What changed in this filing

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Item 1A. Risk Factors

2025-02-28 compared with 2024-02-29 · 111 added, 146 removed, 256 unchanged (50% of the section changed)

We are exposed to a variety of risks, some of which are inherent to the financial services industry and others of which are more specific to our business.

Our enterprise risk management (“ERM”) program incorporates risk management throughout the organization in identifying, managing, monitoring, and reporting risks.

Our ERM program identifies the major risk categories in our business as:

and reputational.

The discussion below addresses material factors, of which we are currently aware, that could have a material adverse effect on our business, results of operations, and financial condition.

These risk factors and other forward-looking statements included in this Form 10-K relate to future events, expectations, trends, and operating periods, and involve certain factors that are subject to change, and important risks and uncertainties that could cause actual results to differ materially.

These risks and uncertainties should not be considered a complete discussion of all the risks and uncertainties that we might face, but are intended to highlight risks that we believe are important factors to consider when evaluating our business and an investment in our securities.

We, like other financial institutions, face risks inherent to our business, results of operations, and financial condition.

The risks below address factors of which we are currently aware that could impact us materially by causing actual results to differ from our historical results or the results contemplated by the forward-looking statements contained in this Form 10-K.

Although these risks are organized by headings and each risk is discussed separately, many are interrelated.

In addition, there may be additional risks and uncertainties that adversely affect our business, results of operations, and financial condition that are not presently known, that are not currently believed to be significant, or that are common to all businesses.

In addition, there may be additional risks that may impact us materially that are not presently known, that are not currently believed to be significant, or that are common to all businesses.

Risks Related to Geopolitical Uncertainties

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• greater than expected losses in our credit exposure due to unforeseen economic conditions, which may, in turn, adversely impact our results of operations and financial condition;

• failure of our borrowers to make timely repayments of their loans, or a decrease in the value of real estate collateral securing the payment of such loans, which could result in credit losses, delinquencies, foreclosures and customer bankruptcies, and in turn have a material adverse effect on our results of operations and financial condition;

• failure of our borrowers to make timely repayments of their loans, or a decrease in the value of real estate or other collateral securing the payment of such loans, which could result in credit losses, delinquencies, foreclosures and customer bankruptcies, and in turn have a material adverse effect on our results of operations and financial condition;

• a decrease in deposit balances and in the demand for loans and other products and services;

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• a loss of confidence in the financial services industry, our market sector and the equity markets by investors, placing pressure on our stock price.

Changes in the economic and political relations between the U.S.

and China, including trade disputes and the imposition of tariffs and other trade restrictions, may adversely impact our business, results of operations, and financial condition.

Economic trade and political tensions, including tariffs and other punitive trade policies and disputes, between the U.S.

and China pose a risk to our business and customers.

The imposition of tariffs, retaliatory tariffs, export controls or other trade restrictions on products and materials that our customers import or export could cause the prices of their products to increase, possibly reduce demand, and hence may negatively impact our customers’ margins and their ability to service debt.

We may also experience a decrease in the demand for loans and other financial products or a deterioration in the credit quality of the loans extended to customers in industry sectors that are most sensitive to the trade restrictions.

We face risks associated with international operations.

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The Bank’s international presence includes locations in Hong Kong, China and Singapore.

Our presence in Asia carries certain risks, including risks arising from the uncertainty regarding our ability to generate revenues from foreign operations and risks associated with leveraging and conducting business on an international basis.

These risks include:

legal, regulatory, and tax requirements and restrictions;

Our presence in Asia carries certain risks, including risks relating to our ability to generate revenues from foreign operations and to leverage and conduct business on an international basis, due to legal, regulatory, and tax requirements and restrictions;

tariffs, trade barriers, or other trade restrictions;

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difficulties in staffing and managing foreign operations;

political and economic risks, and financial risks including currency and payment risks.

political and economic risks;

and financial risks including currency and payment risks.

For example, economic trade and political tensions, including tariffs and other punitive trade policies and disputes between the U.S.

and China pose a risk to our business and customers.

On February 1, 2025, the Trump administration announced the imposition of a 10% tariff on imports from China and a 25% tariff on imports from Mexico and Canada.

However, the tariffs on Mexico and Canada have been temporarily paused for 30 days following agreements from both countries.

The timing and extent of these trade policy changes remain subject to further developments.

The imposition of tariffs, retaliatory tariffs, export controls or other trade restrictions on products, materials or other goods that our customers import or export could impact prices, reduce demand, or otherwise negatively impact our customers’ businesses and their ability to service debt.

Further, a downturn in economic growth and real estate markets in China and volatility in the Shanghai and Hong Kong stock exchanges, among other things, may negatively impact asset values and the profitability and liquidity of our customers operating in this region.

These risks could adversely affect the success of our international operations and could have a material adverse effect on our overall business, results of operations, and financial condition.

In addition, we face risks that our employees and affiliates may fail to comply with applicable laws and regulations governing our international operations, including the U.S.

Foreign Corrupt Practices Act, anti-corruption laws, and other U.S.

and foreign laws and regulations.

In addition, we face risks that our employees and affiliates may fail to comply with applicable U.S.

and foreign laws and regulations governing our international operations, including the U.S.

Foreign Corrupt Practices Act and other anti-corruption laws.

Failure to comply with such laws and regulations could, among other things, result in enforcement actions and fines against us, limitations on our conduct and reputational harm, any of which could have a material adverse effect on our business, results of operations and financial condition.

