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CATHAY GENERAL BANCORP

CATHAY GENERAL BANCORPCATYEarnings & Financial Report

Nasdaq · Financials · State Commercial Banks

Cathay General Bancorp is a U.S.-headquartered bank holding company that operates Cathay Bank, offering full-spectrum commercial and personal banking services. It primarily serves Asian American communities and small-to-medium enterprises across major U.S. states including California, New York and Texas, as well as select Asian markets, with products covering deposits, loans, and wealth management solutions.

What changed in CATHAY GENERAL BANCORP's 10-K — 2022 vs 2023

Top changes in CATHAY GENERAL BANCORP's 2023 10-K

254 paragraphs added · 308 removed · 204 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

36 edited+4 added−18 removed243 unchanged
Chan 45 Senior Vice President, General Counsel and Corporate Secretary of Bancorp and the Bank since 2020; Sustainability Officer of Bancorp and the Bank since 2022; First Vice President and Associate General Counsel of Bancorp and the Bank from 2015 to 2020; Senior Counsel of Business Banking Group at Wells Fargo Bank from 2014 to 2015; and Senior Associate of the Finance Department at Latham & Watkins LLP from 2002 to 2011. 10 Table of Contents Available Information We invite you to visit our website at www.cathaygeneralbancorp.com, to access free of charge the Bancorp's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, all of which are made available as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC.
Chan 46 Senior Vice President, General Counsel and Corporate Secretary of Bancorp and the Bank since 2020; Sustainability Officer of Bancorp and the Bank since 2022; First Vice President and Associate General Counsel of Bancorp and the Bank from 2015 to 2020; Senior Counsel of Business Banking Group at Wells Fargo Bank from 2014 to 2015; and Senior Associate of the Finance Department at Latham & Watkins LLP from 2002 to 2011. 10 Table of Contents Available Information We invite you to visit our website at www.cathaygeneralbancorp.com, to access free of charge the Bancorp's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, all of which are made available as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC.
The 7(a) program is the SBA’s primary loan program, and which can be used for financing of a variety of general business purposes such as acquisition of land, buildings, equipment and inventory and working capital needs of eligible businesses generally over a 5-25-year term.
The 7(a) program is the SBA’s primary loan program, and which can be used for financing of a variety of general business purposes such as acquisition of land, buildings, equipment and inventory and working capital needs of eligible businesses generally over a 5 to 25 year term.
As part of our efforts to attract and motivate employees, we offer competitive compensation and benefits package that includes healthcare and 401(k) benefits, parental and family leave, holiday and paid time off, and tuition assistance. Recruiting the best and brightest is just the beginning.
As part of our efforts to attract and motivate employees, we offer a competitive compensation and benefits package that includes healthcare and 401(k) benefits, parental and family leave, holiday and paid time off, and tuition assistance. Recruiting the best and brightest is just the beginning.
As of December 31, 2022, the Bancorp and the Bank met all requirements to be considered well-capitalized under the Basel III Capital Rules. 16 Table of Contents Volcker Rule In December 2013, the federal bank regulatory agencies adopted final rules that implement a part of the Dodd-Frank Act commonly referred to as the “Volcker Rule.” In the fall of 2019, the federal banking regulatory agencies adopted revised rules to simplify and tailor the Volcker Rules.
As of December 31, 2023, the Bancorp and the Bank met all requirements to be considered well-capitalized under the Basel III Capital Rules. 16 Table of Contents Volcker Rule In December 2013, the federal bank regulatory agencies adopted final rules that implement a part of the Dodd-Frank Act commonly referred to as the “Volcker Rule.” In the fall of 2019, the federal banking regulatory agencies adopted revised rules to simplify and tailor the Volcker Rules.
NASDAQ has also adopted corporate governance rules, which are intended to allow stockholders and investors to more easily and efficiently monitor the performance of companies and their directors. Under the Sarbanes-Oxley Act, management and the Bancorp’s independent registered public accounting firm are required to assess the effectiveness of the Bancorp’s internal control over financial reporting as of December 31, 2022.
NASDAQ has also adopted corporate governance rules, which are intended to allow stockholders and investors to more easily and efficiently monitor the performance of companies and their directors. Under the Sarbanes-Oxley Act, management and the Bancorp’s independent registered public accounting firm are required to assess the effectiveness of the Bancorp’s internal control over financial reporting as of December 31, 2023.
As of December 31, 2022, all securities and insurance products provided by Cathay Wealth Management are offered by, and all financial consultants are registered with, Cetera Investment Services LLC, a registered securities broker/dealer and licensed insurance agency and member of the Financial Industry Regulatory Authority and Security Investor Protection Corporation. Cetera Investment Services LLC and Cathay Bank are independent entities.
As of December 31, 2023, all securities and insurance products provided by Cathay Wealth Management are offered by, and all financial consultants are registered with, Cetera Investment Services LLC, a registered securities broker/dealer and licensed insurance agency and member of the Financial Industry Regulatory Authority and Security Investor Protection Corporation. Cetera Investment Services LLC and Cathay Bank are independent entities.
Deposits The Bank offers a variety of deposit products to meet its clients’ needs. As of December 31, 2022, the Bank offered passbook accounts, checking accounts, money market deposit accounts, certificates of deposit, individual retirement accounts, and public funds deposits. These products are priced generally to promote growth of deposits in a safe and sound manner.
Deposits The Bank offers a variety of deposit products to meet its clients’ needs. As of December 31, 2023, the Bank offered passbook accounts, checking accounts, money market deposit accounts, certificates of deposit, individual retirement accounts, and public funds deposits. These products are priced generally to promote growth of deposits in a safe and sound manner.
Liu 56 President and Chief Executive Officer, and Director of the Bancorp since October 2020; Chief Executive Officer of the Bank since October 2020; Director of the Bank since October 2019; President of the Bank from October 2019 to September 2020; Executive Vice President and Chief Operating Officer of the Bank from February 2019 to September 2019; Executive Vice President and Chief Lending Officer of the Bank from 2016 to 2019; Senior Vice President and Deputy Chief Lending Officer of the Bank from 2015 to 2016; Senior Vice President and Assistant Chief Lending Officer of the Bank from 2014 to 2015; Chief Lending Officer at Banc of California (formerly known as Pacific Trust Bank) from 2011 to 2014 Heng W.
Liu 57 President and Chief Executive Officer, and Director of the Bancorp since October 2020; Chief Executive Officer of the Bank since October 2020; Director of the Bank since October 2019; President of the Bank from October 2019 to September 2020; Executive Vice President and Chief Operating Officer of the Bank from February 2019 to September 2019; Executive Vice President and Chief Lending Officer of the Bank from 2016 to 2019; Senior Vice President and Deputy Chief Lending Officer of the Bank from 2015 to 2016; Senior Vice President and Assistant Chief Lending Officer of the Bank from 2014 to 2015; Chief Lending Officer at Banc of California (formerly known as Pacific Trust Bank) from 2011 to 2014 Heng W.
As of December 31, 2022, the Bank has branch offices in Southern California (24 branches), Northern California (19 branches), New York (9 branches), Washington (four branches), Illinois (two branches), Texas (two branches), Maryland (one branch), Massachusetts (one branch), Nevada (one branch), New Jersey (one branch), and Hong Kong (one branch) and a representative office in Beijing, Shanghai, and Taipei.
As of December 31, 2023, the Bank has branch offices in Southern California (24 branches), Northern California (19 branches), New York (9 branches), Washington (four branches), Illinois (two branches), Texas (two branches), Maryland (one branch), Massachusetts (one branch), Nevada (one branch), New Jersey (one branch), and Hong Kong (one branch) and a representative office in Beijing, Shanghai, and Taipei.
As the Bank has more than $10.0 billion in assets, it is examined for compliance with CFPB regulation by the CFPB in addition to examinations of the Bank by the FDIC and the DFPI. The CFPB has enforcement authority over unfair, deceptive or abusive act and practices (“UDAAP”).
As the Bank has more than $10.0 billion in assets, it is examined for compliance with CFPB regulation by the CFPB in addition to examinations of the Bank by the FDIC and the DFPI. The CFPB has enforcement authority over unfair, deceptive or abusive acts and practices (“UDAAP”).
The HMDA also includes a “fair lending” aspect that requires the collection and disclosure of data about applicant and borrower characteristics as a way of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes. 22 Table of Contents Finally, the Real Estate Settlement Procedures Act (“RESPA”) requires lenders to provide borrowers with disclosures regarding the nature and cost of real estate settlements.
The HMDA also includes a “fair lending” aspect that requires the collection and disclosure of data about applicant and borrower characteristics as a way of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes. Finally, the Real Estate Settlement Procedures Act (“RESPA”) requires lenders to provide borrowers with disclosures regarding the nature and cost of real estate settlements.
The Dodd-Frank Act and the Growth Act The Dodd-Frank Act financial reform legislation, adopted in July 2010, significantly revised and expanded the rulemaking, supervisory and enforcement authority of the federal bank regulatory agencies by implementing the following changes, among others: ● capital standards that, among other things, increase capital requirements and eliminate the treatment of trust preferred securities as Tier 1 regulatory capital for bank holding companies with assets of $15.0 billion or more (our assets exceed the $15.0 billion threshold and, as a result, our outstanding junior subordinated notes no longer qualify as Tier 1 capital for regulatory reporting purposes); ● restrictions on banking entities from engaging in proprietary trading, as well as having investments in, sponsoring, and maintaining relationships with hedge funds and private equity funds (commonly referred to as the “Volcker Rule”); ● the establishment of the Consumer Financial Protection Bureau (“CFPB”) responsible for consumer protection in the financial services industry and to examine financial institutions with $10.0 billion or more in assets, such as the Company, for compliance with regulations promulgated by the CFPB; ● additional risk management and other enhanced prudential standards for larger bank holding companies; ● limitations on interchange fees charged for debit card transactions; ● the revisions in the deposit insurance assessment base for FDIC insurance and the permanent increase in coverage to $250 thousand; ● the permissibility of paying interest on business checking accounts; ● the removal of barriers to interstate branching; ● required disclosure and shareholder advisory votes on executive compensation; and 13 Table of Contents ● the establishment of new minimum mortgage underwriting standards for residential mortgages.
The Dodd-Frank Act and the Growth Act The Dodd-Frank Act financial reform legislation, adopted in July 2010, significantly revised and expanded the rulemaking, supervisory and enforcement authority of the federal bank regulatory agencies by implementing the following changes, among others: ● capital standards that, among other things, increase capital requirements and eliminate the treatment of trust preferred securities as Tier 1 regulatory capital for bank holding companies with assets of $15.0 billion or more (our assets exceed the $15.0 billion threshold and, as a result, our outstanding junior subordinated notes no longer qualify as Tier 1 capital for regulatory reporting purposes); ● restrictions on banking entities from engaging in proprietary trading, as well as having investments in, sponsoring, and maintaining relationships with hedge funds and private equity funds (commonly referred to as the “Volcker Rule”); ● the establishment of the Consumer Financial Protection Bureau (“CFPB”) responsible for consumer protection in the financial services industry and to examine financial institutions with $10.0 billion or more in assets, such as the Company, for compliance with regulations promulgated by the CFPB; ● additional risk management and other enhanced prudential standards for larger bank holding companies; ● limitations on interchange fees charged for debit card transactions; ● the revisions in the deposit insurance assessment base for FDIC insurance and the permanent increase in coverage to $250 thousand; ● the permissibility of paying interest on business checking accounts; ● the removal of barriers to interstate branching; ● required disclosure and shareholder advisory votes on executive compensation; and ● the establishment of new minimum mortgage underwriting standards for residential mortgages. 13 Table of Contents On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Growth Act”) was signed into law.
We have in the place a Cathay Well-Being program since 2014, that encourage employees to stay active by enriching their wellbeing experiences through participation in a variety of fun and easy healthy habits and challenges with an added incentive to qualify for additional discounts on their medical premiums.
We have in place a Cathay Well-Being program since 2014, that encourages employees to stay active by enriching their wellbeing experiences through participation in a variety of fun and easy healthy habits and challenges with an added incentive to qualify for additional discounts on their medical premiums.
Loan originations are obtained through a variety of sources, including existing clients, walk-in clients, referrals from brokers or existing clients, and advertising. While loan applications are accepted at all branches, the Bank’s centralized document department supervises the application process including documentation of loans, review of appraisals, and credit reports. Commercial Mortgage Loans.
Loan originations are obtained through a variety of sources, including existing clients, walk-in clients, referrals from brokers or existing clients, and advertising. While loan applications are accepted at all branches, the Bank’s centralized document department supervises the application process including documentation of loans, review of appraisals, and credit reports. Commercial Real Estate Loans.
The Bank also makes medium-term commercial mortgage loans which are generally secured by commercial or industrial buildings where the borrower uses the property for business purposes or derives income from tenants. Commercial Loans. The Bank provides financial services to diverse commercial and professional businesses in its market areas.
The Bank also makes medium-term commercial real estate loans which are generally secured by commercial or industrial buildings where the borrower uses the property for business purposes or derives income from tenants. Commercial Loans. The Bank provides financial services to diverse commercial and professional businesses in its market areas.
