As of December 31, 2023, and 2022, the ineffective portion of these interest rate swaps was not significant. F- 46 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The Company has designated as a partial-term hedging election $ 1.07 billion and $ 669.7 million notional with a fair value of $ 3.8 million and $ 32.0 million as last-of-layer hedge on pools of loans with a notational value of $ 1.78 billion and $ 1.21 billion as of December 31, 2023 and 2022, respectively. The loans are not expected to be affected by prepayment, defaults, or other factors affecting the timing and amount of cash flows under the last-of-layer method. The Company has entered into these pay-fixed and receive 1 -Month Term SOFR interest rate swap to convert the last-of-layer $ 1.07 billion portion of a $ 1.78 billion fixed rate loan tranche in order to reduce the Company’s exposure to higher interest rates for the last-of-layer tranche. As of December 31, 2023 and 2022, the last-of-layer loan tranche had a fair value basis adjustment of $ 2.0 million and $ 31.0 million, respectively. The interest rate swap converts this last-of-layer tranche into a floating rate instrument. The Company’s risk management objective with respect to this last-of-layer interest rate swap is to reduce interest rate exposure as to the last-of-layer tranche. Interest rate swap contracts involve the risk of dealing with institutional derivative counterparties and their ability to meet contractual terms. Institutional counterparties must have a strong credit profile and be approved by the Company’s Board of Directors. The Company’s credit exposure on interest rate swaps is limited to the net favorable value and interest payments of all swaps by each counterparty. Credit exposure may be reduced by the amount of collateral pledged by the counterparty. Bancorp’s interest rate swaps have been assigned by the counterparties to a derivatives clearing organization and daily margin is indirectly maintained with the derivatives clearing organization. The notional amount and net unrealized loss of the Company’s fair value derivative financial instruments as of December 31, 2023, and December 31, 2022, were as follows: December 31, 2023 December 31, 2022 Fair value swap hedges: ($ in thousands) Notional $ 1,156,007 $ 874,034 Weighted average fixed rate-pay 2.01 % 2.12 % Weighted average variable rate spread 0.32 % 0.68 % Weighted average variable rate-received 5.41 % 2.61 % Net gain/(loss) (1) $ 7,935 $ 38,589 Year ended December 31, 2023 December 31, 2022 Periodic net settlement of SWAPs (2) $ 29,514 $ 3,107 ( 1 )-the amount is included in other non-interest income. ( 2 )-the amount of periodic net settlement of interest rate swaps was included in interest income. Included in the total notional amount of $ 1.16 billion and $ 874.0 million of the fair value interest rate contracts entered into with financial counterparties as of December 31, 2023 and 2022, was a notional amount of $ 846.9 million and $ 449.3 million of interest rate swaps that cleared through the CCP, respectively. Applying variation margin payments as settlement to CCP cleared derivative transactions resulted in a reduction in derivative asset fair values of $ 257 thousand and $ 25.8 million as of December 31, 2023 and 2022, respectively. The Company enters into foreign exchange forward contracts with various counterparties to mitigate the risk of fluctuations in foreign currency exchange rates for foreign exchange certificates of deposit or foreign exchange contracts entered into with our clients. These contracts are not designated as hedging instruments and are recorded at fair value in our Consolidated Balance Sheets. Changes in the fair value of these contracts as well as the related foreign exchange certificates of deposit and foreign exchange contracts are recognized immediately in net income as a component of non-interest income. Period end gross positive fair values are recorded in other assets and gross negative fair values are recorded in other liabilities. F- 47 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The notional amount and fair value of the Company’s derivative financial instruments not designated as hedging instruments as of December 31, 2023, and December 31, 2022, were as follows: Derivative financial instruments December 31, 2023 December 31, 2022 not designated as hedging instruments: (In thousands) Notional amounts: Option contracts $ — $ — Forward, and swap contracts with positive fair value $ 775,324 $ 668,422 Forward, and swap contracts with negative fair value $ 752,250 $ 765,639 Fair value: Forward, and swap contracts with positive fair value $ 39,010 $ 50,467 Forward, and swap contracts with negative fair value $ ( 38,807 ) $ ( 50,962 ) F- 48 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) 17. Fair Value Measurements and Fair Value of Financial Instruments The Company uses fair value to measure certain assets and liabilities on a recurring basis, primarily securities available for-sale and derivatives. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered “nonrecurring” for purposes of disclosing our fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for individually evaluated loans and other real estate owned and also to record impairment on certain assets, such as goodwill, CDI, and other long-lived assets. The Company used valuation methodologies to measure assets at fair value under ASC Topic 820 and ASC Topic 825, as amended by ASU 2016 - 01 and ASU 2018 - 03, to estimate the fair value of financial instruments not recorded at fair value. The fair value of the Company’s assets and liabilities is classified and disclosed in one of the following three categories: ● Level 1 – Quoted prices in active markets for identical assets or liabilities. ● Level 2 – Observable prices in active markets for similar assets or liabilities; prices for identical or similar assets or liabilities in markets that are not active; directly observable market inputs for substantially the full term of the asset and liability; market inputs that are not directly observable but are derived from or corroborated by observable market data. ● Level 3 – Unobservable inputs based on the Company’s own judgments about the assumptions that a market participant would use. The classification of assets and liabilities within the hierarchy is based on whether inputs to the valuation methodology used are observable or unobservable, and the significance of those inputs in the fair value measurement. The Company’s assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurements as follows: Financial assets and liabilities measured at fair value on a recurring basis The Company uses the following methodologies to measure the fair value of its financial assets and liabilities on a recurring basis: Securities Available for Sale and Equity Securities . For certain actively traded agency preferred stocks, mutual funds, U.S. Treasury securities, and other equity securities, the Company measures the fair value based on quoted market prices in active exchange markets at the reporting date, a Level 1 measurement. The Company also measures securities by using quoted market prices for similar securities or dealer quotes, a Level 2 measurement. This category generally includes U.S. Government agency securities, state and municipal securities, mortgage-backed securities (“MBS”), commercial MBS, collateralized mortgage obligations, asset-backed securities, corporate bonds and trust preferred securities. Warrants . The Company measures the fair value of warrants based on unobservable inputs based on assumption and management judgment, a Level 3 measurement. Currency Option Contracts and Foreign Exchange Contracts . The Company measures the fair value of currency option and foreign exchange contracts based on observable market rates on a recurring basis, a Level 2 measurement. Interest Rate Swaps . The Company measures the fair value of interest rate swaps using third party models with observable market data, a Level 2 measurement. F- 49 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The following tables present the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2023, and at December 31, 2022: As of December 31, 2023 Fair Value Measurements Using Total at Level 1 Level 2 Level 3 Fair Value Assets (In thousands) Securities available-for-sale U.S. Treasury securities $ 495,300 $ — $ — $ 495,300 U.S. government agency entities — 48,169 — 48,169 U.S. government sponsored entities — — — — Mortgage-backed securities — 786,723 — 786,723 Collateralized mortgage obligations — 28,044 — 28,044 Corporate debt securities — 246,334 — 246,334 Total securities available-for-sale 495,300 1,109,270 — 1,604,570 Equity securities Mutual funds 5,585 — — 5,585 Preferred stock of government sponsored entities 1,821 — — 1,821 Other equity securities 33,000 — — 33,000 Total equity securities 40,406 — — 40,406 Warrants — — — — Interest rate swaps — 54,268 — 54,268 Foreign exchange contracts 379 — 379 Total assets $ 535,706 $ 1,163,917 $ — $ 1,699,623 Liabilities Interest rate swaps $ — $ 45,762 $ — $ 45,762 Foreign exchange contracts — 175 — 175 Total liabilities $ — $ 45,937 $ — $ 45,937 As of December 31, 2022 Fair Value Measurements Using Total at Level 1 Level 2 Level 3 Fair Value Assets (In thousands) Securities available-for-sale U.S. Treasury securities $ 240,500 $ — $ — $ 240,500 U.S. government agency entities — 63,610 — 63,610 U.S. government sponsored entities — 30,000 — 30,000 Mortgage-backed securities — 867,094 — 867,094 Collateralized mortgage obligations — 31,061 — 31,061 Corporate debt securities — 241,083 — 241,083 Total securities available-for-sale 240,500 1,232,848 — 1,473,348 Equity securities Mutual funds 5,509 — — 5,509 Preferred stock of government sponsored entities 1,289 — — 1,289 Other equity securities 15,360 — — 15,360 Total equity securities 22,158 — — 22,158 Warrants — — 50 50 Interest rate swaps — 44,443 — 44,443 Foreign exchange contracts — 448 — 448 Total assets $ 262,658 $ 1,277,739 $ 50 $ 1,540,447 Liabilities Interest rate swaps $ — $ 51,864 $ — $ 51,864 Foreign exchange contracts — 942 — 942 Total liabilities $ — $ 52,806 $ — $ 52,806 F- 50 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) Assets measured at estimated fair value on a non-recurring basis. Certain assets or liabilities are required to be measured at estimated fair value on a nonrecurring basis subsequent to initial recognition. Generally, these adjustments are the result of lower-of-cost-or-fair value or other impairment write-downs of individual assets. In determining the estimated fair values during the period, the Company determined that substantially all the changes in estimated fair value were due to declines in market conditions versus instrument specific credit risk. For the year ended December 31, 2023, and December 31, 2022, there were no material adjustments to fair value for the Company’s assets and liabilities measured at fair value on a nonrecurring basis in accordance with GAAP. For financial assets measured at fair value on a nonrecurring basis that were still reflected in the Consolidated Balance Sheets as of December 31, 2023, and 2022, the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets at December 31, 2023, and at December 31, 2022, and the total losses for the periods indicated: As of December 31, 2023 Total Losses Fair Value Measurements Using Total at For the Twelve Months Ended Level 1 Level 2 Level 3 Fair Value December 31, 2023 December 31, 2022 Assets (In thousands) Non-accrual loans by type: Commercial loans $ — $ — $ 191 $ 191 $ — $ 1,786 Commercial real estate loans — — 6,882 6,882 4,069 2,091 Total non-accrual loans — — 7,073 7,073 4,069 3,877 Other real estate owned (1) — — 20,446 20,446 — — Investments in venture capital — — 237 237 227 268 Total assets $ — $ — $ 27,756 $ 27,756 $ 4,296 $ 4,145 ( 1 ) Other real estate owned balance of $ 19.4 million in the Consolidated Balance Sheets is net of estimated disposal costs. As of December 31, 2022 Total Losses Fair Value Measurements Using Total at For the Twelve Months Ended Level 1 Level 2 Level 3 Fair Value December 31, 2022 December 31, 2021 Assets (In thousands) Non-accrual loans by type: Commercial loans $ — $ — $ 12,950 $ 12,950 $ 1,786 $ 1,012 Commercial real estate loans — — 32,205 32,205 2,091 — Residential mortgage and equity lines — — 8,978 8,978 — — Installment and other loans — — 8 8 — — Total non-accrual loans — — 54,141 54,141 3,877 1,012 Other real estate owned (1) — — 4,328 4,328 — 17 Investments in venture capital — — 689 689 268 143 Total assets $ — $ — $ 59,158 $ 59,158 $ 4,145 $ 1,172 ( 1 ) Other real estate owned balance of $ 4.1 million in the Consolidated Balance Sheets is net of estimated disposal costs. The significant unobservable (Level 3 ) inputs used in the fair value measurement of collateral for collateral-dependent individually evaluated loans was primarily based on the appraised value of collateral adjusted by estimated sales cost and commissions. The Company generally obtains new appraisal reports every twelve months as appropriate. As the Company’s primary objective in the event of default would be to monetize the collateral to settle the outstanding balance of the loan, less marketable collateral would receive a larger discount. In the current year, the Company used borrower specific collateral discounts with various discount levels. The fair value of individually evaluated loans is calculated based on the net realizable fair value of the collateral or the observable