Natural disasters and geopolitical events beyond our control could adversely affect our business, results of operations, and financial condition.

Natural disasters such as wildfires, earthquakes, extreme weather conditions, hurricanes, floods, droughts, widespread health emergencies or pandemics, and other acts of nature and geopolitical events involving political unrest, terrorism, or military conflicts could adversely affect our business operations and those of our customers and cause substantial damage and loss to real and personal property.

Natural disasters and geopolitical events could impair borrowers’ ability to service their loans, decrease the level and duration of deposits by customers, erode the value of loan collateral, result in an increase in the amount of nonperforming assets, net charge-offs, and provision for credit losses, and otherwise cause a material adverse effect on our results of operations and financial condition.

Macroeconomic challenges caused by the COVID-19 pandemic and geopolitical events have been persistent and are difficult to predict, including supply-chain shortages, volatile energy prices, tightening monetary policy and inflation, and heightened cybersecurity risks.

The extent of the continuing impact of these events on our business, results of operations and financial condition will depend on future developments, which are highly uncertain and difficult to predict.

Additionally, political unrest, wars and acts of terrorism have heightened geopolitical tensions, which continue to disrupt the global supply chain and increase economic uncertainty and inflationary pressures.

Instability in global economic conditions and geopolitical matters could have a material adverse effect on our results of operations and financial condition.

The effects of climate change could adversely impact our operations, business and customers .

The risks of climate change can be divided into physical and transition risks.

The physical risks of climate change include discrete weather events, changing climate patterns and other disruptions caused by climate change affecting the regions, countries and locations in which we or our customers have operations or other interests.

Cl imate change concerns could result in transition risk, which are risks that arise from the process of adjusting to a low-carbon economy, including changes in climate policy or in the regulation of financial institutions with respect to risks posed by climate change.

Transition risks could also negatively affect our customers in certain industries, which may increase our credit risk and reduce the demand from these customers for our products and services.

These climate-related physical and transition risks could have a direct financial impact on our business and operations.

Material adverse impacts to our customers, including declines in asset values, reduced availability of insurance, significant interruptions to business operations, and negative consequences to business models and the need to make changes in responses to those consequences could also affect us.

The risks of regulatory changes and additional compliance and disclosure requirements related to climate change may impose operational burdens and increased compliance costs, capital requirements, or the risk of litigation, which could adversely affect our business, results of operations and financial condition.

Climate change also presents reputational risk from stakeholder concerns about our practices related to climate change.

Our business, reputation, and ability to attract and retain employees may also be harmed if our response to climate change is perceived to be ineffective or insufficient.

Natural disasters, the effects of climate change and geopolitical events beyond our control could adversely affect our business, results of operations, and financial condition.

Natural disasters such as wildfires, earthquakes, extreme weather conditions, hurricanes, floods, droughts, widespread health emergencies or pandemics and other acts of nature, and geopolitical events involving political unrest, terrorism, or military conflicts have in the past, and may in the future, cause substantial damage and loss to real and personal property.

These events can seriously harm our customers and adversely affect our business operations, including by impairing borrowers’ ability to service their loans, decreasing the level and duration of deposits by customers, eroding the value of loan collateral, or resulting in an increase in nonperforming assets, net charge-offs, and provision for credit losses.

In addition, natural disasters and geopolitical events could also create macroeconomic challenges such as supply-chain shortages, volatile energy prices, tightened monetary policy and inflation, and economic instability, and otherwise cause a material adverse effect on our business, results of operations and financial condition.

Climate change also presents physical risks to us and our customers, including from discrete weather events, changing climate patterns and other disruptions, as well as transition risks of a shift to a low-carbon economy, including changes in policies, regulations, technologies, consumer sentiment and preferences.

Regulatory changes regarding climate risk management and practices may result in higher regulatory and compliance risks and costs.

Our reputation and client relationships may be damaged as a result of our practices related to climate change, including our direct or indirect involvement in, or decision not to participate in, certain industries or projects associated with causing climate change, as well as any decisions to conduct or change our activities in response to climate change considerations.

Our ability to attract and retain employees may also be harmed if our response to climate change is perceived to be ineffective or insufficient.

These climate-driven changes could materially and negatively impact our and our customers’ business, results of operations, financial condition and reputation.

Risks Related to Financial Matters

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Real estate values and real estate markets are generally affected by changes in general economic conditions and employment levels, fluctuations in interest rates, the availability of loans to potential purchasers and the availability and demand for types of real property investments, changes in tax laws and other governmental statutes, regulations and policies, and natural disasters, such as wildfires and earthquakes, which are particularly prevalent in California, where a significant portion of our real estate collateral is located.

For example, during 2024, the commercial real estate (“CRE”) market remained under pressure, primarily from decreased demand for office space, which affected the demand for CRE loans and loan performance.

If real estate values decline, the value of real estate collateral securing our loans could be significantly reduced.

Our ability to recover on defaulted loans by foreclosing and selling the real estate collateral would be further diminished, and we would be more likely to suffer losses on defaulted loans.

Furthermore, commercial real estate (“CRE”) and multifamily residential loans typically involve larger balances to single borrowers or groups of related borrowers.

Furthermore, CRE and multifamily residential loans typically involve larger balances to single borrowers or groups of related borrowers.