Cheng 78 Executive Chairman of the Boards of Directors of the Bancorp and the Bank since October 2016; Director of the Bancorp since 1990; Director of the Bank since 1982; Chairman of the Boards of Directors of the Bancorp and the Bank from 1994 to September 2016; President of the Bank from 1985 to March 2015; President and Chief Executive Officer of the Bancorp from 1990 to September 2016.
Cheng 79 Executive Chairman of the Boards of Directors of the Bancorp and the Bank since October 2016; Director of the Bancorp since 1990; Director of the Bank since 1982; Chairman of the Boards of Directors of the Bancorp and the Bank from 1994 to September 2016; President of the Bank from 1985 to March 2015; President and Chief Executive Officer of the Bancorp from 1990 to September 2016.
Commercial mortgage loans (also known as CRE loans) are typically secured by first deeds of trust on commercial properties. Our commercial mortgage portfolio includes primarily commercial retail properties, shopping centers, and owner-occupied industrial facilities, and, secondarily, office buildings, multiple-unit apartments, hotels, and multi-tenanted industrial properties.
Commercial real estate loans (also known as CRE loans) are typically secured by first deeds of trust on commercial properties. Our commercial real estate portfolio includes primarily commercial retail properties, shopping centers, and owner-occupied industrial facilities, and, secondarily, office buildings, multiple-unit apartments, hotels, and multi-tenanted industrial properties.
Under the Basel framework, these standards will generally be effective on January 1, 2023, with an aggregate output floor phasing in through January 1, 2028. The impact of Basel IV on us will depend on the manner in which it is implemented by the federal bank regulators.
Under the Basel framework, these standards were effective on January 1, 2023, with an aggregate output floor phasing in through January 1, 2028. The impact of Basel IV on us will depend on the manner in which it is implemented by the federal bank regulators.
Chen 70 Executive Vice President, Chief Financial Officer, and Treasurer of the Bancorp since 2003; Executive Vice President of the Bank since 2003; Chief Financial Officer of the Bank since 2004. Kim R.
Chen 71 Executive Vice President, Chief Financial Officer, and Treasurer of the Bancorp since 2003; Executive Vice President of the Bank since 2003; Chief Financial Officer of the Bank since 2004. Kim R.
As of December 31, 2022, we have 65% of our employees participating in the Well-Being program. 9 Table of Contents Executive Officers of the Registrant The table below sets forth the names, ages, and positions at the Bancorp and the Bank of all executive officers of the Company as of February 15, 2023.
As of December 31, 2023, we have 60% of our employees participating in the Well-Being program. 9 Table of Contents Executive Officers of the Registrant The table below sets forth the names, ages, and positions at the Bancorp and the Bank of all executive officers of the Company as of February 15, 2024.
The Bank primarily services individuals, professionals, and small to medium-sized businesses in the local markets in which its branches are located and provides commercial mortgage loans, commercial loans, U.S.
The Bank primarily services individuals, professionals, and small to medium-sized businesses in the local markets in which its branches are located and provides commercial real estate loans, commercial loans, U.S.
The outcome of examinations, any litigation, or any investigations initiated by state or federal authorities also may result in necessary changes in our operations and increased compliance costs.
The outcome of examinations, any litigation, or any investigations initiated by state or federal authorities also may result in necessary changes in our operations and increased compliance costs. 27 Table of Contents
Subsidiaries of Cathay Bank Cathay Holdings LLC (“CHLLC”) was incorporated in December 2007. The purpose of this subsidiary is to hold other real estate owned in the state of Texas that was transferred from the Bank. As of December 31, 2022, CHLLC no longer owned properties.
Subsidiaries of Cathay Bank Cathay Holdings LLC (“CHLLC”) was incorporated in December 2007. The purpose of this subsidiary is to hold other real estate owned that was transferred from the Bank. As of December 31, 2023, CHLLC no longer owned properties.
Bingham 66 Chief Risk Officer of the Bank since 2014; Executive Vice President of the Bank since 2004; Chief Credit Officer of the Bank from 2004 to 2013. Mark H.
Bingham 67 Chief Risk Officer of the Bank since 2014; Executive Vice President of the Bank since 2004; Chief Credit Officer of the Bank from 2004 to 2013.
At December 31, 2022, (i) the Bancorp’s and the Bank’s common equity Tier 1 capital ratios were 12.21% and 12.75%, respectively; (ii) their total risk-based capital ratios were 13.73% and 13.61% respectively; (iii) their Tier 1 risk-based capital ratios were, 12.21% and 12.75% respectively; and (iv) their leverage capital ratios were, respectively, 10.08% and 10.53% respectively all of which exceeded the minimum percentage requirements to be deemed “well-capitalized” for regulatory purposes. 15 Table of Contents Bank regulators may also continue their past policies of expecting banks to maintain additional capital beyond the requirements of the Basel III Capital Rules.
At December 31, 2023, (i) the Bancorp’s and the Bank’s common equity Tier 1 capital ratios were 12.84% and 13.23%, respectively; (ii) their total risk-based capital ratios were 14.31% and 14.09% respectively; (iii) their Tier 1 risk-based capital ratios were, 12.84% and 13.23% respectively; and (iv) their leverage capital ratios were, respectively, 10.55% and 10.87% respectively all of which exceeded the minimum percentage requirements to be deemed “well-capitalized” for regulatory purposes. 15 Table of Contents Bank regulators may also continue their past policies of expecting banks to maintain additional capital beyond the requirements of the Basel III Capital Rules.
As of December 31, 2022, Cathay Bank employed approximately 1,178 regular full-time equivalent employees, of whom 1,138 were located in the United States and 40 were located in China, Hong Kong and Taiwan. Of the total number of employees, 683 are banking officers. None of the employees are represented by a union.
As of December 31, 2023, Cathay Bank employed approximately 1,246 regular full-time equivalent employees, of whom 1,207 were located in the United States and 39 were located in China, Hong Kong and Taiwan. Of the total number of employees, 740 are banking officers. None of the employees are represented by a union.
The Bank in continuing its efforts to expand gender diversity on the Bank’s Board, and senior management. In 2022, 82% of our employees are of Asian descent, 12% are members of non-Asian traditionally underrepresented racial/ethnic groups, and 6% are Caucasian.
The Bank is continuing its efforts to expand gender diversity on the Bank’s Board, and senior management. In 2023, 80% of our employees are of Asian descent, 13% are members of non-Asian traditionally underrepresented racial/ethnic groups, and 7% are Caucasian.
At the manager-level, 77% are of Asian descent, 12% are members of non-Asian traditionally underrepresented racial/ethnic groups, and 11% are Caucasian. 57% of our management-level positions are held by women, and 64% of our employees are women.
At the manager-level, 73% are of Asian descent, 13% are members of non-Asian traditionally underrepresented racial/ethnic groups, and 14% are Caucasian. 57% of our management-level positions are held by women, and 65% of our employees are women.
Accordingly, the Bancorp faces the same competitive pressures as those expected by the Bank. For a discussion of those risks, see “Business of the Bank — Competition” below under this Item 1.
For a discussion of those risks, see “Business of the Bank — Competition” below under this Item 1.
The Bancorp is the holding company of Cathay Bank, a California state-chartered commercial bank (“Cathay Bank” or the “Bank”), ten limited partnerships investing in affordable housing investments in which the Bank is the sole limited partner, and GBC Venture Capital, Inc.
The Bancorp is the holding company of Cathay Bank, a California state-chartered commercial bank (“Cathay Bank” or the “Bank”), and eleven limited partnerships investing in affordable housing investments in which the Bank is the sole limited partner. The Bancorp also owns 100% of the common stock of five statutory business trusts created for the purpose of issuing capital securities.
The Bancorp also own 100% of the common stock of five statutory business trusts created for the purpose of issuing capital securities. Our principal place of business is located at 777 North Broadway, Los Angeles, California 90012, with our main telephone number at (213) 625-4700. Certain of our administrative offices are located at 9650 Flair Drive, El Monte, California 91731.
Our principal place of business is located at 777 North Broadway, Los Angeles, California 90012, with our main telephone number at (213) 625-4700. Certain of our administrative offices are located at 9650 Flair Drive, El Monte, California 91731. Our common stock is traded on the NASDAQ Global Select Market, and our trading symbol is “CATY”.
The Home Mortgage Disclosure Act (“HMDA”) grew out of public concern over credit shortages in certain urban neighborhoods and provides public information that will help show whether financial institutions are serving the housing credit needs of the neighborhoods and communities in which they are located.
A number of lending practices have been found by the courts to be, or may be considered, illegal under the FH Act, including some that are not specifically mentioned in the FH Act itself. 22 Table of Contents The Home Mortgage Disclosure Act (“HMDA”) grew out of public concern over credit shortages in certain urban neighborhoods and provides public information that will help show whether financial institutions are serving the housing credit needs of the neighborhoods and communities in which they are located.
Our common stock is traded on the NASDAQ Global Select Market, and our trading symbol is “CATY”. The Bancorp is regulated as a bank holding company by the Board of Governors of the Federal Reserve System (“Federal Reserve”).
The Bancorp is regulated as a bank holding company by the Board of Governors of the Federal Reserve System (“Federal Reserve”). Cathay Bank is regulated as a California commercial bank by the California Department of Financial Protection and Innovation (“DFPI”) and the Federal Deposit Insurance Corporation (“FDIC”).
Other foreign, federal, state or local governments, including in states and countries which we do business, may try to implement similar or other privacy legislation, which, among other effects, could result in different privacy standards for different geographical regions, restrict our ability to do business and increase our costs of doing business. 23 Table of Contents Cybersecurity Federal regulators have issued multiple statements regarding cybersecurity and that financial institutions need to design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised client credentials, including security measures to reliably authenticate clients accessing internet-based services of the financial institution.
Other foreign, federal, state or local governments, including in states and countries which we do business, may try to implement similar or other privacy legislation, which, among other effects, could result in different privacy standards for different geographical regions, restrict our ability to do business and increase our costs of doing business. 23 Table of Contents Environmental Regulations In the course of the Bank’s business, the Bank may foreclose and take title to real estate and could be subject to environmental liabilities with respect to these properties.
Lee 60 Executive Vice President and Chief Credit Officer of the Bank since December 2017; Executive Vice President and Special Advisor to the Office of the President of the Bank from April 2017 to December 2017; Senior Executive Vice President and Head of Corporate Banking of Bank of Hope (formerly known as BBCN Bank) from 2016 to 2017; Senior Executive Vice President and Chief Credit Officer of BBCN Bank (formerly known as Nara Bank) from 2009 to 2016; and Senior Vice President and Deputy Chief Credit Officer of East West Bank from 2007 to 2009.
Albert Sun 69 Executive Vice President and Chief Credit Officer of the Bank since January 2024; Executive Vice President, Special Advisor to the Office of the President from September 2023 to December 2023; Chief Credit Officer of Piermont Bank from 2022 to 2023: Chief Credit Officer of Grasshopper Bank from 2017 to 2021; and Chief Credit Officer of East West Bank from 2015 to 2017.
Because the Bancorp is not the primary beneficiary of the Trusts, the financial statements of the Trusts are not included in our Consolidated Financial Statements. GBC Venture Capital, Inc.
Because the Bancorp is not the primary beneficiary of the Trusts, the financial statements of the Trusts are not included in our Consolidated Financial Statements. 2 Table of Contents Competition The Bancorp’s primary business is to act as the holding company for the Bank. Accordingly, the Bancorp faces the same competitive pressures as those expected by the Bank.
Removed
Cathay Bank is regulated as a California commercial bank by the California Department of Financial Protection and Innovation (“DFPI”) and the Federal Deposit Insurance Corporation (“FDIC”). At December 31, 2022, we had $22.0 billion in total consolidated assets, $18.1 billion in net loans, $18.5 billion in deposits, and $2.5 billion in shareholders’ equity.
Added
At December 31, 2023, we had $23.08 billion in total consolidated assets, $19.38 billion in net loans, $19.33 billion in deposits, and $2.74 billion in shareholders’ equity.
Removed
The business purpose of GBC Venture Capital, Inc. is to hold equity interests (such as options or warrants) received as part of business relationships and to make equity investments in companies and limited partnerships subject to applicable regulatory restrictions. 2 Table of Contents Competition The Bancorp’s primary business is to act as the holding company for the Bank.
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Lo 62 Executive Vice President and Chief Administrative Officer of Cathay Bank since September 2023; Executive Vice President and Director of Commercial and International Banking of Cathay Bank from 2018 to 2023; Senior Vice President, Deputy Director of International and Business Banking and Deputy to Head of International and Commercial Banking of East West Bank from 2010 to 2018; and Executive Vice President and Group Manager in Orange County of Preferred Bank from 2007 to 2010 May K.
Removed
On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Growth Act”) was signed into law.
Added
In 2023, the FDIC Board of Directors approved a final rule to implement a special assessment to recover the loss to the Deposit Insurance Fund (DIF) associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank.
Removed
All FDIC-insured institutions are also required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation (“FICO"), an agency of the federal government established to recapitalize the predecessor to the DIF. These assessments will continue until the FICO bonds mature in 2017 through 2019.