market price of the most recent sale or quoted price from loans held for sale. The Company does not record loans at fair value on a recurring basis. Nonrecurring fair value adjustments to collateral dependent non-accrual loans are recorded based on the current appraised value of the collateral, a Level 2 measurement, or management’s judgment and estimation of value using discounted future cash flows or old appraisals which are then adjusted based on recent market trends, a Level 3 measurement. F- 51 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The significant unobservable inputs (Level 3 ) used in the fair value measurement of other real estate owned (“OREO”) are primarily based on the appraised value of OREO adjusted by estimated sales cost and commissions. The Company applies estimated sales cost and commissions ranging from 3 % to 6 % of the collateral value of individually evaluated loans, quoted price, or loan sale price of loans held for sale, and appraised value of OREO. The significant unobservable inputs in the Black-Scholes option pricing model for the fair value of warrants are the expected life of warrant ranging from one to six years, risk-free interest rate from 4.25 % to 5.11 %, and stock volatility of the Company from 20.14 % to 27.69 % as of December 31, 2022. There were no warrants outstanding as of December 31, 2023. Fair value is estimated in accordance with ASC Topic 825. Fair value estimates are made at specific points in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involved uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated: December 31, 2023 December 31, 2022 Carrying Carrying Amount Fair Value Amount Fair Value (In thousands) Financial Assets Cash and due from banks $ 173,988 $ 173,988 $ 195,440 $ 195,440 Short-term investments 654,813 654,813 966,962 966,962 Securities available-for-sale 1,604,570 1,604,570 1,473,348 1,473,348 Loans, net 19,382,858 19,605,152 18,100,898 17,944,588 Equity securities 40,406 40,406 22,158 22,158 Investment in Federal Home Loan Bank stock 17,746 17,746 17,250 17,250 Warrants — — 50 50 Notional Notional Amount Fair Value Amount Fair Value Foreign exchange contracts $ 124,452 $ 379 $ 72,996 $ 448 Interest rate swaps 1,406,879 54,268 817,615 44,443 Financial Liabilities Carrying Carrying Amount Fair Value Amount Fair Value Deposits $ 19,325,447 $ 19,347,070 $ 18,505,279 $ 18,572,387 Advances from Federal Home Loan Bank 540,000 536,996 485,000 482,737 Other borrowings 15,787 13,978 22,600 18,385 Long-term debt 119,136 72,304 119,136 68,231 Notional Notional Amount Fair Value Amount Fair Value Foreign exchange contracts 101,378 175 170,213 942 Interest rate swaps 1,078,880 45,762 595,426 51,864 Notional Notional Amount Fair Value Amount Fair Value Off-Balance Sheet Financial Instruments Commitments to extend credit $ 3,808,620 $ ( 14,344 ) $ 3,630,304 $ ( 14,797 ) Standby letters of credit 368,618 ( 2,821 ) 315,821 ( 2,738 ) Other letters of credit 11,308 ( 10 ) 29,416 ( 33 ) F- 52 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The following tables present the level in the fair value hierarchy for the estimated fair values of certain financial instruments as of December 31, 2023, and December 31, 2022. As of December 31, 2023 Estimated Fair Value Measurements Level 1 Level 2 Level 3 (In thousands) Financial Assets Cash and due from banks $ 173,988 $ 173,988 $ — $ — Short-term investments 654,813 654,813 — — Loans, net 19,605,152 — — 19,605,152 Equity securities 40,406 40,406 — — Investment in Federal Home Loan Bank stock 17,746 — 17,746 — Warrants — — — — Financial Liabilities Deposits 19,347,070 — — 19,347,070 Advances from Federal Home Loan Bank 536,996 — 536,996 — Other borrowings 13,978 — — 13,978 Long-term debt 72,304 — 72,304 — As of December 31, 2022 Estimated Fair Value Measurements Level 1 Level 2 Level 3 (In thousands) Financial Assets Cash and due from banks $ 195,440 $ 195,440 $ — $ — Short-term investments 966,962 966,962 — — Loans, net 17,944,588 — — 17,944,588 Equity securities 22,158 22,158 — — Investment in Federal Home Loan Bank stock 17,250 — 17,250 — Warrants 50 — — 50 Financial Liabilities Deposits 18,572,387 — — 18,572,387 Advances from Federal Home Loan Bank 482,737 — 482,737 — Other borrowings 18,385 — — 18,385 Long-term debt 68,231 — 68,231 — F- 53 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) 18. Revenue from Contracts with Clients The Company’s revenue from contracts with clients consists primarily of service charges and fees related to deposit