Since payments on these loans are often dependent on the successful operation or management of the properties, as well as the business and financial condition of the borrowers, repayment of such loans may be subject to adverse conditions in the real estate market, adverse economic conditions, shifts in demand for different types of properties, or changes in applicable government regulations.

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Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money.

In 2023 inflation persisted and was slow to decrease despite multiple increases to the federal funds rate by the Federal Reserve.

As inflation increases and interest rates rise, the value of our investment securities, particularly those with longer maturities, decreases, although this effect is less pronounced for floating rate instruments.

Prolonged periods of inflation also may impact our profitability by negatively impacting our costs and expenses, including increasing funding costs and expense related to talent acquisition and retention, and negatively impacting the demand for our products and services.

Recent data has indicated the pace of inflation in the U.S.

is slowing and the Federal Reserve has begun to cut the federal funds rate.

However, the future rate of inflation and other economic factors remain uncertain, and the Federal Reserve may decrease or increase interest rates slower or faster than anticipated.

If inflation increases and interest rates rise, the value of our investment securities, particularly those with longer maturities, will decrease, although this effect is less pronounced for floating rate instruments.

Prolonged periods of inflation also may impact our profitability by negatively impacting our costs and expenses, including increasing funding costs and expenses related to talent acquisition and retention, and negatively impacting the demand for our products and services.

Moreover, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans.

Further adverse changes in inflation and interest rates could negatively impact consumer and business confidence, and adversely affect the economy as well as our business, results of operations and financial condition.

Adverse changes in inflation and interest rates could negatively impact consumer and business confidence, and adversely affect the economy as well as our business, results of operations and financial condition.

The monetary policies of the federal government and its agencies could have a material adverse effect on our earnings.

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Changes in Federal Reserve policies are beyond our control.

Consequently, the impact of these changes on our business and results of operations is difficult to predict.

Consequently, the impact of these changes on our business, results of operations and financial condition is difficult to predict.

Further downgrades of the U.S.

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Over the past few years, U.S.

debt ceiling and budget deficit concerns have increased the possibility of additional credit rating downgrades and economic slowdowns, or a recession in the U.S.

Although U.S.

lawmakers passed legislation to raise the federal debt ceiling in 2023, there is risk of continuing political disagreement over the federal debt limit and budget.

In August 2023, Fitch Ratings Inc.

downgraded the long-term sovereign credit rating of the U.S.

to “AA+” from “AAA” and in November 2023 Moody’s Investor Service changed its outlook on U.S.

credit to negative.

The impact of this or any further downgrades to the U.S.

debt ceiling and budget deficit concerns have increased the possibility of U.S.

government shutdowns, automatic spending cuts, additional U.S.

credit rating downgrades and economic slowdowns, or a recession in the U.S.

As the federal debt level rises and interest rates remain elevated, the cost of servicing the debt may increase and the perceived creditworthiness of the U.S.

government may decrease.

The impact of any further downgrades to the U.S.

government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S.

and global financial markets and economic conditions.

In addition, disagreement over the federal budget may cause a full or partial U.S.

federal government shutdown.

Continued adverse political and economic conditions could have an adverse effect on our business, results of operation and financial condition.

Adverse political and economic conditions could have an adverse effect on our business, results of operation and financial condition.

We are subject to fluctuations in foreign currency exchange rates.

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Business — Supervision and Regulation — Regulatory Capital Requirements in this Form 10-K.

Our dependence on dividends from the Bank could affect our liquidity and ability to pay dividends.

East West is dependent on the Bank for dividends, distributions, and other payments.

Our principal source of cash flows, including cash flows to pay dividends to our stockholders and principal and interest on our outstanding debt, is dividends received from the Bank.

However, federal and California law limit the Bank’s ability to pay dividends to East West.

Subject to the Bank meeting or exceeding regulatory capital requirements, regulatory approval is required under federal law if the total of all dividends declared by the Bank in any calendar year would exceed the sum of the Bank’s net income for that year and its retained earnings for the preceding two years.

As a holding company, we depend on dividends and distributions from the Bank for our liquidity.

We derive most of our cash flow from dividends paid by the Bank.

These dividends are the primary source from which we pay dividends on our common stock and principal and interest on our debt obligations.

Various federal and California laws and regulations, as well as regulatory expectations, limit the amount of dividends that the Bank may pay to us.

Business — Supervision and Regulation — Dividends and Other Transfers of Funds in this Form 10-K for a discussion of regulatory requirements applicable to dividends by us and the Bank.

Although we have historically declared cash dividends on our common stock, we are not required to do so and there may be circumstances under which we would reduce or eliminate our common stock dividend in the future.

This could adversely affect the market price of our common stock.

Federal law also prohibits the Bank from paying dividends that would be greater than its undivided profits unless the Bank has received prior approval from the Federal Reserve and of at least two-thirds of the stockholders of each class of stock.

California law imposes its own limitations on capital distributions by California-charted banks that could require the Bank to obtain the approval of the DFPI prior to making a distribution to East West.

In addition, Federal Reserve guidance sets forth the supervisory expectation that bank holding companies will inform and consult with the Federal Reserve in advance of issuing a dividend that exceeds earnings for the quarter and should not pay dividends in a rolling four quarter period in an amount that exceeds net income, net of distributions, for the period.

Further description of regulatory requirements applicable to dividends by us and the Bank is set forth in Item 1.

Business — Supervision and Regulation — Dividends and Other Transfers of Funds in this Form 10-K.