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The Federal Deposit Insurance Act (FDI Act) requires the FDIC to take this action in connection with the systemic risk determination announced on March 12, 2023. See further discussion under Operation Risks.
Removed
A number of lending practices have been found by the courts to be, or may be considered, illegal under the FH Act, including some that are not specifically mentioned in the FH Act itself.
Removed
In addition, a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations in the event of a cyber-attack.
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A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to a cyber-attack. If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.
Removed
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states, notably including California where our banking business is concentrated, have adopted laws and/or regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements.
Removed
Many such states (including California) have also recently implemented or modified their data breach notification and data privacy requirements. We expect this trend of state-level activity in those areas to continue, and we continue to monitor relevant legislative and regulatory developments in California where most of our clients are located.
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In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. We employ a layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls.
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We employ a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of our defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures.
Removed
While to date we have not detected a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, our systems and those of our clients and third-party service providers are under constant threat and it is possible that we could experience a significant event in the future.
Removed
Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our clients. See Item 1A.
Removed
Risk Factors for a further discussion of risks related to cybersecurity. Environmental Regulations In the course of the Bank’s business, the Bank may foreclose and take title to real estate and could be subject to environmental liabilities with respect to these properties.
Removed
CARES Act and the Consolidated Appropriations Act, 2021 In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and the Consolidated Appropriations Act, 2021 (the “CAA”) was signed into law on March 27, 2020, and December 27, 2020, respectively.
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Among other things, the CARES Act and the CAA include the following provisions impacting financial institutions like the Company: ● As permitted by the CARES Act, and as extended by the CAA, we have chosen to adopt the Current Expected Credit Losses ("CECL") methodology for estimated credit losses as of January 1, 2021. ● As permitted by the CARES Act, and as extended by the CAA, we have elected to suspend requirements under GAAP for loan modifications related to the COVID-19 pandemic (for loans that were not more than 30 days past due as of December 31, 2019) that would otherwise be categorized as a troubled debt restructuring (“TDR”), including impairment for accounting purposes, until January 1, 2022. ● The Bank participates as a lender under the SBA’s Paycheck Protection Program (the “PPP”) authorized by the CARES Act and extended by the CAA.
Removed
The PPP provides for SBA-guaranteed business loans that may be eligible for loan forgiveness if borrowers, among other requirements, maintain their staff and payroll and if loans amounts are used to cover payroll, mortgage interest, rents and utilities payments. 27 Table of Contents ● A borrower of a federally-backed mortgage loan (VA, FHA, USDA, Freddie Mac and Fannie Mae) experiencing financial hardship due to the COVID-19 pandemic may request forbearance from paying the borrower’s mortgage for up to 180 days, subject to extension for an additional 180-day period upon the request of the borrower.
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The CARES Act and many states, including California, also have moratoriums on certain foreclosure actions.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

32 edited+11 added−12 removed241 unchanged
Such risks include, among other things, the possibility that contractors may fail to complete, or complete on a timely basis, construction of the relevant properties; substantial cost overruns in excess of original estimates and financing (including do shortages in labor and raw materials and supplies); market deterioration during construction; and lack of permanent take-out financing.
Such risks include, among other things, the possibility that contractors may fail to complete, or complete on a timely basis, construction of the relevant properties; substantial cost overruns in excess of original estimates and financing (including shortages in labor and raw materials and supplies); market deterioration during construction; and lack of permanent take-out financing.
The impact on our loan and other clients will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities and the impact of rising sea levels and other effects of climate change. Among the impacts to us could be a drop in demand for our products and services, particularly in certain sectors.
The impact on our loan relationships and other clients will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities and the impact of rising sea levels and other effects of climate change. Among the impacts to us could be a drop in demand for our products and services, particularly in certain sectors.
The Bank may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination or may be required to investigate or clear up hazardous or toxic substances, or chemical releases at a property.
The Bank may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property.
Statutory and contractual restrictions (including our outstanding debt securities) and our regulators may also restrict the Bancorp ’ s ability to pay dividends. ● The issuance of preferred stock could adversely affect holders of common stock. ● Our outstanding debt securities restrict our ability to pay dividends on our common stock. ● Certain provisions of our charter and bylaws could make acquiring our Company more difficult. ● We may need to raise additional capital, which may dilute the interests of holders of our common stock or otherwise have an adverse effect on their investment. 30 Table of Contents Market and Economic Risks Current unfavorable and uncertain economic and market conditions may adversely affect our industry and business.
Statutory and contractual restrictions (including our outstanding debt securities) and our regulators may also restrict the Bancorp ’ s ability to pay dividends. ● The issuance of preferred stock could adversely affect holders of common stock. ● Our outstanding debt securities restrict our ability to pay dividends on our common stock. ● Certain provisions of our charter and bylaws could make acquiring our Company more difficult. ● We may need to raise additional capital, which may dilute the interests of holders of our common stock or otherwise have an adverse effect on their investment. 31 Table of Contents Market and Economic Risks Current unfavorable and uncertain economic and market conditions may adversely affect our industry and business.
The level of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates which may, in turn, impact the reliability of the process. ● The value of the portfolio of investment securities that we hold may be adversely affected by increasing interest rates and defaults by debtors. 31 Table of Contents ● There have been changes and discussions with respect to U.S. trade policies, legislation, treaties and tariffs, including trade policies and tariffs affecting other countries, including China, the European Union, Canada and Mexico and retaliatory tariffs by such countries.
The level of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates which may, in turn, impact the reliability of the process. ● The value of the portfolio of investment securities that we hold may be adversely affected by increasing interest rates and defaults by debtors. 32 Table of Contents ● There have been changes and discussions with respect to U.S. trade policies, legislation, treaties and tariffs, including trade policies and tariffs affecting other countries, including China, the European Union, Canada and Mexico and retaliatory tariffs by such countries.
Any continued declines in real estate sales and prices coupled with any weakness in the economy and continued high unemployment will result in higher than expected loan delinquencies or problem assets, additional loan charge-offs and provisions for loan losses, a decline in demand for our products and services, or a lack of growth or a decrease in deposits, which may cause us to incur losses, adversely affect our capital, and hurt our business. 32 Table of Contents Adverse conditions in Asia and elsewhere could adversely affect our business.
Any continued declines in real estate sales and prices coupled with any weakness in the economy and continued high unemployment will result in higher than expected loan delinquencies or problem assets, additional loan charge-offs and provisions for loan losses, a decline in demand for our products and services, or a lack of growth or a decrease in deposits, which may cause us to incur losses, adversely affect our capital, and hurt our business. 33 Table of Contents Adverse conditions in Asia and elsewhere could adversely affect our business.
Even if this is not the case, our current actions may subsequently be determined to be insufficient by various stakeholders, and we may be subject to various adverse consequences or investor or regulator engagement on our ESG initiatives and disclosures, even if such initiatives are currently voluntary. 40 Table of Contents Certain market participants, including major institutional investors and capital providers, use third-party benchmarks and scores to assess companies’ ESG profiles in making investment or voting decisions.
Even if this is not the case, our current actions may subsequently be determined to be insufficient by various stakeholders, and we may be subject to various adverse consequences or investor or regulator engagement on our ESG initiatives and disclosures, even if such initiatives are currently voluntary. 41 Table of Contents Certain market participants, including major institutional investors and capital providers, use third-party benchmarks and scores to assess companies’ ESG profiles in making investment or voting decisions.
Other examples include debit card/credit card fraud, check fraud, mechanical devices attached to ATM machines, social engineering and phishing attacks to obtain personal information, impersonation of our clients through the use of falsified or stolen credentials, employee fraud, information theft and other malfeasance. 41 Table of Contents The secure maintenance and transmission of confidential information, as well as the secure execution of transactions over our systems, are essential to protect us and our clients against fraud and security breaches and to maintain our clients’ confidence.
Other examples include debit card/credit card fraud, check fraud, mechanical devices attached to ATM machines, social engineering and phishing attacks to obtain personal information, impersonation of our clients through the use of falsified or stolen credentials, employee fraud, information theft and other malfeasance. 42 Table of Contents The secure maintenance and transmission of confidential information, as well as the secure execution of transactions over our systems, are essential to protect us and our clients against fraud and security breaches and to maintain our clients’ confidence.
Failure to comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil money penalties, and/or reputation damage, which could have a material and adverse effect on our business, financial condition, results of operations and the value of our common stock. 43 Table of Contents Because our business is highly regulated, the laws, rules, regulations, and supervisory guidance and policies applicable to us are subject to regular modification and change.
Failure to comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil money penalties, and/or reputation damage, which could have a material and adverse effect on our business, financial condition, results of operations and the value of our common stock. 44 Table of Contents Because our business is highly regulated, the laws, rules, regulations, and supervisory guidance and policies applicable to us are subject to regular modification and change.
The risk of not being able to realize the tax credits and other tax benefits depends on many factors outside of our control, including changes in the applicable provisions of the tax code and the ability of the projects to be completed and properly managed. 37 Table of Contents Our use of appraisals in deciding whether to make a loan on or secured by real property does not ensure the value of the real property collateral.
The risk of not being able to realize the tax credits and other tax benefits depends on many factors outside of our control, including changes in the applicable provisions of the tax code and the ability of the projects to be completed and properly managed. 38 Table of Contents Our use of appraisals in deciding whether to make a loan on or secured by real property does not ensure the value of the real property collateral.
If we foreclose on these loans, our holding period for the collateral typically is longer than residential properties because there are fewer potential purchasers of the collateral. 36 Table of Contents Additionally, many of the Bank’s commercial real estate and commercial business loans are made to small and medium sized businesses that may have a heightened vulnerability to economic conditions.
If we foreclose on these loans, our holding period for the collateral typically is longer than residential properties because there are fewer potential purchasers of the collateral. 37 Table of Contents Additionally, many of the Bank’s commercial real estate and commercial business loans are made to small and medium sized businesses that may have a heightened vulnerability to economic conditions.
Negative publicity regarding our business, employees, or clients, with or without merit, may result in the loss of clients, investors, and employees, costly litigation, a decline in revenues, and increased governmental regulation. 42 Table of Contents Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.
Negative publicity regarding our business, employees, or clients, with or without merit, may result in the loss of clients, investors, and employees, costly litigation, a decline in revenues, and increased governmental regulation. 43 Table of Contents Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.
In addition, a recent change in accounting standards will result in a significant change in how we recognize credit losses as further disclosed in the risk factor below entitled, “Our financial results could be adversely affected by changes in accounting standards or tax laws and regulations.” 33 Table of Contents The allowance for credit losses is an estimate of expected credit losses.
In addition, a recent change in accounting standards will result in a significant change in how we recognize credit losses as further disclosed in the risk factor below entitled, “Our financial results could be adversely affected by changes in accounting standards or tax laws and regulations.” 34 Table of Contents The allowance for credit losses is an estimate of expected credit losses.
To the extent we issue capital stock in connection with additional transactions, if any, these transactions and related stock issuances may have a dilutive effect on earnings per share and share ownership. 38 Table of Contents Our earnings, financial condition, and prospects after a merger or acquisition depend in part on our ability to successfully integrate the operations of the acquired company.
To the extent we issue capital stock in connection with additional transactions, if any, these transactions and related stock issuances may have a dilutive effect on earnings per share and share ownership. 39 Table of Contents Our earnings, financial condition, and prospects after a merger or acquisition depend in part on our ability to successfully integrate the operations of the acquired company.
Although we have historically paid cash dividends on our common stock, we are not required to do so and our board of directors could reduce or eliminate our common stock dividend in the future, which could adversely affect the market price of our common stock. 48 Table of Contents The issuance of preferred stock could adversely affect holders of common stock, which may negatively impact their investment.
Although we have historically paid cash dividends on our common stock, we are not required to do so and our board of directors could reduce or eliminate our common stock dividend in the future, which could adversely affect the market price of our common stock. 49 Table of Contents The issuance of preferred stock could adversely affect holders of common stock, which may negatively impact their investment.
There can be no assurance that we will be successful in minimizing the adverse effects of changes in interest rates. 34 Table of Contents Inflation and deflation may adversely affect our financial performance. The Consolidated Financial Statements and related financial data presented in this report have been prepared in accordance with GAAP.
There can be no assurance that we will be successful in minimizing the adverse effects of changes in interest rates. 35 Table of Contents Inflation and deflation may adversely affect our financial performance. The Consolidated Financial Statements and related financial data presented in this report have been prepared in accordance with GAAP.
The terms of any such supervisory action could have a material and adverse effect on our business, financial condition, results of operations and the value of our common stock. 44 Table of Contents We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
The terms of any such supervisory action could have a material and adverse effect on our business, financial condition, results of operations and the value of our common stock. 45 Table of Contents We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
There can be no assurance that we would succeed in raising any such additional capital, and any capital we obtain may dilute the interests of holders of our common stock, or otherwise have an adverse effect on their investment. 49 Table of Contents
There can be no assurance that we would succeed in raising any such additional capital, and any capital we obtain may dilute the interests of holders of our common stock, or otherwise have an adverse effect on their investment. 50 Table of Contents
Natural disasters, extreme weather conditions, geopolitical events, public health crises and other catastrophic events could also negatively affect our clients, counterparties and service providers, as well as result in disruptions in general economic activity and the financial and real estate markets. 39 Table of Contents Governmental and societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our clients.