accounts and wealth management fees. The following is a summary of revenue from contracts with clients that are in-scope and not in-scope under ASC 606: Year Ended December 31, 2023 2022 2021 (In thousands) Non-interest income, in-scope: Fees and service charges on deposit accounts $ 9,204 $ 9,394 $ 8,618 Wealth management fees 17,506 16,436 15,056 Other service fees (1) 17,202 16,349 15,400 Total in-scope non-interest income 43,912 42,179 39,074 Noninterest income, not in-scope (2) 24,380 14,635 15,529 Total non-interest income $ 68,292 $ 56,814 $ 54,603 ( 1 ) Other service fees comprise of fees related to letters of credit, wire fees, fees on foreign exchange transactions and other immaterial individual revenue streams. ( 2 ) These amounts primarily represent revenue from contracts with customers that are out of the scope of ASC 606. The major revenue streams by fee type that are within the scope of ASC 606 presented in the above tables are described in additional detail below: Fees and Services Charges on Deposit Accounts Fees and service charges on deposit accounts include charges for analysis, overdraft, cash checking, ATM, and safe deposit activities executed by our deposit clients, as well as interchange income earned through card payment networks for the acceptance of card-based transactions. Fees earned from our deposit clients are governed by contracts that provide for overall custody and access to deposited funds and other related services and can be terminated at will by either party. Fees received from deposit clients for the various deposit activities are recognized as revenue once the performance obligations are met. Wealth Management Fees The Company employs financial consultants to provide investment planning services for clients including wealth management services, asset allocation strategies, portfolio analysis and monitoring, investment strategies, and risk management strategies. The fees the Company earns are variable and are generally received monthly. The Company recognizes revenue for the services performed at quarter end based on actual transaction details received from the broker dealer the Company engages. F- 54 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) Practical Expedients and Exemptions The Company applies the practical expedient in ASC 606 - 10 - 50 - 14 and does not disclose the value of unsatisfied performance obligations as the Company’s contracts with clients generally have a term that is less than one year, are open-ended with a cancellation period that is less than one year or allow the Company to recognize revenue in the amount to which the Company has the right to invoice. In addition, given the short-term nature of the Company’s contracts, the Company also applies the practical expedient in ASC 606 - 10 - 32 - 18 and does not adjust the consideration from clients for the effects of a significant financing component, if at contract inception, the period between when the entity transfers the goods or services and when the client pays for that good or service is one year or less. 19. Employee Benefit Plans Employee Stock Ownership Plan. Under the Company’s Amended and Restated Cathay Bank Employee Stock Ownership Plan (“ESOP”), the Company can make annual contributions to a trust in the form of either cash or common stock of the Bancorp for the benefit of eligible employees. Employees are eligible to participate in the ESOP after completing two years of service for salaried full-time employees or 1,000 hours for each of two consecutive years for salaried part-time employees. The amount of the annual contribution is discretionary except that it must be sufficient to enable the trust to meet its current obligations. The Company also pays for the administration of this plan and of the trust. The Company has not made contributions to the trust since 2004 and does not expect to make any contributions in the future. Effective June 17, 2004, the ESOP was amended to provide the participants the election either to reinvest the dividends on the Company stock allocated to their accounts or to have these dividends distributed to the participant. The ESOP trust purchased 16,555 shares in 2023, 18,808 shares in 2022, and 18,338 shares in 2021, of the Bancorp’s common stock at an aggregate cost of $ 613 thousand in 2023, $ 814 thousand in 2022, and $ 781 thousand in 2021. The distribution of benefits to participants totaled 33,554 shares in 2023, 29,363 shares in 2022, and 47,617 shares in 2021. As of December 31, 2023, the ESOP owned 676,594 shares, or 0.93 %, of the Company’s outstanding common stock. 