We are subject to liquidity risk, which could negatively affect our funding levels.

We are subject to liquidity risk, which could negatively affect the level or cost of our funding.

Market conditions or other events could negatively affect the level of or cost of funding, which in turn could affect our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, or fund asset growth and new business initiatives at a reasonable cost, in a timely manner and without adverse consequences.

Although we have implemented strategies to maintain sufficient and diverse sources of funding to accommodate planned, as well as unanticipated changes in assets, liabilities, and off-balance sheet commitments under various economic conditions, a substantial, unexpected or prolonged change in the level or cost of liquidity could have a material adverse effect on our business, results of operations, and financial condition.

If the cost effectiveness or the availability of supply in the credit markets is reduced for a prolonged period of time, our funding needs may require us to access funding and manage liquidity by other means.

If the cost effectiveness or the availability of supply in the credit or wholesale funding markets is reduced for a prolonged period of time, our funding needs may require us to access funding and manage liquidity by other means.

These alternatives may include generating client deposits, securitizing or selling loans, and further managing loan growth and investment opportunities.

These alternative means of funding may not be available under stressed market conditions or realized in a timely fashion.

Any downgrades in our credit ratings could have a material adverse effect on our liquidity, cost of funding, cash flows, results of operations and financial condition.

Any downgrades in our credit ratings could have a material adverse effect on our liquidity, cost of funding, cash flows, business, results of operations and financial condition.

Credit rating agencies evaluate us regularly, and their ratings are based on several factors, including our financial strength, capital adequacy, liquidity, asset quality and ability to generate earnings.

Some of these factors are not entirely within our control, including conditions affecting the financial services industry as a whole.

Several banks were subject to a credit rating downgrade during 2023 following the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank, and in response to economic conditions, and others have been placed on a negative credit outlook by the rating agencies.

Severe downgrades in our credit ratings could impact our business and reduce our profitability in different ways, including a reduction in our access to capital markets, triggering additional collateral or funding obligations which could negatively affect our liquidity.

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The proportion of our deposit account balances that exceed FDIC insurance limits may expose us to enhanced liquidity risk.

A significant factor in the bank failures in early 2023 appears to have been the proportion of the deposits held by each institution that exceeded applicable FDIC insurance limits, and the withdrawal of such deposits over a short period of time.

A significant factor in the 2023 bank failures may have been the proportion of the deposits held by institutions that exceeded applicable FDIC insurance limits, and the withdrawal of such deposits over a short period of time.

The ease and speed of the electronic withdrawals may accelerate this process.

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Risks Related to Credit Matters

Our allowance for credit losses level may not be adequate to cover actual losses.

In accordance with the U.S.

Generally Accepted Accounting Principles (“GAAP”), we establish an allowance for credit losses, which includes the allowance for loan losses and the reserve for unfunded credit commitments.

Our allowance for credit losses may not be adequate to cover actual losses.

We establish an allowance for credit losses in accordance with U.S.

Generally Accepted Accounting Principles (“GAAP”), which includes the allowance for loan losses and the reserve for unfunded credit commitments.

Our allowance for loan losses is based on our evaluation of risks associated with our loans held-for-investment portfolio, including historical loss experience, current borrower characteristics, current economic conditions, reasonable and supportable forecasts of future economic conditions, delinquencies, performing status, the size and composition of the loan portfolio, and concentrations within the portfolio.

The allowance estimation process requires subjective and complex judgments, including analysis of economic conditions and how these economic conditions might impair the ability of our borrowers to repay their loans.

Current economic conditions in the U.S.

and in the international markets could further deteriorate, which could result in, among other things, greater than expected deterioration in credit quality of our loan portfolio or in the value of collateral securing these loans.

Due to the inherent risk associated with accounting estimates, our allowance for credit losses may not be adequate to absorb actual credit losses, and future provisions for credit losses could materially and adversely affect our operating results.

The amount of future losses is influenced by changes in economic, operating and other conditions, including changes in interest rates that may be beyond our control, and such losses may exceed current estimates.

In addition, we establish a reserve for losses associated with our unfunded credit commitments.

The level of the allowance for unfunded credit commitments is determined by following a methodology similar to that used to establish our allowance for loan losses in our loans held-for-investment portfolio.

There can be no assurance that our allowance for unfunded credit commitments will be adequate to provide for the actual losses associated with our unfunded credit commitments.

An increase in the allowance for unfunded credit commitments in any period may result in a charge to earnings and could have a material adverse effect on our business, results of operations, and financial condition.

Unexpected changes in economic, market, operating and other conditions in the U.S.

and in the international markets could result in, among other things, greater than expected deterioration in credit quality of our loan portfolio or in the value of collateral securing these loans.

Due to the inherent risk associated with accounting estimates, our allowance for loan losses and our reserve for losses associated with our unfunded credit commitments, which is determined using a similar methodology as that used to establish our allowance for loan losses, may not be adequate to absorb actual losses, and future provisions for such losses could have a material adverse effect on our business, results of operations, and financial condition.

We may be subject to increased credit risk and higher credit losses to the extent our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral.

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Potential deterioration in the California commercial or residential real estate markets or economic conditions could result in additional loan charge-offs and provision for loan losses, which could have a material adverse effect on our business, results of operations, and financial condition.

If any industry or market sector were to experience economic difficulties, loan collectability from customers operating in those industries or sectors may deteriorate, which could have a material adverse impact on our business, results of operations, and financial condition.