Natural disasters, extreme weather conditions, geopolitical events, public health crises and other catastrophic events could also negatively affect our clients, counterparties and service providers, as well as result in disruptions in general economic activity and the financial and real estate markets. 40 Table of Contents Governmental and societal responses to climate change and other environmental impacts could adversely affect our business and performance, including indirectly through impacts on our clients.
These changes and their effects can be difficult to predict and can materially and adversely impact how we record and report our financial condition and results of operations. 46 Table of Contents In addition, changes to tax law could increase our effective tax rates.
These changes and their effects can be difficult to predict and can materially and adversely impact how we record and report our financial condition and results of operations. 47 Table of Contents In addition, changes to tax law could increase our effective tax rates.
A significant decline in our stock price could result in substantial losses for individual stockholders and could lead to costly and disruptive securities litigation. 47 Table of Contents An investment in our common stock is not an insured deposit.
A significant decline in our stock price could result in substantial losses for individual stockholders and could lead to costly and disruptive securities litigation. 48 Table of Contents An investment in our common stock is not an insured deposit.
If the Company were to determine that the carrying amount of the goodwill exceeded its implied fair value, the Company would be required to write down the value of the goodwill on the balance sheet, adversely affecting earnings as well as capital. 35 Table of Contents Operational Risks We may incur significant losses as a result of ineffective risk management processes and strategies.
If the Company were to determine that the carrying amount of the goodwill exceeded its implied fair value, the Company would be required to write down the value of the goodwill on the balance sheet, adversely affecting earnings as well as stockholders equity. 36 Table of Contents Operational Risks We may incur significant losses as a result of ineffective risk management processes and strategies.
Moreover, the long-term effects of the Federal Reserve’s unprecedented quantitative easing and tapering off are unknown, and while interest rates have begun to increase, they remain at historically low levels.
Moreover, the long-term effects of the Federal Reserve’s unprecedented quantitative easing and tapering off are unknown, and while interest rates have risen, they remain at historically low levels.
Credit, Interest Rate and Liquidity Risks We may be required to make additional provisions for loan losses and charge off additional loans in the future, which could adversely affect our results of operations. At December 31, 2022, our allowance for loan losses totaled $146.5 million and we had net charge-offs of $2.6 million for 2022.
Credit, Interest Rate and Liquidity Risks We may be required to make additional provisions for loan losses and charge off additional loans in the future, which could adversely affect our results of operations. At December 31, 2023, our allowance for loan losses totaled $154.6 million and we had net charge-offs of $17.6 million for 2023.
Based on a review of the appropriateness of the allowance for loan losses at December 31, 2022 in light of current economic conditions, we recorded a provision for credit losses of $14.3 million in the year ended December 31, 2022.
Based on a review of the appropriateness of the allowance for loan losses at December 31, 2023 in light of current economic conditions, we recorded a provision for credit losses of $26.0 million in the year ended December 31, 2023.
Moreover, rising interest rates may adversely affect real estate sales and the refinancing of existing real estate loans. As of December 31, 2022, we had approximately $9.4 billion in commercial real estate and construction loans.
Moreover, elevated interest rates may adversely affect real estate sales and the refinancing of existing real estate loans. As of December 31, 2023, we had approximately $10.15 billion in commercial real estate and construction loans.
Regulatory, Compliance and Legal Risks ● The banking industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, could limit or restrict our activities, hamper our ability to increase our assets and earnings, and materially and adversely affect our profitability. ● We are subject to stringent risk-based capital and leverage requirements, including those adopted by the Federal Reserve ( ” the Basel III Capital Rules ” ). ● We may become subject to supervisory action by bank supervisory authorities that could have a material adverse effect on our business, financial condition, and the value of our common stock. ● We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations. ● We are subject to the Community Reinvestment Act (the “ CRA), fair lending and other laws and regulations, and our failure to comply with these laws and regulations could lead to material penalties. ● Reforms to and uncertainty regarding LIBOR may adversely affect our business. ● Governmental monetary policies and intervention to stabilize the U.S. financial system may affect our business and are beyond our control. ● Adverse results in legal proceedings could adversely affect our business and financial condition. ● Liabilities from environmental regulations could adversely affect our business and financial condition. ● Changes in accounting standards or tax laws and regulations could adversely affect our financial results.
Regulatory, Compliance and Legal Risks ● The banking industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, could limit or restrict our activities, hamper our ability to increase our assets and earnings, and materially and adversely affect our profitability. ● We are subject to stringent risk-based capital and leverage requirements, including those adopted by the Federal Reserve ( ” the Basel III Capital Rules ” ). ● We may become subject to supervisory action by bank supervisory authorities that could have a material adverse effect on our business, financial condition, and the value of our common stock. ● We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations. ● We are subject to the Community Reinvestment Act (the “ CRA), fair lending and other laws and regulations, and our failure to comply with these laws and regulations could lead to material penalties. ● Governmental monetary policies and intervention to stabilize the U.S. financial system may affect our business and are beyond our control. ● Adverse results in legal proceedings could adversely affect our business and financial condition. ● Liabilities from environmental regulations could adversely affect our business and financial condition. ● Changes in accounting standards or tax laws and regulations could adversely affect our financial results. 30 Table of Contents Risks Related to Ownership of Our Common Stock ● The price of our common stock may fluctuate significantly, and this may make it difficult for a holder to sell shares of common stock at times or at prices such holder finds attractive. ● An investment in our common stock is not an insured deposit. ● Statutory and regulatory restrictions on dividends and other distributions from the Bank may adversely impact us by limiting the amount of distributions the Bancorp may receive.
Various banking regulators, including the FDIC and the New York Department of Financial Services, have also proposed guidelines for climate-related risk management. While guidance from the FDIC is aimed at financial institutions with over $100 billion in consolidated assets, there is no guarantee that we will not be subject to additional regulation regarding climate-related risk management in future.
While guidance from the FDIC is aimed at financial institutions with over $100 billion in consolidated assets, there is no guarantee that we will not be subject to additional regulation regarding climate-related risk management in future.
Operational Risks ● We may incur significant losses as a result of ineffective risk management processes and strategies. ● Concentration of risk increases the potential for significant losses. ● COVID-19 could have negative effects on our commercial real estate ( “ CRE ’ ) and other loans, including loans to hotels/motels, restaurants and the retail industry, which are dependent for repayment on the successful operation and management of the CRE, the strength of the CRE industry broadly and other factors outside of the borrower ’ s control. ● Our commercial loan, CRE loan and construction loan portfolios expose us to risks that may be greater than the risks related to our other loans. ● Our investments and/or financings in certain tax-advantaged projects may not generate returns as anticipated and may have an adverse impact on our financial results. ● Our use of appraisals in deciding whether to make a loan on or secured by real property does not ensure the value of the real property collateral. ● Our use of third-party vendors and our other ongoing third-party business relationships are subject to increasing regulatory requirements and attention. ● Our deposit insurance premiums could increase in the future, which could have a material adverse impact on future earnings and financial condition. ● As we expand our business outside of California markets, including through acquisitions, we may encounter additional risks that could adversely affect our business and earnings. ● We face substantial competition from our competitors. ● We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects. ● Natural disasters, geopolitical events, public health crises and other catastrophic events beyond our control could adversely affect us. ● Increasing scrutiny and expectations on ESG matters, including climate change, from a variety of stakeholders may increase our costs or otherwise adversely affect our business.
Operational Risks ● We may incur significant losses as a result of ineffective risk management processes and strategies. ● Concentration of risk increases the potential for significant losses. ● Our commercial loan, CRE loan and construction loan portfolios expose us to risks that may be greater than the risks related to our other loans. ● Our investments and/or financings in certain tax-advantaged projects may not generate returns as anticipated and may have an adverse impact on our financial results. ● Our use of appraisals in deciding whether to make a loan on or secured by real property does not ensure the value of the real property collateral. ● Our use of third-party vendors and our other ongoing third-party business relationships are subject to increasing regulatory requirements and attention. ● Our deposit insurance premiums could increase in the future, which could have a material adverse impact on future earnings and financial condition. ● As we expand our business outside of California markets, including through acquisitions, we may encounter additional risks that could adversely affect our business and earnings. ● We face substantial competition from our competitors. ● We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects. ● Natural disasters, geopolitical events, public health crises and other catastrophic events beyond our control could adversely affect us. ● Increasing scrutiny and expectations on ESG matters, including climate change, from a variety of stakeholders may increase our costs or otherwise adversely affect our business. 29 Table of Contents Information, Information Technology and Privacy Risks ● We depend on the accuracy and completeness of information about clients. ● Our information systems may experience failures, interruptions, or breaches in security, which could have a material and adverse effect on our business, financial condition, results of operations and the value of our common stock. ● Our need to continue to adapt our information technology systems to allow us to provide new and expanded service could present operational issues, require significant capital spending, and disrupt our business. ● Managing reputational risk is important to attracting and maintaining clients, investors, and employees. ● Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.
Any increase in the Bank's FDIC premiums could have an adverse effect on its financial condition and results of operations. As we expand our business outside of California markets, including through acquisitions, we may encounter additional risks that could adversely affect our business and earnings.
As we expand our business outside of California markets, including through acquisitions, we may encounter additional risks that could adversely affect our business and earnings.
Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations. 45 Table of Contents Governmental monetary policies and intervention to stabilize the U.S. financial system may affect our business and are beyond our control.
The costs of defending, and any adverse outcome from, any such challenge could damage our reputation or could have a material adverse effect on our business, financial condition or results of operations. 46 Table of Contents Governmental monetary policies and intervention to stabilize the U.S. financial system may affect our business and are beyond our control.
Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. The costs of defending, and any adverse outcome from, any such challenge could damage our reputation or could have a material adverse effect on our business, financial condition or results of operations.
Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.
Removed
Information, Information Technology and Privacy Risks ● We depend on the accuracy and completeness of information about clients. 29 Table of Contents ● Our information systems may experience failures, interruptions, or breaches in security, which could have a material and adverse effect on our business, financial condition, results of operations and the value of our common stock. ● Our need to continue to adapt our information technology systems to allow us to provide new and expanded service could present operational issues, require significant capital spending, and disrupt our business. ● Managing reputational risk is important to attracting and maintaining clients, investors, and employees. ● Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.
Added
Additionally, negative news about us or the banking industry in general could negatively impact market and/or customer perceptions of our company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits.
Removed
Risks Related to Ownership of Our Common Stock ● The price of our common stock may fluctuate significantly, and this may make it difficult for a holder to sell shares of common stock at times or at prices such holder finds attractive. ● An investment in our common stock is not an insured deposit. ● Statutory and regulatory restrictions on dividends and other distributions from the Bank may adversely impact us by limiting the amount of distributions the Bancorp may receive.
Added
Any increase in the Bank's FDIC premiums could have an adverse effect on its financial condition and results of operations.
Removed
At the state level, the California legislature recently considered a bill to require certain entities to disclose their greenhouse gas emissions. While this bill was not passed, similar legislation may be introduced in future, which may require us to incur various costs to comply.
Added
In 2023, the FDIC Board of Directors approved a final rule to implement a special assessment to recover the loss to the Deposit Insurance Fund (DIF) associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank.
Removed
Reforms to and uncertainty regarding LIBOR may adversely affect our business. On July 27, 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021.
Added
The Federal Deposit Insurance Act (FDI Act) requires the FDIC to take this action in connection with the systemic risk determination announced on March 12, 2023. ● Under the final rule, the banks that benefited most from the assistance provided under the systemic risk determination will be charged a special assessment to recover losses to the DIF resulting from the protection of uninsured depositors.
Removed
While Intercontinental Exchange Inc., the company that administers LIBOR plans to continue publishing LIBOR, liquidity in the interbank markets that those LIBOR estimates are based upon has been declining. Accordingly, there is considerable uncertainty regarding the publication of such rates beyond 2021.
Added
In general, large banks and regional banks, and particularly those with large amounts of uninsured deposits, were the banks most vulnerable to uninsured deposit runs and benefited most from the stability provided under the systemic risk determination. ● The FDIC estimates that 114 banking organizations will be subject to the special assessment, including 48 banking organizations with total assets over $50 billion and 66 banking organizations with total assets between $5 and $50 billion.
Removed
In April 2018, the Federal Reserve Bank of New York in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, announced the replacement of U.S. LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S. Treasury securities called the Secured Overnight Financing Rate (“SOFR”).
Added
No banking organizations with total assets under $5 billion will pay a special assessment, based on data for the December 31, 2022 reporting period. ● Currently, the FDIC estimates that of the total cost of the failures of Silicon Valley Bank and Signature Bank, approximately $16.3 billion was attributable to the protection of uninsured depositors.
Removed
The first publication of SOFR was released in April 2018. As of December 31, 2022, approximately $1.39 billion of our outstanding loans, and, in addition, certain derivative contracts, borrowings and other financial instruments have attributes that are either directly or indirectly dependent on LIBOR.