401 (k) Plan. In 1997, the Board approved the Company’s 401 (k) Profit Sharing Plan, which began on March 1, 1997. Salaried employees who have completed one month of service and have attained the age of 21 are eligible to participate. Enrollment dates are on the first of each month. Participants may contribute up to 75 % of their eligible compensation for the year but not to exceed the dollar limit set by the Internal Revenue Code. Participants may change their contribution election on the enrollment dates. Effective October 1, 2022, the vesting schedule for the matching contribution is 0 % for less than three years of service and 100 % after three years of service. Effective on June 1, 2018, the Company matches 100 % on the first 5.0 % of eligible compensation contributed per pay period by the participant, on the first day of the following month after 30 days of service. The Company’s contribution amounted to $ 4.5 million in 2023, $ 3.9 million in 2022, and $ 3.6 million in 2021. The Plan allows participants to withdraw all or part of their vested amount in the Plan due to certain financial hardship as set forth in the Internal Revenue Code and Treasury Regulations. Participants may also borrow up to 50 % of the vested amount, with a maximum of $ 50 thousand. The minimum loan amount is $ 1 thousand. Bank-Owned Life Insurance. As of December 31, 2023 and 2022, cash surrender value of bank-owned life insurance was $ 50.9 million and $ 49.9 million, respectively. The Bank is the beneficiary under the policy. In the event of the death of a covered officer, we will receive the specified insurance benefit from the insurance carrier and pay a fixed dollar amount to the beneficiary designated by the officer. F- 55 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) 20. Equity Incentive Plans Pursuant to the Company’s 2005 Incentive Plan, as amended and restated in May 2015, the Company may grant incentive stock options (employees only), non-statutory stock options, common stock awards, restricted stock, RSUs, stock appreciation rights and cash awards to non-employee directors and eligible employees. As of December 31, 2023, 1,456,944 shares were available under the 2005 Incentive Plan for future grants. In addition to stock options, the Company also grants restricted stock units (“RSUs”) that are generally granted at no cost to the recipient. RSUs generally vest ratably over three years or cliff vest after one or three years of continued employment from the date of the grant. While a portion of RSUs may be time-vesting awards, others may vest subject to the attainment of specified performance goals and are referred to as “performance-based RSUs.” All RSUs are subject to forfeiture until vested. Performance-based RSUs are granted at the target amount of awards. Based on the Company’s attainment of specified performance goals and consideration of market conditions, the number of shares that vest can be adjusted to a minimum of zero and to a maximum of 150 % of the target. The amount of performance-based RSUs that are eligible to vest is determined at the end of each performance period and is then added together to determine the total number of performance shares that are eligible to vest. Performance-based RSUs generally cliff vest three years from the date of grant. Compensation costs for the time-based awards are based on the quoted market price of the Company’s stock at the grant date. Compensation costs associated with performance-based RSUs are based on grant date fair value, which considers both market and performance conditions. Compensation costs of both time-based and performance-based awards are recognized on a straight-line basis from the grant date until the vesting date of each grant. F- 56 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The following table presents RSU activity for 2023, 2022, and 2021: Time-Based RSUs Performance-Based RSUs Weighted-Average Weighted-Average Grant Date Grant Date Shares Fair Value Shares Fair Value Balance at December 31, 2020 292,670 $ 33.37 302,802 $ 32.55 Granted 63,467 41.18 113,764 37.13 Vested ( 96,869 ) 41.72 ( 76,292 ) 41.69 Forfeited ( 23,324 ) 29.92 ( 7,768 ) 40.85 Balance at December 31, 2021 235,944 $ 32.38 332,506 $ 31.82 Granted 67,652 46.69 112,393 40.24 Vested ( 89,386 ) 40.92 ( 81,934 ) 44.52 Forfeited ( 12,151 ) 34.07 — — Balance at December 31, 2022 202,059 $ 33.29 362,965 $ 31.56 Granted 86,809 37.92 123,504 38.41 Vested ( 