If any industry, market sector, or collateral type were to experience economic difficulties, loan collectability from customers operating in those industries or sectors or holding such collateral types may deteriorate, which could have a material adverse impact on our business, results of operations, and financial condition.

Risks Related to Our Operations

A failure in or breach of our operational or security systems or infrastructure, or those of third-party vendors, could disrupt our business, and adversely impact our results of operations, financial condition, cash flows, and liquidity, as well as damage our reputation.

We face risks of loss resulting from, but not limited to, errors relating to transaction processing and technology, breaches of the internal control system and compliance requirement, the risk of fraud by employees or third parties, the execution of unauthorized transactions by employees, cybersecurity incidents, business continuation and disaster recovery.

In the event of such operational failures, we could suffer financial loss, face regulatory action, and suffer damage to our reputation.

The potential for operational loss exposure exists throughout our organization and among our interactions with third parties.

Our operational, security systems, and infrastructure, as well as those of third-party vendors, are integral to our performance.

We have taken measures to implement backup systems and safeguards to support our operations, but our ability to conduct business may be adversely affected by any significant disruptions to us or our vendors.

Such disruptions could be caused by a number of factors including events that are wholly or partially beyond our control which could adversely affect our ability to process transactions or provide certain services.

These factors include, and are not limited to, electrical, telecommunications, or other major physical infrastructure outages, cybersecurity incidents, disease pandemics, natural disasters such as wildfires, earthquakes, tornadoes, hurricanes and floods, and events arising from local or larger scale political or social matters, including terrorist acts.

Furthermore, we frequently update these systems to support our operations and growth, requiring significant costs and creating risks associated with implementing new systems and integrating them with existing ones.

A cyber-attack, information or security breach, or failure of our operational or security systems or infrastructure, or those of third-party vendors, could disrupt our business, and adversely impact our results of operations, financial condition, cash flows, and liquidity, as well as damage our reputation.

Our business is highly dependent on the security and efficacy of our infrastructure, computer, network and data management systems, as well as those of third parties with which we interact.

We face risks of loss resulting from, but not limited to, errors relating to transaction processing and technology, breaches of our internal control system or external compliance requirements, fraud or unauthorized transactions by employees or third parties, cybersecurity incidents, business continuation and disaster recovery.

The potential for operational loss exposure exists throughout our organization and among our interactions with third parties, and are expected to increase as we expand our interconnectivity with our customers and other third parties.

Any of these operational risk exposures, if realized, could adversely impact our results of operations, financial condition, cash flows, and liquidity, and result in regulatory action, significant litigation exposure and harm to our reputation.

Our ability to process transactions, provide service and conduct our business may be adversely affected by significant disruptions to us or our vendors, which can be caused by events that are wholly or partially beyond our control.

These events include, and are not limited to, electrical, telecommunications, networking or other major physical infrastructure outages, cybersecurity incidents, pandemics, natural disasters, and political or social events, including terrorist acts, wars and civil disturbances.

We have taken measures to implement backup systems and safeguards and frequently update our systems to support our operations and growth, requiring significant costs and creating risks associated with implementing and integrating new systems.

To date, we have not experienced any known cybersecurity incidents resulting in a material impact on our business, financial condition, or operating results.

However, we can provide no assurance that all of our security measures will be effective.

Third parties that facilitate our business activities could also be sources of operational and security risks to us.

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Furthermore, an attack on or failure of a third-party system may not be revealed to us in a timely manner, which could compromise our ability to respond effectively.

Some of these third parties may engage vendors of their own, which introduces the risk that these “fourth parties” could be the source of operational and security failures.

In addition, if a third party or fourth party obtains access to the customer account data on our systems, and that party experiences a breach or misappropriates such data, we and our customers could suffer material harm, including heightened risk of fraudulent transactions, losses from fraudulent transactions, increased operational costs to remediate any security breach, and reputational harm.

Some third parties may engage vendors of their own, which introduces the risk that these “fourth parties” could be the source of operational and security failures.

If a third party or fourth party with access to the customer account data on our systems experiences a breach or misappropriates such data, we and our customers could suffer material harm, including heightened risk of fraudulent transactions, losses from fraudulent transactions, increased operational costs to remediate any security breach, and reputational harm.

Cybersecurity risks, including ransomware, malware, social engineering, and phishing attacks, for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunication technologies to conduct financial transactions, the significant increased use of remote workstations by employees in recent years, and the increased sophistication and activities of organized crime, hackers, terrorists, nation-states, and other threat actors.

Our business and many of our customers may have experienced, and may experience again in the future, losses incurred due to fraud or theft related to customers, employees or third parties.

These losses may negatively affect our business, results of operations, financial condition, reputation or prospects.

Furthermore, increased use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and operations, coupled with the increased sophistication and activities of threat actors, will subject us to increased security risks.

These operational risk exposures, if realized, could adversely impact our results of operations, financial condition, cash flows, and liquidity, and may result in loss of confidence, significant litigation exposure and harm to our reputation.

These risks are expected to continue to increase as we expand our interconnectivity with our customers and other third parties.

A cyber-attack, information or security breach, or a technology failure of our systems or of a third party’s systems could adversely affect our ability to conduct business, manage our exposure to risk or expand our business, and could also result in the misuse of confidential information, increase our costs to maintain and update our operational and security systems and infrastructure, and adversely impact our results of operations, financial condition, cash flows and liquidity, as well as cause reputational harm.