Added
These loss estimates will be periodically adjusted as assets are sold, liabilities are satisfied, and receivership expenses are incurred. ● The special assessment will be collected at an annual rate of approximately 13.4 basis points for an anticipated total of eight quarterly assessment periods.
Removed
The transition from LIBOR has resulted in and could continue to result in added costs and employee efforts and could present additional risk. We are subject to litigation and reputational risks if we are unable to renegotiate and amend existing contracts with counterparties that are dependent on LIBOR, including contracts that do not have fallback language.
Added
Because the estimated loss pursuant to the systemic risk determination will be periodically adjusted, the FDIC retains the ability to cease collection early, impose an extended special assessment collection period after the initial eight-quarter collection period to collect the difference between losses and the amounts collected, and impose a one-time final shortfall special assessment after both receiverships terminate. ● The special assessment will be collected beginning with the first quarterly assessment period of 2024 (i.e., January 1 through March 31, 2024) with an invoice payment date of June 28, 2024.
Removed
The timing and manner in which each client’s contract transitions to SOFR, Ameribor Unsecured Overnight Rate (“AMERIBOR”), or Bloomberg Short Term Bank Yield Index (“BSBY”) will vary on a case-by-case basis.
Added
At the state level, the California legislature recently passed legislation requiring that certain entities doing business in California with revenues exceeding $1 billion report their direct and indirect greenhouse gas emissions. The legislation authorizes regulations which could administer penalties against reporting entities for non-compliance.
Removed
There continues to be substantial uncertainty as to the ultimate effects of the LIBOR transition, including with respect to the acceptance and use of SOFR, AMERIBOR, BSBY and other benchmark rates.
Added
This legislation and similar legislation that may be introduced in future may require us to incur various and significant costs to comply. Various banking regulators, including the FDIC and the New York Department of Financial Services, have also proposed guidelines for climate-related risk management.
Removed
Since SOFR, AMERIBOR, and BSBY rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR, which may lead to increased volatility as compared to LIBOR. The transition has impacted our market risk profiles and required changes to our risk and pricing models, valuation tools, product design and hedging strategies.
Added
In addition, the impact of heightened environmental regulation upon our clients could impact our existing loan portfolio as well as asset value and our clients’ operating costs, which could adversely affect our business.
Removed
Furthermore, failure to adequately manage this transition process with our clients could adversely impact our reputation.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed3 unchanged
The other branch and representative offices and other properties are leased by the Bank under leases with expiration dates ranging from May 2023 to December 2029, exclusive of renewal options. As of December 31, 2022, the Bank’s investment in premises and equipment totaled $94.8 million, net of accumulated depreciation. See Note 7 and Note 15 to the Consolidated Financial Statements.
The other branch and representative offices and other properties are leased by the Bank under leases with expiration dates ranging from January 2024 to December 2029, exclusive of renewal options. As of December 31, 2023, the Bank’s investment in premises and equipment totaled $91.1 million, net of accumulated depreciation. See Note 7 and Note 15 to the Consolidated Financial Statements.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+4 added−2 removed2 unchanged
Performance Graph The graph and accompanying information furnished below shows the cumulative total shareholder return over a five-year period through December 31, 2022, assuming an investment of $100 was made and that all dividends were reinvested, in each of our common stock, the Standard & Poor’s (S&P) 500 Index, and the S&P U.S. BMI Banks–Western Region Index. The S&P U.S.
Performance Graph The graph and accompanying information furnished below shows the cumulative total shareholder return over a five-year period through December 31, 2023, assuming an investment of $100 was made and that all dividends were reinvested, in each of our common stock, the Standard & Poor’s (S&P) 500 Index, and the S&P U.S. BMI Banks–Western Region Index. The S&P U.S.
Requests for this information should be addressed to May Chan, Corporate Secretary, Cathay General Bancorp, 777 North Broadway, Los Angeles, California 90012. 51 Table of Contents The comparisons in the graph below are based upon historical data and are not indicative of, or intended to forecast, the future performance of, or returns on, our common stock.
Requests for this information should be addressed to May Chan, Corporate Secretary, Cathay General Bancorp, 777 North Broadway, Los Angeles, California 90012. 52 Table of Contents The comparisons in the graph below are based upon historical data and are not indicative of, or intended to forecast, the future performance of, or returns on, our common stock.
We will furnish, without charge, on the written request of any person who is a stockholder of record as of the record date for the 2023 annual meeting of stockholders, a list of the companies included in the S&P U.S. BMI Banks–Western Region Index.
We will furnish, without charge, on the written request of any person who is a stockholder of record as of the record date for the 2024 annual meeting of stockholders, a list of the companies included in the S&P U.S. BMI Banks–Western Region Index.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Bancorp’s common stock is listed on the NASDAQ Global Select Market under the symbol “CATY.” As of February 15, 2023, Bancorp had outstanding approximately 72,556,149 shares of common stock with approximately 1,527 holders of record.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Holders Bancorp’s common stock is listed on the NASDAQ Global Select Market under the symbol “CATY.” As of February 15, 2024, Bancorp had outstanding approximately 72,669,738 shares of common stock with approximately 1,480 holders of record.
For information on Bancorp’s dividend policy and the statutory and regulatory limitations on the ability of Bancorp to pay dividends to its shareholders and on the Bank to pay dividends to Bancorp, see “Item 1. Business-Regulation and Supervision — Dividends” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources – Dividend Policy.”.
Dividends For information on Bancorp’s dividend policy and the statutory and regulatory limitations on the ability of Bancorp to pay dividends to its shareholders and on the Bank to pay dividends to Bancorp, see “Item 1. Business-Regulation and Supervision — Dividends” and “Item 7.
On May 26th, 2022, the Board of Directors approved a new stock repurchase program to buyback up to $125.0 million of the Company’s common stock. Through December 31, 2022, the Company repurchased 2,522,538 shares of common stock for a total of $108.4 million, at an average cost of $42.98 per share under the May 2022 buyback program.
Through December 31, 2022, the Company repurchased 2,522,538 shares of common stock for a total of $108.4 million, at an average cost of $42.98 per share under the May 2022 buyback program.
Securities Authorized for Issuance under Equity Compensation Plans The information required by this item regarding equity compensation plans is incorporated by reference to the information set forth in Part III, Item 12 in this report.
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources – Dividend Policy.”. Securities Authorized for Issuance under Equity Compensation Plans The information required by this item regarding equity compensation plans is incorporated by reference to the information set forth in Part III, Item 12 in this report.
BMI Banks - Western Region Index 100.00 79.17 96.55 72.25 111.40 86.45 Source: S&P Global Market Intelligence © 2023 Unregistered Sales of Equity Securities There were no sales of any equity securities by the Company during the period covered by this Annual Report on Form 10-K that were not registered under the Securities Act. 52 Table of Contents Issuer Purchases of Equity Securities The Company completed its September 2021 stock buyback program by repurchasing 704,927 shares at an average cost of $46.67 for a total of $32.9 million during the first quarter of 2022.
Unregistered Sales of Equity Securities There were no sales of any equity securities by the Company during the period covered by this Annual Report on Form 10-K that were not registered under the Securities Act. 53 Table of Contents Issuer Purchases of Equity Securities On May 26th, 2022, the Board of Directors approved a stock repurchase program to buyback up to $125.0 million of the Company’s common stock.
Removed
Period Ending Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Cathay General Bancorp 100.00 81.53 95.78 84.63 116.57 114.11 S&P 500 Index 100.00 95.62 125.72 148.85 191.58 156.88 S&P U.S.
Added
Bancorp believes, however, that the actual number of beneficial holders of its common stock may be substantially greater than the stated number of holders of record because a substantial portion of the common stock is held in street name.
Removed
Issuer Purchases of Equity Securities Period (a) Total Number of Shares (or Units) Purchased (b) Average Price Paid per Share (or Unit) (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs October 1, 2022 - October 31, 2022 0 $ - 0 $ 48,122,085 November 1, 2022 - November 30, 2022 509,377 $ 45.52 509,377 $ 24,933,552 December 1, 2022 - December 31, 2022 183,623 $ 45.49 183,623 $ 16,580,163 Total 693,000 $ 45.52 693,000 $ 16,580,163 Item 6.
Added
Period Ending Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Cathay General Bancorp 100.00 117.48 103.80 142.98 139.97 158.85 S&P 500 Index 100.00 131.49 155.68 200.37 164.08 207.21 S&P U.S.
Added
BMI Banks - Western Region Index 100.00 121.94 91.26 140.71 109.19 108.54 Source: S&P Global Market Intelligence © 2024 This information shall not be deemed to be ‘‘soliciting material’’ or to be ‘‘filed’’ with the SEC or subject to Regulation 14A (17 CFR 240.14a-1-240.14a-104), other than as provided in Item 201(e) of Regulation S-K, or to the liabilities of section 18 of the Exchange Act (15 U.S.C. 78r).
Added
The Company completed its May 2022 stock buyback program by repurchasing 375,090 shares at an average cost of $44.20 for a total of $16.6 million during the first quarter of 2023. Item 6. Reserved

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

127 edited+31 added−72 removed111 unchanged
The Board of Directors provides oversight for the allowance evaluation process, including quarterly evaluations, and determines whether the allowance is appropriate to absorb losses in the credit portfolio.
The Board of Directors provides oversight for the allowance evaluation process, including quarterly evaluations, and determines whether the allowance is appropriate to absorb losses in the credit portfolio.
Identified credit exposures that are determined to be uncollectible are charged against the allowance for credit losses. Recoveries of previously charged off amounts, if any, are credited to the allowance for credit losses.
Identified credit exposures that are determined to be uncollectible are charged against the allowance for credit losses. Recoveries of previously charged-off amounts, if any, are credited to the allowance for credit losses.
In addition, the Board of Directors of the Bank has established a written credit policy that includes a credit review and control system that it believes should be effective in ensuring that the Bank maintains an appropriate allowance for credit losses.
In addition, the Company’s Board of Directors has established a written credit policy that includes a credit review and control system that it believes should be effective in ensuring that the Bank maintains an appropriate allowance for credit losses.
Please also see Part I — Item 1A — “Risk Factors” for additional factors that could cause actual results to differ materially from forward-looking statements or historical performance. 80 Table of Contents Liquidity Liquidity is our ability to maintain sufficient cash flow to meet maturing financial obligations and client credit needs, and to take advantage of investment opportunities as they are presented in the marketplace.
Please also see Part I — Item 1A — “Risk Factors” for additional factors that could cause actual results to differ materially from forward-looking statements or historical performance. 79 Table of Contents Liquidity Liquidity is our ability to maintain sufficient cash flow to meet maturing financial obligations and client credit needs, and to take advantage of investment opportunities as they are presented in the marketplace.
Management's current expectation for credit losses as quantified in the allowance for credit losses, considers the impact of assumptions and is reflective of historical credit experience, economic forecasts viewed to be reasonable and supportable, current loan composition, and relative credit risks known as of the balance sheet date. 77 Table of Contents Under the Company’s CECL methodology, nine portfolio segments with similar risk characteristics are evaluated for expected loss.
Management's current expectation for credit losses as quantified in the allowance for credit losses, considers the impact of assumptions and is reflective of historical credit experience, economic forecasts viewed to be reasonable and supportable, current loan composition, and relative credit risks known as of the balance sheet date. 76 Table of Contents Under the Company’s CECL methodology, nine portfolio segments with similar risk characteristics are evaluated for expected loss.
Quantitative Information about Interest Rate Risk The following table shows the carrying value of our financial instruments that are sensitive to changes in interest rates, categorized by expected maturity, as well as the instruments’ total fair values at December 31, 2022, and 2021. For assets, expected maturities are based on contractual maturity.
Quantitative Information about Interest Rate Risk The following table shows the carrying value of our financial instruments that are sensitive to changes in interest rates, categorized by expected maturity, as well as the instruments’ total fair values at December 31, 2023, and 2022. For assets, expected maturities are based on contractual maturity.
Recent Accounting Pronouncements Please see Note 1 to the Consolidated Financial Statements for details of other recent accounting pronouncements and their expected impact, if any, on the Consolidated Financial Statements. 81 Table of Contents Item 7A. Quantitative and Qualitative Disclosures about Market Risk Market Risk Market risk is the risk of loss from adverse changes in market prices and rates.
Recent Accounting Pronouncements Please see Note 1 to the Consolidated Financial Statements for details of other recent accounting pronouncements and their expected impact, if any, on the Consolidated Financial Statements. 80 Table of Contents Item 7A. Quantitative and Qualitative Disclosures about Market Risk Market Risk Market risk is the risk of loss from adverse changes in market prices and rates.
As of the filing date of this report, the Bank operates 25 branches in Southern California, 19 branches in Northern California, 9 branches in New York State, four branches in Washington State, two branches in Illinois, two branches in Texas, one branch in each of Maryland, Massachusetts, Nevada, and New Jersey, one branch in Hong Kong, and a representative office in Beijing, in Shanghai, and in Taipei.