92,075 ) 34.29 ( 136,808 ) 34.21 Forfeited ( 2,404 ) 37.77 — — Balance at December 31, 2023 194,389 $ 34.83 349,661 $ 32.94 The compensation expense recorded for RSUs was $ 7.0 million in 2023, $ 7.0 million in 2022, and $ 6.0 million in 2021. Unrecognized stock-based compensation expense related to RSUs was $ 9.9 million and $ 9.0 million as of December 31, 2023, and 2022, respectively. As of December 31, 2023, these costs are expected to be recognized over the next 1.9 years. F- 57 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) 21. Condensed Financial Information of Cathay General Bancorp The condensed financial information of the Bancorp as of December 31, 2023, and December 31, 2022, and for the years ended December 31, 2023, 2022 and 2021 is as follows: Balance Sheets As of December 31, 2023 2022 (In thousands, except share and per share data) Assets Cash $ 24,262 $ 14,902 Short-term certificates of deposit 335 334 Equity securities 34,441 16,360 Investment in Cathay Bank subsidiary 2,806,467 2,566,266 Investment in non-bank subsidiary 68 764 Other assets 3,896 4,385 Total assets $ 2,869,469 $ 2,603,011 Liabilities Junior subordinated debt $ 119,136 $ 119,136 Other liabilities 13,758 9,835 Total liabilities 132,894 128,971 Commitments and contingencies — — Stockholders' equity Common stock, $ 0.01 par value, 100,000,000 shares authorized, 91,392,480 issued and 72,668,927 outstanding at December 31, 2023, and 91,090,614 issued and 72,742,151 outstanding at December 31, 2022 914 911 Additional paid-in-capital 987,953 981,119 Accumulated other comprehensive loss, net ( 85,416 ) ( 102,295 ) Retained earnings 2,500,341 2,244,855 Treasury stock, at cost ( 18,723,553 shares at December 31, 2023, and 18,348,463 shares at December 31, 2022) ( 667,217 ) ( 650,550 ) Total equity 2,736,575 2,474,040 Total liabilities and equity $ 2,869,469 $ 2,603,011 F- 58 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) Statements of Operations Year Ended December 31, 2023 2022 2021 (In thousands) Cash dividends from Cathay Bank $ 134,000 $ 232,773 $ 230,000 Interest income 44 30 36 Interest expense 6,480 5,560 5,773 Non-interest Income 17,757 1,018 3,117 Non-interest expense 4,065 3,937 3,224 Income before income tax expense 141,256 224,324 224,156 Income tax expense/(benefit) 1,707 ( 2,885 ) ( 1,810 ) Income before undistributed earnings of subsidiaries 139,549 227,209 225,966 Undistributed earnings of subsidiary 214,575 133,433 72,338 Net income $ 354,124 $ 360,642 $ 298,304 Statements of Cash Flows Year Ended December 31, 2023 2022 2021 (In thousands) Cash flows from Operating Activities Net income $ 354,124 $ 360,642 $ 298,304 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries ( 214,575 ) ( 133,433 ) ( 72,338 ) Gain on equity securities ( 17,977 ) ( 733 ) ( 122 ) Write-downs on venture capital and other investments 179 268 73 Loss/(gain) in fair value of warrants 50 ( 27 ) — Stock issued to directors as compensation 850 849 850 Net change in accrued interest receivable and other assets 5,216 ( 434 ) 1,918 Net change in other liabilities ( 2,371 ) 8,531 4,934 Net cash provided by operating activities 125,496 235,663 233,619 Cash flows from Investment Activities Venture capital and other investments 168 ( 5 ) 357 Net cash (used)/provided by investment activities 168 ( 5 ) 357 Cash flows from Financing Activities Cash dividends paid ( 98,638 ) ( 100,955 ) ( 99,322 ) Proceeds from shares issued under the Dividend Reinvestment Plan 3,491 3,720 3,563 Taxes paid related to net share settlement of RSUs ( 4,490 ) ( 2,905 ) ( 2,632 ) Purchase of treasury stock ( 16,667 ) ( 141,316 ) ( 167,104 ) Net cash used in financing activities ( 116,304 ) ( 241,456 ) ( 265,495 ) Increase/(decrease) in cash, cash equivalents and restricted cash 9,360 ( 5,798 ) ( 31,519 ) Cash, cash equivalents, and restricted cash, beginning of the year 14,902 20,700 52,219 Cash, cash equivalents, and restricted cash, end of the period $ 24,262 $ 14,902 $ 20,700 F- 59 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) 22. Dividend Reinvestment Plan The Company has a Dividend Reinvestment Plan which allows for participants’ reinvestment of cash dividends and certain optional additional investments in the Bancorp’s common stock. Shares issued under the plan and the consideration received were 93,182 shares for $ 3.5 million in 2023, 86,501 shares for $ 3.7 million in 2022, and 84,011 shares for $ 3.6 million in 2021. 