Our business is highly dependent on the security and efficacy of our infrastructure, computer and data management systems, as well as those of third parties with which we interact.

Cyber security risks, including ransomware and malware attacks, for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunication technologies to conduct financial transactions, the significant increased use of remote workstations by employees in recent years, and the increased sophistication and activities of organized crime, hackers, terrorists, nation-states, and other threat actors.

Our business relies on the secure processing, transmission, storage and retrieval of confidential, proprietary, and other information in our computer email and data management systems and networks, including those of our third-party vendors.

We employ a combination of preventative and detective controls to safeguard against cybersecurity incidents.

To date, we have not experienced any known cybersecurity incidents resulting in a material impact on our business, financial condition, or operating results.

However, we can provide no assurance that all of our security measures will be effective.

The industry has seen an increase in ransomware attacks, data breaches, social engineering, phishing attacks, and fraud and other scams that have placed the Bank, employees, our customers, and third-party vendors at heightened risk levels.

These risks may increase in the future as we continue to increase our digital product offerings and expand our internal usage of cloud-based products and applications.

In addition, our customers often use their own devices to make payments and manage their accounts, and are subject to cyberattacks including data breaches, social engineering, phishing attacks, fraud and other scams, that threaten the safety and security of their banking transactions with us.

We have limited ability to assure the safety and security of our customers’ transactions with us to the extent they are using their own devices or are a victim of cyberattacks, fraud or other scams by threat actors.

Failure to mitigate breaches of security, or to comply with frequent imposition of increasingly demanding new and changing industry standards and regulatory requirements, could result in violation of applicable privacy laws, reputational damage, regulatory fines, litigation exposure, increased security compliance costs, adversely affect our ability to offer and grow the online services, and could have an adverse effect on our business, results of operations and financial condition.

We have limited ability to assure the safety and security of our customers’ transactions with us to the extent our customers are using their own devices or are a victim of cyberattacks, fraud or other scams by threat actors.

Failure to mitigate breaches of security, or to comply with increasingly demanding new and changing industry standards and regulatory requirements could also result in violation of applicable privacy laws, reputational damage, regulatory fines, litigation exposure, increased security compliance costs, and could have an adverse effect on our business, results of operations and financial condition.

Failure to keep pace with technological change could adversely affect our business.

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The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.

Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.

Our future success depends, in part, on our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.

Many of our competitors have substantially greater resources to invest in technological solutions.

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Any such failure could adversely affect our business, results of operations, financial condition and reputation.

We could face material legal and reputational harm if we fail to safeguard personal information.

We are subject to complex and evolving laws and regulations, both inside and outside the U.S., governing the privacy and protection of personal information.

Individuals whose personal information may be protected by law can include our customers (and in some cases our customers’ customers), prospective customers, job applicants, employees, and the employees of our suppliers, and third parties.

Complying with laws and regulations applicable to our collection, use, transfer, and storage of personal information can increase operating costs, impact the development and marketing of new products or services, and reduce operational efficiency.

Any mishandling or misuse of personal information by us or a third party affiliated with us could expose us to litigation or regulatory fines, penalties or other sanctions.

We may be impacted by the actions, soundness or creditworthiness of other financial institutions, which can cause disruption within the industry and increase expenses.

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Defaults or failures of financial services institutions and instability in the financial services industry in general can lead to market-wide liquidity problems, increased credit risk and withdrawals of uninsured deposits.

The failures of Silicon Valley Bank, Signature Bank, and First Republic Bank in 2023 resulted in significant disruption in the financial services industry and negative media attention, which has also adversely impacted the volatility and market prices of the securities of financial institutions and resulted in outflows of deposits for us and many other financial institutions.

These events have adversely impacted and could continue to adversely affect our business, results of operations, and financial condition, as well as the market price and volatility of our common stock.

Bank failures may increase the risk of a recession or lead to regulatory changes and initiatives, such as enhanced capital, liquidity, or risk management requirements, that could adversely impact the Company.

Changes to laws or regulations, or the impositions of additional restrictions through supervisory or enforcement activities, could have a material impact on our business.

Such events could adversely affect our business, results of operations, and financial condition, as well as the market price and volatility of our common stock.

Bank failures may increase the risk of a recession or lead to regulatory changes and initiatives, such as enhanced capital, liquidity, or risk management requirements, which could adversely impact us.

Changes to laws or regulations, or the imposition of additional restrictions through supervisory or enforcement activities, could have a material impact on our business.

Regulatory changes could also adversely impact our ability to access funding, increase the cost of funding, limit our access to capital markets, and negatively impact our overall financial condition.

The recent bank failures also have resulted in a special assessment by the FDIC to replenish the DIF.

The 2023 bank failures also resulted in a special assessment by the FDIC to replenish the DIF.

Our controls and procedures could fail or be circumvented.

Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance and ERM policies and procedures.

Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance and enterprise risk management (“ERM”) policies and procedures.

Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, but not absolute, assurances of the effectiveness of these systems and controls, and that the objectives of these controls have been met.

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Although we seek to manage our exposure to such risks, and employ a broad and diverse set of risk monitoring and mitigation techniques in the process, those techniques are inherently limited because they cannot anticipate the existence or development of risks that are currently unknown or unanticipated.

Further, any system of control and any system to reduce risk exposure, however well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met.