As of the filing date of this report, the Bank operates 24 branches in Southern California, 19 branches in Northern California, 9 branches in New York State, four branches in Washington State, two branches in Illinois, two branches in Texas, one branch in each of Maryland, Massachusetts, Nevada, and New Jersey, one branch in Hong Kong, and a representative office in Beijing, in Shanghai, and in Taipei.
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 2007 to the fourth quarter of 2020.
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.
Our allowance for credit losses is sensitive to a number of inputs, including macroeconomic forecast assumptions and credit rating migrations during the period. Our macroeconomic forecasts used in determining the December 31, 2022, allowance for credit losses consisted of three scenarios as provided by an outside forecaster.
Our allowance for credit losses is sensitive to a number of inputs, including macroeconomic forecast assumptions and credit rating migrations during the period. Our macroeconomic forecasts used in determining the December 31, 2023, allowance for credit losses consisted of three scenarios as provided by an outside forecaster.
All material transactions between these entities are eliminated. 53 Table of Contents Critical Accounting Policies The discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP.
All material transactions between these entities are eliminated. 54 Table of Contents Critical Accounting Policies The discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP.
Compared with 2021, average residential mortgage loans increased $825.8 million, or 20.1%, average commercial mortgage loans increased $786.9 million, or 10.2%, and average commercial loans increased $307.3 million, or 10.6%. Average investment securities were $1.3 billion in 2022, an increase of $275.2 million, or 26.3%, from 2021.
Compared with 2021, average residential mortgage loans increased $825.8 million, or 20.1%, average commercial real estate loans increased $786.9 million, or 10.2%, and average commercial loans increased $307.3 million, or 10.6%. Average investment securities were $1.3 billion in 2022, an increase of $275.2 million, or 26.3%, from 2021.
Allowance for Credit Losses The Bank maintains the allowance for credit losses at a level that the Bank’s management considers appropriate to cover the estimated and known inherent risks in the loan portfolio and off-balance sheet unfunded credit commitments. Allowance for credit losses is comprised of allowances for loan losses and for off-balance sheet unfunded credit commitments.
Allowance for Credit Losses The Company maintains the allowance for credit losses at a level that the Bank’s management considers appropriate to cover the estimated and known inherent risks in the loan portfolio and off-balance sheet unfunded credit commitments. Allowance for credit losses is comprised of allowances for loan losses and for off-balance sheet unfunded credit commitments.
The Bank paid dividends to the Bancorp totaling $232.8 million during 2022, $230.0 million during 2021, and $146.0 million during 2020. 69 Table of Contents The Federal Reserve Board issued Federal Reserve Supervision and Regulation Letter SR-09-4 that states that bank holding companies are expected to inform and consult with the Federal Reserve supervisory staff prior to declaring and paying a dividend that exceeds earnings for the period for which the dividend is being paid.
The Bank paid dividends to the Bancorp totaling $134.0 million during 2023, $232.8 million during 2022, and $230.0 million during 2021. 69 Table of Contents The Federal Reserve Board issued Federal Reserve Supervision and Regulation Letter SR-09-4 that states that bank holding companies are expected to inform and consult with the Federal Reserve supervisory staff prior to declaring and paying a dividend that exceeds earnings for the period for which the dividend is being paid.
There are no loan concentrations to multiple borrowers in similar activities that exceeded 10% of total loans as of December 31,2022 or as of December 31, 2021. 75 Table of Contents The Federal banking regulatory agencies issued final guidance on December 6, 2006, regarding risk management practices for financial institutions with high or increasing concentrations of commercial real estate ("CRE") loans on their balance sheets.
There are no loan concentrations to multiple borrowers in similar activities that exceeded 10% of total loans as of December 31, 2023 or as of December 31, 2022. 74 Table of Contents The Federal banking regulatory agencies issued final guidance on December 6, 2006, regarding risk management practices for financial institutions with high or increasing concentrations of commercial real estate ("CRE") loans on their balance sheets.
At December 31, 2022 and 2021, there were no non-accrual residential loans, non-accrual non-residential construction loans and non-accrual land loans that were originated with pre-established interest reserves, respectively.
At December 31, 2023 and 2022, there were no non-accrual residential loans, non-accrual non-residential construction loans and non-accrual land loans that were originated with pre-established interest reserves, respectively.
Non-interest Expense Non-interest expense includes expenses related to salaries and benefits of employees, occupancy expenses, marketing expenses, computer and equipment expenses, amortization of core deposit intangibles, amortization of investment is affordable housing and alternative energy partnerships, and other operating expenses. Comparison of 2022 with 2021 Non-interest expense totaled $303.4 million in 2022 compared to $286.5 million in 2021.
Non-interest Expense Non-interest expense includes expenses related to salaries and benefits of employees, occupancy expenses, marketing expenses, computer and equipment expenses, amortization of core deposit intangibles, amortization of investment is affordable housing and alternative energy partnerships, and other operating expenses. Comparison of 2023 with 2022 Non-interest expense totaled $380.5 million in 2023 compared to $303.4 million in 2022.
Total CRE loans represented 287% of total risk-based capital as of December 31, 2022, and 285% as of December 31, 2021, which were within the Bank’s internal limit of 400%, of total capital. See Part I — Item 1A — “Risk Factors” for a discussion of some of the factors that may affect us.
Total CRE loans represented 292% of total risk-based capital as of December 31, 2023, and 287% as of December 31, 2022, which were within the Bank’s internal limit of 400% of total capital. See Part I — Item 1A — “Risk Factors” for a discussion of some of the factors that may affect us.
While management utilizes its business judgment based on the information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors, many of which are beyond the Bank’s control, including but not limited to the performance of the Bank’s loan portfolio, the economy and market conditions, changes in interest rates, and the view of the regulatory authorities toward loan classifications.
While management utilizes its business judgment based on the information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors, many of which are beyond the Bank’s control, including but not limited to the performance of the Bank’s loan portfolio, the economy and market conditions, macroeconomic factors, and the view of the regulatory authorities toward loan classifications.
Net interest margin, defined as net interest income to average interest-earning assets, was 3.22% in 2021 compared to 3.12% in 2020. 58 Table of Contents The following table sets forth information concerning average interest-earning assets, average interest-bearing liabilities, and the average yields and rates paid on those assets and liabilities in 2022, 2021 and 2020.
Net interest margin, defined as net interest income to average interest-earning assets, was 3.63% in 2022 compared to 3.22% in 2021. 58 Table of Contents The following table sets forth information concerning average interest-earning assets, average interest-bearing liabilities, and the average yields and rates paid on those assets and liabilities in 2023, 2022 and 2021.
The increase in net interest income was due primarily to the increase in interest income from loans offset by an increase in interest expense from time deposits. Average loans for 2022 were $17.6 billion, a $1.8 billion, or an 11.4% increase from $15.8 billion in 2021.
The increase in net interest income was due primarily to the increase in interest income from loans offset by an increase in interest expense from time deposits. 57 Table of Contents Average loans for 2022 were $17.6 billion, a $1.8 billion, or an 11.4% increase from $15.8 billion in 2021.
For December 2022, our average monthly liquidity ratio (defined as net cash plus short-term and marketable securities to net deposits and short-term liabilities) was 13.7% compared to 17.3% for December 2021. The Bank is a shareholder of the FHLB, which enables the Bank to have access to lower-cost FHLB financing when necessary.
As of December 2023, our average monthly liquidity ratio (defined as net cash plus short-term and marketable securities to net deposits and short-term liabilities) was 13.6% compared to 13.7% for December 2022. The Bank is a shareholder of the FHLB, which enables the Bank to have access to lower-cost FHLB financing when necessary.
Our lending relates predominantly to activities in the states of California, New York, Texas, Washington, Massachusetts, Illinois, New Jersey, Maryland, and Nevada. We also lend to domestic clients who are engaged in international trade. Loans outstanding in our branch in Hong Kong were $324.3 million as of December 31, 2022, compared to $275.6 million as of December 31, 2021.
Our lending relates predominantly to activities in the states of California, New York, Texas, Washington, Massachusetts, Illinois, New Jersey, Maryland, and Nevada. We also lend to domestic clients who are engaged in international trade. Loans outstanding in our branch in Hong Kong were $341.9 million as of December 31, 2023, compared to $324.3 million as of December 31, 2022.
While management utilizes its business judgment based on the information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors, many of which are beyond the Bank’s control, including but not limited to the performance of the Bank’s loan portfolio, the economy and market conditions, changes in interest rates, and the view of the regulatory authorities toward loan classifications.
While management utilizes its business judgment based on the information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors, many of which are beyond the Bank’s control, including but not limited to the performance of the Bank’s loan portfolio, the economy and market conditions, macroeconomic forecasts, and the view of the regulatory authorities toward loan classifications.
The Bank’s loans for construction, land development, and other land represented 27% of total risk-based capital as of December 31, 2022, and 31% as of December 31, 2021.
The Bank’s loans for construction, land development, and other land represented 19% of total risk-based capital as of December 31, 2023, and 27% as of December 31, 2022.
Under this regulation, the amount of retained earnings available for cash dividends to the Company immediately after December 31, 2022, was restricted to approximately $296.2 million. For additional information on statutory and regulatory limitations on the ability of Bancorp to pay dividends to its shareholders and on the Bank to pay dividends to Bancorp, see “Item 1.
Under this regulation, the amount of retained earnings available for cash dividends to the Company immediately after December 31, 2023, was restricted to approximately $420.4 million. For additional information on statutory and regulatory limitations on the ability of Bancorp to pay dividends to its shareholders and on the Bank to pay dividends to Bancorp, see “Item 1.
These borrowings bear fixed rates and are secured by loans. See Note 10 to the Consolidated Financial Statements. At December 31, 2022, the Bank pledged $582.9 thousand of its commercial loans to the Federal Reserve Bank’s Discount Window under the Borrower-in-Custody program.
These borrowings bear fixed rates and are secured by loans. See Note 10 to the Consolidated Financial Statements. At December 31, 2023, the Bank pledged $387.6 thousand of its commercial loans to the Federal Reserve Bank’s Discount Window under the Borrower-in-Custody program.
The Bank had borrowing capacity of $1.8 million from the Federal Reserve Bank Discount Window at December 31, 2022. Liquidity can also be provided through the sale of liquid assets, which consist of federal funds sold, securities purchased under agreements to resell, securities available-for-sale and equity securities.
The Bank had borrowing capacity of $1.42 million from the Federal Reserve Bank Discount Window at December 31, 2023. Liquidity can also be provided through the sale of liquid assets, which consist of federal funds sold, securities purchased under agreements to resell, securities available-for-sale.
As of December 31, 2022, Junior Subordinated Notes totaled $119.1 million with a weighted average interest rate of 4.01%, compared to $119.1 million with a weighted average rate of 2.38% as of December 31, 2021. The Junior Subordinated Notes have a stated maturity term of 30 years and qualify as Total Capital for these periods.
As of December 31, 2023, Junior Subordinated Notes totaled $119.1 million with a weighted average interest rate of 7.54%, compared to $119.1 million with a weighted average rate of 4.01% as of December 31, 2022. The Junior Subordinated Notes have a stated maturity term of 30 years and qualify as Total Capital for these periods.
After the R&S period, the Company will revert straight-line for the four-quarter reversion period to the long-term loss rates for each of the six portfolios of loans. The contractual term excludes renewals and modifications but includes pre-approved extensions and prepayment assumptions where applicable.
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 contractual term excludes renewals and modifications but includes pre-approved extensions and prepayment assumptions where applicable.
Net charge-offs for 2022 were $2.6 million, or 0.01% of average loans, compared to net charge-offs of $17.6 million for 2021, or 0.11% of average loans, and net recoveries of $14.2 million for 2020, or 0.09% of average loans.
Net charge-offs for 2023 were $17.6 million, or 0.09% of average loans, compared to net charge-offs of $2.6 million for 2022, or 0.01% of average loans, and net charge-offs of $17.6 million for 2021, or 0.11% of average loans.
The balance for construction loans with interest reserves which have been extended was $34.4 million with pre-established interest reserves of $1.0 million at December 31, 2022, compared to $20.4 million with pre-established interest reserves of $0.4 million at December 31, 2021.
The balance for construction loans with interest reserves which have been extended was $6.4 million with pre-established interest reserves of $0.5 million at December 31, 2023, compared to $34.4 million with pre-established interest reserves of $1.0 million at December 31, 2022.
The Bank recorded a provision for credit losses of $14.5 million in 2022 compared with a reversal for credit losses of $16.0 million in 2021, and a provision for credit losses of $57.5 million in 2020.
The Bank recorded a provision for credit losses of $26.0 million in 2023 compared with a provision for credit losses of $14.5 million in 2022, and a reversal for credit losses of $16.0 million in 2021.
At December 31, 2022, the Company’s Tier 1 risk-based capital ratio of 12.21%, total risk-based capital ratio of 13.73%, and Tier 1 leverage capital ratio of 10.08%, calculated under the Basel III Capital Rules, continue to place the Company in the “well capitalized” category for regulatory purposes, which is defined as institutions with a Tier 1 risk-based capital ratio equal to or greater than 8%, a total risk-based capital ratio equal to or greater than 10%, and a Tier 1 leverage capital ratio equal to or greater than 5%.