23. Regulatory Matters The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts, and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The Federal Deposit Insurance Corporation has established five capital ratio categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” A well-capitalized institution must have a common equity tier 1 capital ratio equal to or greater than 6.5 %, 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 %. As of December 31, 2023, and 2022, the Bank qualified as well capitalized under the regulatory framework for prompt corrective action. F- 60 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) The Bancorp’s and the Bank’s capital and leverage ratios as of December 31, 2023, and December 31, 2022, are presented in the tables below: Actual Minimum Capital Required - Basel III Required to be Considered Well Capitalized Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio December 31, 2023 (In thousands) Common Equity Tier 1 to Risk-Weighted Assets Cathay General Bancorp $ 2,430,773 12.84 $ 1,325,277 7.00 $ 1,230,615 6.50 Cathay Bank 2,501,439 13.23 1,323,846 7.00 1,229,286 6.50 Tier 1 Capital to Risk-Weighted Assets Cathay General Bancorp 2,430,773 12.84 1,609,265 8.50 1,514,602 8.00 Cathay Bank 2,501,439 13.23 1,607,527 8.50 1,512,967 8.00 Total Capital to Risk-Weighted Assets Cathay General Bancorp 2,709,888 14.31 1,987,916 10.50 1,893,253 10.00 Cathay Bank 2,665,054 14.09 1,985,769 10.50 1,891,209 10.00 Leverage Ratio Cathay General Bancorp 2,430,773 10.55 921,473 4.00 1,151,841 5.00 Cathay Bank 2,501,439 10.87 920,670 4.00 1,150,838 5.00 Actual Minimum Capital Required - Basel III Required to be Considered Well Capitalized Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio December 31, 2022 (In thousands) Common Equity Tier 1 to Risk-Weighted Assets Cathay General Bancorp $ 2,182,066 12.21 $ 1,250,914 7.00 $ 1,161,563 6.50 Cathay Bank 2,276,830 12.75 1,250,461 7.00 1,161,142 6.50 Tier 1 Capital to Risk-Weighted Assets Cathay General Bancorp 2,182,066 12.21 1,518,967 8.50 1,429,616 8.00 Cathay Bank 2,276,830 12.75 1,518,417 8.50 1,429,098 8.00 Total Capital to Risk-Weighted Assets Cathay General Bancorp 2,452,781 13.73 1,876,371 10.50 1,787,020 10.00 Cathay Bank 2,432,045 13.61 1,875,691 10.50 1,786,373 10.00 Leverage Ratio Cathay General Bancorp 2,182,066 10.08 865,470 4.00 1,081,838 5.00 Cathay Bank 2,276,830 10.53 864,918 4.00 1,081,148 5.00 F- 61 Table of Contents CATHAY GENERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued) 24. Balance Sheet Offsetting Certain financial instruments, including resell and repurchase agreements, securities lending arrangements and derivatives, may be eligible for offset in the Consolidated Balance Sheets and/or subject to master netting arrangements or similar agreements. The Company’s securities sold with agreements to repurchase and derivative transactions with upstream financial institution counter parties are generally executed under International Swaps and Derivative Association master agreements which include “right of set-off” provisions. In such cases, there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Nonetheless, the Company does not generally offset such financial instruments for financial reporting purposes. Financial instruments that are eligible for offset in the Consolidated Balance Sheets, as of December 31, 2023, and December 31, 2022, are presented in the following tables: Gross Amounts Not Offset in the Balance Sheet Gross Amounts Recognized Gross Amounts Offset in the Balance Sheet Net Amounts Presented in the Balance Sheet Financial Instruments Collateral Posted Net Amount December 31, 2023 (In thousands) Assets: Derivatives $ 54,268 $ 335 $ 53,933 $ — $ 44,860 $ 9,073 Liabilities: Derivatives $ 45,762 $ — $ 45,762 $ — $ — $ 45,762 December 31, 2022 Assets: Derivatives $ 90,451 $ 46,008 $ 44,443 $ — $ 42,930 $ 1,513 Liabilities: Derivatives $ 51,864 $ — $ 51,864 $ — $ — $ 51,864 25. Subsequent Events On February 15, 2024, the Company’s Board of Directors declared first quarter 2024 dividends for the Company’s common stock. The common stock cash dividend of $ 0.34 per share will be paid on March 11, 2024 , to stockholders of record on February 28, 2024 . The Company has evaluated the effect of events that have occurred subsequent to December 31, 2023, through the date of issuance of the Consolidated Financial Statements. Based on this evaluation, the Company has determined none of these events would require recognition in the Consolidated Financial Statements or disclosure in the notes to the Consolidated Financial Statements. F-62