Any system of control and any system to reduce risk exposure, however well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met.

Further, in some cases we use analytical or forecasting models in our management of risks.

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We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects.

Competition for qualified personnel in the banking industry is intense and there are a limited number of qualified persons with knowledge of, and experience in, the regional banking industry, especially in the West Coast markets, and in international banking operations, especially in Asia.

Competition for qualified personnel in the banking industry is intense and there is a limited number of qualified people with knowledge of, and experience in, the regional banking industry, especially in the West Coast markets, and in international banking operations, especially in Asia.

The process of recruiting personnel with the combination of skills and attributes required to carry out our strategies is often lengthy.

Our success depends, to a significant degree, on our ability to attract and retain qualified management, loan origination, finance, administrative, marketing, and technical personnel, as well as the continued contributions of those individuals.

The labor market is currently challenging, with high employee turnover and increased wage pressure.

In addition, the proliferation of hybrid work environments may exacerbate the challenges of attracting and retaining talented employees as job markets may be less constrained by physical geography.

Our success depends, to a significant degree, on our ability to attract and retain highly-skilled and qualified personnel, as well as the continued contributions of those individuals.

In particular, our success has been and continues to be highly dependent upon the abilities of certain key executives.

Accordingly, we believe that our future success is dependent upon the development and, when needed, implementation of adequate succession plans.

Although both the Board of Directors and management monitor our succession planning for our senior management team, unexpected departures of key personnel or disruptions in future leadership transitions could negatively impact our business and prospects.

Although both the Board of Directors and management monitor our succession planning for our senior management team, the loss of key personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition, or operating results.

We face strong competition in the financial services industry, and we could lose business or suffer margin declines as a result.

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We have engaged in and may continue to engage in further expansion through acquisitions, which could cause disruption to our business and may dilute existing stockholders’ interests.

There are risks associated with expanding through acquisitions.

There are risks associated with expanding through mergers and acquisitions.

These risks include, among others, incorrectly assessing the asset quality of a bank acquired in a particular transaction, incurring greater than anticipated costs in integrating acquired business, failing to retain customers or employees, and the inability to profitably deploy assets acquired or realize synergies from a transaction.

Additional country or region-specific risks are associated with transactions outside the U.S., including in China.

To the extent we issue capital stock in connection with additional transactions, these transactions and related stock issuances may have a dilutive effect on earnings per share (“EPS”) and share ownership.

To the extent we issue capital stock in connection with acquisition transactions, these transactions and related stock issuances may have a dilutive effect on our earnings per share (“EPS”) and share ownership.

New products and services may subject us to additional risks.

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There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed.

In developing and marketing new business arrangements, lines of business and/or new products and services, we may invest significant time and resources.

We may invest significant time and resources in developing and marketing new business arrangements, lines of business and/or new products and services.

Initial timetables for the introduction and development of new business initiatives, new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible, which could in turn have a material negative effect on our operating results.

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Bank regulators have, and may in the future, hold banks responsible for the activities of these fintech companies, including in respect of BSA/AML and consumer compliance matters, or may take the view that these relationships present safety and soundness issues.

Our investments in certain tax-advantaged projects may not generate returns as anticipated and may have an adverse impact on our results of operations.

Our investments in certain tax-advantaged projects may not generate returns as anticipated, which could result in an adverse impact on our results of operations.

We invest in certain tax-advantaged investments that support qualified affordable housing projects, community development, and renewable energy resources.

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The risk of not being able to realize, or of subsequently incurring a recapture of, the tax credits and other tax benefits depends on various factors, some of which are outside of our control, including changes in the applicable tax code, as well as the continued economic viability of the project and project operator.

In addition, the Trump administration has announced an intent to repeal green energy tax credits, although the timing and extent of changes in tax credits remains uncertain.

The possible inability to realize these tax credits and other tax benefits would have a negative impact on our financial results.

Risks Related to Regulatory, Compliance and Legal Matters

Changes in regulation may require us to change our business practices, increase costs, limit our ability to make investments and generate revenue, or otherwise adversely affect business operations and/or competitiveness.

Changes in regulation may require us to change our business practices, increase our costs, limit our ability to make investments and generate revenue, or otherwise adversely affect our business operations and/or competitiveness.

We are subject to extensive regulation under federal and state laws, as well as supervision and examination by the DFPI, FDIC, Federal Reserve, SEC, CFPB in the U.S.

and foreign regulators and other government authorities.

We are also subject to enforcement oversight by the U.S.

Department of Justice and state attorneys general.

We are also subject to enforcement oversight by the DOJ and state attorneys general.

In addition, we face certain legal, reputational, and financial risks as a result of serving customers in new or evolving industries that are subject to changing, and at times conflicting laws.

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Such changes could also subject us to additional costs and may limit the types of financial services and products we offer, and the investments we make.

For example, as we approach the $100 billion total asset threshold, we anticipate becoming subject to enhanced regulatory and supervisory requirements, which may include but are not limited to, increased capital and liquidity requirements, resolution planning obligations, stress testing, long-term debt requirements, and heightened supervisory scrutiny under existing or proposed federal banking regulations.

Compliance with these requirements will require substantial investment in systems, processes, and personnel.

The enhanced regulatory framework could also impact our ability to compete with financial institutions that are not subject to similar requirements.

Failure to adequately prepare for and address these challenges could materially and adversely affect our business, financial condition, and results of operation.