At December 31, 2023, the Company’s Tier 1 risk-based capital ratio of 12.84%, total risk-based capital ratio of 14.31%, and Tier 1 leverage capital ratio of 10.55%, calculated under the Basel III Capital Rules, continue to place the Company in the “well capitalized” category for regulatory purposes, which is defined as institutions with a Tier 1 risk-based capital ratio equal to or greater than 8%, a total risk-based capital ratio equal to or greater than 10%, and a Tier 1 leverage capital ratio equal to or greater than 5%.
Commercial loans consist primarily of short-term loans (typically with a maturity of one year or less) to support general business purposes, or to provide working capital to businesses in the form of lines of credit, trade-finance loans, loans for commercial purposes secured by cash, and SBA loans. ● Real estate construction loans decreased $51.7 million, or 8.5%, to $559.4 million at December 31, 2022, compared to $611.0 million at December 31, 2021.
Commercial loans consist primarily of short-term loans (typically with a maturity of one year or less) to support general business purposes, or to provide working capital to businesses in the form of lines of credit, trade-finance loans, loans for commercial purposes secured by cash, and SBA loans. ● Real estate construction loans decreased $136.8 million, or 24.5%, to $442.6 million at December 31, 2023, compared to $559.4 million at December 31, 2022.
Average long-term debt of $119.1 million decreased to 0.8% of total interest-bearing liabilities in 2022 compared to 0.9% in 2021. Net interest margin, defined as net interest income to average interest-earning assets, was 3.63% in 2022 compared to 3.22% in 2021.
Average long-term debt of $119.1 million decreased to 0.7% of total interest-bearing liabilities in 2023 compared to 0.8% in 2022. Net interest margin, defined as net interest income to average interest-earning assets, was 3.45% in 2023 compared to 3.63% in 2022.
Equity Securities For the year ended December 31, 2022, the Company recognized a net gain of $392 thousand due to the increase in fair value of equity investments with readily determinable fair values during the year, compared to a net loss of $1.4 million in 2021.
Equity Securities For the year ended December 31, 2023, the Company recognized a net gain of $18.2 million due to the increase in fair value of equity investments with readily determinable fair values during the year, compared to a net gain of $392 thousand in 2022.
The comparable ratios were 0.9% of period-end gross loans and 212.9% of non-performing loans at December 31, 2021. 76 Table of Contents Critical Accounting Policies and Estimates Our accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition.
The comparable ratios were 0.85% of period-end gross loans and 193.0% of non-performing loans at December 31, 2022. 75 Table of Contents Critical Accounting Policies and Estimates Our accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition.
At December 31, 2022, the Bank had an approved credit line with the FHLB of San Francisco totaling $7.7 billion. Total advances from the FHLB of San Francisco were $485.0 million and standby letter of credits issued by FHLB on the Company’s behalf were $785.1 million as of December 31, 2022.
At December 31, 2023, the Bank had an approved credit line with the FHLB of San Francisco totaling $7.99 billion. Total advances from the FHLB of San Francisco were $540.0 million and standby letter of credits issued by FHLB on the Company’s behalf were $851.0 million as of December 31, 2023.
Our simulation model also projects the net market value of our portfolio of assets and liabilities. We have established a tolerance level to value the net market value of our portfolio of assets and liabilities in our policy to a change of not less than 0% when the hypothetical rate change is plus or minus 200 basis points.
Our simulation model also projects the economic value of equity. We have established a tolerance level in our policy to a change of not less than 0% when the hypothetical rate change is plus or minus 200 basis points.
Average interest-bearing cash on deposits with financial institutions decreased $387.7 million, or 23.5%, to $1.3 billion in 2022 from $1.6 billion in 2021. 56 Table of Contents Average interest-bearing deposits were $13.9 billion in 2022, an increase of $933.1 million, or 7.2%, from $13.0 billion in 2021, primarily due to increases of $868.1 million, or 21.5%, in money market accounts, $424.1 million, or 20.7%, in interest bearing demand deposits, and $221.3 million, or 24.7%, in savings accounts, offset by decreases of $580.4 million, or 9.7%, in time deposits.
Average interest-bearing deposits were $13.9 billion in 2022, an increase of $933.1 million, or 7.2%, from $13.0 billion in 2021, primarily due to increases of $868.1 million, or 21.5%, in money market accounts, $424.1 million, or 20.7%, in interest bearing demand deposits, and $221.3 million, or 24.7%, in savings accounts, offset by decreases of $580.4 million, or 9.7%, in time deposits.
Commercial mortgage loans consist primarily of commercial retail properties, shopping centers, owner-occupied industrial facilities, office buildings, multiple-unit apartments, hotels, and multi-tenanted industrial properties, and are typically secured by first deeds of trust on such commercial properties. 64 Table of Contents ● Commercial loans increased $336.4 million, or 11.3%, to $3.3 billion at December 31, 2022, compared to $3.0 billion at December 31, 2021.
Commercial real estate loans consist primarily of commercial retail properties, shopping centers, owner-occupied industrial facilities, office buildings, multiple-unit apartments, hotels, and multi-tenanted industrial properties, and are typically secured by first deeds of trust on such commercial properties. 64 Table of Contents ● Commercial loans decreased $13.7 million, or 0.4%, to $3.31 billion at December 31, 2023, compared to $3.32 billion at December 31, 2022.
The following table displays average deposits and rates for the past five years: Average Deposits and Average Rates Year Ended December 31, 2022 2021 2020 2019 2018 Amount % Amount % Amount % Amount % Amount % (In thousands) Deposits Non-interest-bearing demand deposits $ 4,386,526 — % $ 3,751,626 — % $ 3,158,828 — % $ 2,837,946 — % $ 2,819,711 — % Interest bearing demand deposits 2,471,256 0.33 2,047,177 0.11 1,591,924 0.18 1,290,752 0.18 1,389,326 0.20 Money market deposits 4,902,357 0.81 4,034,246 0.45 2,903,837 0.74 2,012,306 1.07 2,200,847 0.74 Savings deposits 1,118,967 0.08 897,663 0.09 759,581 0.13 731,027 0.20 791,982 0.20 Time deposits 5,398,808 1.04 5,979,191 0.68 7,268,738 1.54 7,459,800 2.05 6,031,061 1.43 Total deposits $ 18,277,914 0.58 % $ 16,709,903 0.37 % $ 15,682,908 0.87 % $ 14,331,831 1.24 % $ 13,232,927 0.81 % Management considers the Bank’s time deposits of $250 thousand or more, which totaled $4.2 billion at December 31, 2022, to be generally less volatile than other wholesale funding sources primarily because approximately 84.7% of the Bank’s CDs of $250 thousand or more have been on deposit with the Bank for two years or more.
The following table displays average deposits and rates for the past five years: Average Deposits and Average Rates Year Ended December 31, 2023 2022 2021 2020 2019 Amount % Amount % Amount % Amount % Amount % (In thousands) Deposits Non-interest-bearing demand deposits $ 3,705,788 — % $ 4,386,526 — % $ 3,751,626 — % $ 3,158,828 — % $ 2,837,946 — % Interest bearing demand deposits 2,388,080 1.71 2,471,256 0.33 2,047,177 0.11 1,591,924 0.18 1,290,752 0.18 Money market deposits 3,164,739 2.72 4,902,357 0.81 4,034,246 0.45 2,903,837 0.74 2,012,306 1.07 Savings deposits 1,070,405 0.83 1,118,967 0.08 897,663 0.09 759,581 0.13 731,027 0.20 Time deposits 8,849,293 3.75 5,398,808 1.04 5,979,191 0.68 7,268,738 1.54 7,459,800 2.05 Total deposits $ 19,178,305 2.44 % $ 18,277,914 0.58 % $ 16,709,903 0.37 % $ 15,682,908 0.87 % $ 14,331,831 1.24 % Management considers the Bank’s time deposits of $250 thousand or more, which totaled $5.48 billion at December 31, 2023, to be generally less volatile than other wholesale funding sources primarily because approximately 83.5% of the Bank’s CDs of $250 thousand or more have been on deposit with the Bank for two years or more.
Conversely, if interest rates were to decrease instantaneously by 100 basis points, the simulation indicated that our net interest income over the next twelve months would decrease by 6.7%, and if interest rates were to decrease instantaneously by 200 basis points, the simulation indicated that our net interest income over the next twelve months would decrease by 15.3%.
Conversely, if interest rates were to decrease instantaneously by 100 basis points, the simulation indicated that our net interest income over the next twelve months would decrease by 4.4%, and if interest rates were to decrease instantaneously by 200 basis points, the simulation indicated that our net interest income over the next twelve months would decrease by 9.1%.
Non-interest Income Non-interest income increased $2.2 million, or 4.0%, to $56.8 million for 2022, from $54.6 million for 2021, compared to $42.8 million for 2020. Non-interest income includes depository service fees, letters of credit commissions, securities gains (losses), gains (losses) from loan sales, gains from sale of premises and equipment, gains on acquisition, and other sources of fee income.
Non-interest Income Non-interest income increased $11.5 million, or 20.2%, to $68.3 million for 2023, from $56.8 million in 2022, compared to $54.6 million in 2021. Non-interest income includes depository service fees, letters of credit commissions, securities gains (losses), gains (losses) from loan sales, gains from sale of premises and equipment, gains on acquisition, and other sources of fee income.
The classification of loans by type and amount outstanding as of December 31 for each of the past five years is presented below: Loan Type and Mix As of December 31, 2022 2021 2020 2019 2018 (In thousands) Commercial loans $ 3,318,778 $ 2,982,399 $ 2,836,833 $ 2,778,744 $ 2,741,965 Residential mortgage loans and equity lines 5,577,500 4,601,493 4,569,944 4,436,561 3,943,820 Commercial mortgage loans 8,793,685 8,143,272 7,555,027 7,275,262 6,724,200 Real estate construction loans 559,372 611,031 679,492 579,864 581,454 Installment and other loans 4,689 4,284 3,100 5,050 4,349 Gross loans 18,254,024 16,342,479 15,644,396 15,075,481 13,995,788 Less: Allowance for loan losses (146,485 ) (136,157 ) (166,538 ) (123,224 ) (122,391 ) Unamortized deferred loan fees (6,641 ) (4,321 ) (2,494 ) (626 ) (1,565 ) Total loans, net $ 18,100,898 $ 16,202,001 $ 15,475,364 $ 14,951,631 $ 13,871,832 Loans held for sale $ — $ — $ — $ — $ — The loan maturities in the table below are based on contractual maturities as of December 31, 2022.
The classification of loans by type and amount outstanding as of December 31 for each of the past five years is presented below: Loan Type and Mix As of December 31, 2023 2022 2021 2020 2019 (In thousands) Commercial loans $ 3,305,048 $ 3,318,778 $ 2,982,399 $ 2,836,833 $ 2,778,744 Residential mortgage loans and equity lines 6,084,666 5,577,500 4,601,493 4,569,944 4,436,561 Commercial real estate loans 9,729,581 8,793,685 8,143,272 7,555,027 7,275,262 Construction loans 422,647 559,372 611,031 679,492 579,864 Installment and other loans 6,198 4,689 4,284 3,100 5,050 Gross loans 19,548,140 18,254,024 16,342,479 15,644,396 15,075,481 Less: Allowance for loan losses (154,562 ) (146,485 ) (136,157 ) (166,538 ) (123,224 ) Unamortized deferred loan fees (10,720 ) (6,641 ) (4,321 ) (2,494 ) (626 ) Total loans, net $ 19,382,858 $ 18,100,898 $ 16,202,001 $ 15,475,364 $ 14,951,631 Loans held for sale $ — $ — $ — $ — $ — The loan maturities in the table below are based on contractual maturities as of December 31, 2023.
The balance for land loans with interest reserves which have been extended was $0.9 million, with pre-established interest reserves of $58 thousand for December 31, 2022 and 2021.. At December 31, 2022 and December 31, 2021, the Bank had no loans on non-accrual status with available interest reserves.
There were no land loans with interest reserves which have been extended at December 31, 2023, compared to $0.9 million with pre-established interest reserves of $58 thousand at December 31, 2022. At December 31, 2023 and December 31, 2022, the Bank had no loans on non-accrual status with available interest reserves.
Total commercial mortgage loans accounted for 48.2% of gross loans at December 31, 2022, compared to 49.8% at December 31, 2021.
Total commercial real estate loans accounted for 49.8% of gross loans at December 31, 2023, compared to 48.2% at December 31, 2022.
At December 31, 2022, if interest rates were to increase instantaneously by 200 basis points, the simulation indicated that the net market value of our portfolio of assets and liabilities would decrease by 1.86%, and conversely, if interest rates were to decrease instantaneously by 200 basis points, the simulation indicated that the net market value of our assets and liabilities would increase by 7.83%. 82 Table of Contents Although we believe our simulation modeling is helpful in managing interest rate risk, the model does require significant assumptions for, among other factors, the projection of loan prepayment rates on mortgage related assets, loan volumes and pricing, and deposit and borrowing volume and pricing, that might prove inaccurate.