Given that banks operate in an extensively regulated environment under federal and state law, good standing with our regulators is of fundamental importance to the continuation and growth of our business.

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government could further introduce new tax legislation or amend current tax laws in a manner that would adversely affect us.

In addition, continued political disagreements over the federal budget and the risk of a full or partial government shutdown could create uncertainty about the U.S.

economy, ultimately having an adverse effect on our business, results of operations, and financial condition.

Complying with the Bank Secrecy Act and other anti-money laundering and sanctions statutes and regulations can increase our compliance costs and risks.

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We may provide banking services to customers considered to be higher risk customers, which subjects us to greater enforcement risk under the BSA and requires us to ensure our third-party vendors adhere to the BSA and related regulations.

The Financial Crimes Enforcement Network may impose significant civil monetary penalties for violations of those requirements and has been engaging in coordinated enforcement efforts with the federal and state banking regulators, as well as the U.S.

Department of Justice, Drug Enforcement Administration, and the Internal Revenue Service.

We are also required to comply with the U.S.

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Any of these violations could have a material adverse effect on our business, results of operations, financial condition, reputation, and future prospects.

We could face material legal and reputational harm if we fail to safeguard personal information.

We are subject to complex and evolving laws and regulations, both inside and outside the U.S., governing the privacy and protection of personal information.

Any mishandling or misuse of personal information by us or a third party affiliated with us could expose us to litigation or regulatory fines, penalties or other sanctions.

We are subject to significant financial and reputational risk arising from lawsuits and other legal proceedings.

We operate in a heavily regulated industry and face significant risk from lawsuits and proceedings brought by customers, borrowers, bank regulators and counterparties.

We operate in a heavily regulated industry and face significant risks from lawsuits and proceedings brought by customers, borrowers, bank regulators and counterparties.

These actions include claims for monetary damages, penalties, fines, and demands for injunctive relief.

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Substantial legal liability and government scrutiny could adversely affect our business, results of operations, and financial condition.

In addition, we may suffer significant reputational harm as a result of lawsuits and proceedings, adversely impacting our ability to attract and retain customers and investors.

In addition, we may suffer significant reputational harm as a result of lawsuits and proceedings, adversely impacting our ability to attract and retain customers, employees, and investors.

Moreover, it may be difficult to predict the outcome of certain legal proceedings, which may present additional uncertainty to our business prospects.

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Changes in accounting standards or changes in how the accounting standards are interpreted or applied could materially impact our financial statements.

The preparation of our financial statements is based on accounting standards established by the FASB and the SEC.

The preparation of our financial statements is based on accounting standards established by the Financial Accounting Standards Board (“FASB”) and the SEC.

From time to time, these accounting standards may change, and such changes may have a material impact on our financial statements.

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Negative publicity regarding our business, employees or customers, with or without merit, may result in the loss of customers, investors and employees, costly litigation, a decline in revenues and increased governmental scrutiny.

Increasing scrutiny and evolving expectations relating to environmental, social and governance considerations may expose us to additional costs, reputational harm, and other adverse effects on our business.

Evolving expectations relating to environmental, social and governance considerations may expose us to additional costs, reputational harm, and other adverse effects on our business.

Regulators, investors, employees, customers and other stakeholders are increasingly focused on environmental, social and governance (“ESG”) practices relating to business, including climate change, human rights, health and safety, diversity, and labor conditions.

A failure to comply with regulatory requirements, or to meet evolving investor or stakeholder expectations and standards, could result in legal or regulatory proceedings and negatively impact our business, reputation, results of operations, financial conditions, and stock price.

California has passed legislation that would impact the amount of required reporting of ESG practices, refer to Item 1.

Business — Supervision and Regulation in this Form 10-K for more information.

The SEC has proposed climate disclosure rules to require public issuers to include enhanced disclosure regarding corporate climate-related information in their periodic reports and registration statements.

The enacted and proposed new government regulations could also cause new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosures.

While some authorities and stakeholders have acted to promote ESG practices and disclosures, others have discouraged or prohibited consideration of ESG factors by investment advisors, and the Trump administration has announced an intent to repeal some ESG-related regulations.

Failure to comply with changing regulatory requirements, or to meet evolving investor or stakeholder expectations and standards, could result in legal or regulatory proceedings and negatively impact our business, reputation, results of operations, financial conditions, and stock price.

California has passed legislation that would impact the amount of required reporting of ESG practices and other state legislatures have proposed similar laws.

Such enacted and proposed government regulations could also cause new or more stringent forms of ESG oversight and expand mandatory and voluntary reporting, diligence, and disclosures.

The price of our common stock may be volatile or may decline.

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• anticipated or pending investigations, proceedings or litigation that involve or affect us.

Industry factors, general economic and political conditions and events, such as cyber or terrorist attacks, economic downturn or recessions, interest rate changes, credit default trends, currency fluctuations, changes to fiscal, monetary or trade policies, or public health issues could also cause our stock price to decline regardless of our operating results.

Industry factors, general economic and political conditions and events, such as cybersecurity incidents or terrorist attacks, economic downturn or recessions, interest rate changes, credit default trends, currency fluctuations, changes to fiscal, monetary or trade policies, or public health issues could also cause our stock price to decline regardless of our operating results.

A significant decline in our stock price could result in substantial losses for stockholders.

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What changed 10-K

Item 1A. Risk Factors