At December 31, 2023, if interest rates were to increase instantaneously by 200 basis points, the simulation indicated that the economic value of equity would decrease by 8.4%, and conversely, if interest rates were to decrease instantaneously by 200 basis points, the simulation indicated that the economic value of equity would increase by 12.5%. 81 Table of Contents Although we believe our simulation modeling is helpful in managing interest rate risk, the model does require significant assumptions for, among other factors, the projection of loan prepayment rates on mortgage related assets, loan volumes and pricing, and deposit and borrowing volume and pricing, that might prove inaccurate.
The Bank generally seeks to obtain current appraisals, sales contracts, or other available market price information intended to provide updated factors in evaluating potential loss. 73 Table of Contents The allowance for loan losses to non-performing loans was 182.1% at December 31, 2022, compared to 202.4% at December 31, 2021, primarily due to an increase in the non-accrual loans.
The Bank generally seeks to obtain current appraisals, sales contracts, or other available market price information intended to provide updated factors in evaluating potential loss. 72 Table of Contents The allowance for loan losses to non-performing loans was 209.3% at December 31, 2023, compared to 182.1% at December 31, 2022, primarily due to a decrease in non-performing loans.
At December 31, 2021, the Company’s Tier 1 risk-based capital ratio was 12.80%, total risk-based capital ratio was 14.41%, and Tier 1 leverage capital ratio was 10.40%. A table displaying the Bancorp’s and the Bank’s capital and leverage ratios at December 31, 2022, and 2021, is included in Note 23 to the Consolidated Financial Statements.
At December 31, 2022, the Company’s Tier 1 risk-based capital ratio was 12.21%, total risk-based capital ratio was 13.73%, and Tier 1 leverage capital ratio was 10.08%. A table displaying the Bancorp’s and the Bank’s capital and leverage ratios at December 31, 2023, and 2022, is included in Note 23 to the Consolidated Financial Statements.
The baseline scenario reflects modest ongoing GDP growth and a modest increase in the unemployment rate peaking at 4.2% in the fourth quarter of 2023.
The baseline scenario reflects modest ongoing GDP growth and a modest increase in the unemployment rate peaking at 4.1% in the first quarter of 2025.
The allowance for loan losses represented 0.80% of period-end gross loans and 182.12% of non-performing loans at December 31, 2022.
The allowance for loan losses represented 0.79% of period-end gross loans and 209.33% of non-performing loans at December 31, 2023. The comparable ratios were 0.80% of period-end gross loans and 182.12% of non-performing loans at December 31, 2022.
The non-performing portfolio loan, excluding loans held for sale, coverage ratio, defined as the allowance for credit losses to non-performing loans, excluding loans held for sale, decreased to 193.0% at December 31, 2022, from 212.9% at December 31, 2021.
The non-performing portfolio loan, excluding loans held for sale, coverage ratio, defined as the allowance for credit losses to non-performing loans, excluding loans held for sale, increased to 221.6% at December 31, 2023, from 193.0% at December 31, 2022.
Management believes the Bancorp’s liquidity generated from its prevailing sources is sufficient to meet its operational needs. Please also see Note 14 to the Consolidated Financial Statements regarding commitments and contingencies.
Dividends paid to the Bancorp by the Bank are subject to regulatory limitations. Management believes the Bancorp’s liquidity generated from its prevailing sources is sufficient to meet its operational needs. Please also see Note 14 to the Consolidated Financial Statements regarding commitments and contingencies.
The allowance for loan losses was $146.5 million and the allowance for off-balance sheet unfunded credit commitments was $8.7 million at December 31, 2022, which represented the amount believed by management to be appropriate to absorb lifetime credit losses in the loan portfolio, including unfunded credit commitments.
The allowance for loan losses was $154.6 million and the allowance for off-balance sheet unfunded credit commitments was $9.1 million at December 31, 2023, which represented the amount believed by management to be appropriate to absorb lifetime credit losses in the loan portfolio, including unfunded credit commitments.
We continue to monitor the collateral coverage of these loans, based on recent appraisals, on a quarterly basis and adjust the allowance accordingly. 71 Table of Contents The following tables present the type of properties securing the non-accrual portfolio loans and the type of businesses the borrowers engaged in as of the dates indicated: December 31, 2022 December 31, 2021 Real Real Estate (1) Commercial Estate (1) Commercial (In thousands) Type of Collateral Single/multi-family residence $ 9,215 $ 1,998 $ 12,456 $ 7,697 Commercial real estate 33,859 — 36,832 338 Land — 2,518 — 2,744 Personal property (UCC) 8 21,256 — 5,779 Total $ 43,082 $ 25,772 $ 49,288 $ 16,558 (1) Real estate includes commercial mortgage loans, real estate construction loans, and residential mortgage loans, equity lines and installment & other loans.
We continue to monitor the collateral coverage of these loans, based on recent appraisals, on a quarterly basis and adjust the allowance accordingly. 71 Table of Contents The following tables present the type of properties securing the non-accrual portfolio loans and the type of businesses the borrowers engaged in as of the dates indicated: December 31, 2023 December 31, 2022 Real Real Estate (1) Commercial Estate (1) Commercial (In thousands) Type of Collateral Single/multi-family residence $ 16,400 $ 3,363 $ 9,215 $ 1,998 Commercial real estate 35,877 — 33,859 — Land — — — 2,518 Personal property (UCC) — 11,041 8 21,256 Total $ 52,277 $ 14,404 $ 43,082 $ 25,772 (1) Real estate includes commercial real estate loans, real estate construction loans, and residential mortgage loans, equity lines and installment & other loans.
Land loans of $48.6 million were disbursed with pre-established interest reserves of $1.6 million at December 31, 2022, compared to $46.2 million of land loans disbursed with pre-established interest reserves of $0.6 million at December 31, 2021.
Land loans of $12.9 million were disbursed with pre-established interest reserves of $0.4 million at December 31, 2023, compared to $48.6 million of land loans disbursed with pre-established interest reserves of $1.6 million at December 31, 2022.
These refinements maintained the Bank’s allowance at a level consistent with the prior quarter. 78 Table of Contents The following table sets forth the information relating to the allowance for loan losses, charge-offs, recoveries, and the reserve for off-balance sheet credit commitments for the past five years: Allowance for Credit Losses Amount Outstanding as of December 31, 2022 2021 2020 2019 2018 (In thousands) Allowance for loan losses Balance at beginning of year $ 136,157 $ 166,538 $ 123,224 $ 122,391 $ 123,279 Impact of ASU 2016-13 adoption — (1,560 ) — — — Adjusted beginning balance $ 136,157 $ 164,978 $ 123,224 $ 122,391 $ 123,279 Provision/(reversal) for credit losses 12,913 (11,210 ) 57,500 (7,000 ) (4,500 ) Charge-offs : Commercial loans (3,222 ) (20,051 ) (21,996 ) (6,997 ) (629 ) Real estate loans (2,152 ) (3 ) — — (2,577 ) Installment loans and other loans (116 ) — — — — Total charge-offs (5,490 ) (20,054 ) (21,996 ) (6,997 ) (3,206 ) Recoveries: Commercial loans 2,465 1,706 7,267 4,155 1,875 Construction loans 6 76 — 4,612 177 Real estate loans 432 661 543 6,063 4,766 Installment loans and other loans 2 — — — — Total recoveries 2,905 2,443 7,810 14,830 6,818 Balance at end of period $ 146,485 $ 136,157 $ 166,538 $ 123,224 $ 122,391 Reserve for off-balance sheet credit commitments Balance at beginning of year $ 7,100 $ 5,880 $ 3,855 $ 2,250 $ 4,588 Impact of ASU 2016-13 adoption — 6,018 — — — Adjusted beginning balance $ 7,100 $ 11,898 $ 3,855 $ 2,250 $ 4,588 Provision/(reversal) for credit losses 1,630 (4,798 ) 2,025 1,605 (2,338 ) Balance at the end of period $ 8,730 $ 7,100 $ 5,880 $ 3,855 $ 2,250 Average loans outstanding during the year (1) $ 17,631,943 $ 15,827,550 $ 15,500,910 $ 14,510,678 $ 13,280,665 Ratio of net charge-offs/(recoveries) to average loans outstanding during the year (1) 0.01 % 0.11 % 0.09 % (0.05 )% (0.03 )% Provision/(reversal) for credit losses to average loans outstanding during the year (1) 0.07 % (0.07 )% 0.37 % (0.05 )% (0.03 )% Allowance for credit losses to non-performing portfolio loans at year-end (2) 192.97 % 212.91 % 237.27 % 270.77 % 273.41 % Allowance for credit losses to gross loans at year-end (1) 0.85 % 0.88 % 1.10 % 0.84 % 0.89 % (1) Excluding loans held for sale (2) Excluding non-accrual loans held for sale 79 Table of Contents The table set forth below reflects management’s allocation of the allowance for loan losses by loan category and the ratio of each loan category to the total loans as of the dates indicated: Allocation of Allowance for Loan Losses As of December 31, 2022 2021 2020 2019 2018 Percentage Percentage Percentage Percentage Percentage of Loans in of Loans in of Loans in of Loans in of Loans in Each Each Each Each Each Category Category Category Category Category to Average to Average to Average to Average to Average Amount Gross Loans Amount Gross Loans Amount Gross Loans Amount Gross Loans Amount Gross Loans (In thousands) Type of Loans: Commercial loans $ 49,435 18.2 % $ 43,394 18.4 % $ 68,742 18.8 % $ 57,021 18.9 % $ 54,978 19.1 % Residential mortgage loans and equity lines 18,232 30.2 25,379 28.7 17,737 29.4 13,108 29.1 14,282 26.9 Commercial mortgage loans 68,366 48.2 61,081 48.7 49,205 47.8 33,602 48.0 33,487 49.5 Real estate construction loans 10,417 3.4 6,302 4.2 30,854 4.0 19,474 4.0 19,626 4.5 Installment and other loans 35 — 1 — — — 19 — 18 — Total $ 146,485 100.0 % $ 136,157 100.0 % $ 166,538 100.0 % $ 123,224 100.0 % $ 122,391 100.0 % The allowance allocated to commercial loans was $49.4 million at December 31, 2022, compared to $43.4 million at December 31, 2021.
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. 77 Table of Contents The following table sets forth the information relating to the allowance for loan losses, charge-offs, recoveries, and the reserve for off-balance sheet credit commitments for the past five years: Allowance for Credit Losses Amount Outstanding as of December 31, 2023 2022 2021 2020 2019 (In thousands) Allowance for loan losses Balance at beginning of year $ 146,485 $ 136,157 $ 166,538 $ 123,224 $ 122,391 Impact of ASU 2016-13 adoption — — (1,560 ) — — Adjusted beginning balance $ 146,485 $ 136,157 $ 164,978 $ 123,224 $ 122,391 Provision/(reversal) for credit losses 25,655 12,913 (11,210 ) 57,500 (7,000 ) Charge-offs : Commercial loans (13,909 ) (3,222 ) (20,051 ) (21,996 ) (6,997 ) Construction loans (4,221 ) — — — — Commercial real estate loans and residential mortgage loans (5,341 ) (2,152 ) (3 ) — — Installment loans and other loans (15 ) (116 ) — — — Total charge-offs (23,486 ) (5,490 ) (20,054 ) (21,996 ) (6,997 ) Recoveries: Commercial loans 2,990 2,465 1,706 7,267 4,155 Construction loans — 6 76 — 4,612 Commercial real estate loans and residential mortgage loans 2,918 432 661 543 6,063 Installment loans and other loans — 2 — — — Total recoveries 5,908 2,905 2,443 7,810 14,830 Balance at end of period $ 154,562 $ 146,485 $ 136,157 $ 166,538 $ 123,224 Reserve for off-balance sheet credit commitments Balance at beginning of year $ 8,730 $ 7,100 $ 5,880 $ 3,855 $ 2,250 Impact of ASU 2016-13 adoption — — 6,018 — — Adjusted beginning balance $ 8,730 $ 7,100 $ 11,898 $ 3,855 $ 2,250 Provision/(reversal) for credit losses 323 1,630 (4,798 ) 2,025 1,605 Balance at the end of period $ 9,053 $ 8,730 $ 7,100 $ 5,880 $ 3,855 Average loans outstanding during the year (1) $ 18,763,271 $ 17,631,943 $ 15,827,550 $ 15,500,910 $ 14,510,678 Ratio of net charge-offs/(recoveries) to average loans outstanding during the year (1) 0.09 % 0.01 % 0.11 % 0.09 % (0.05 )% Provision/(reversal) for credit losses to average loans outstanding during the year (1) 0.14 % 0.07 % (0.07 )% 0.37 % (0.05 )% Allowance for credit losses to non-performing portfolio loans at year-end (2) 221.58 % 192.97 % 212.91 % 237.27 % 270.77 % Allowance for credit losses to gross loans at year-end (1) 0.84 % 0.85 % 0.88 % 1.10 % 0.84 % (1) Excluding loans held for sale (2) Excluding non-accrual loans held for sale 78 Table of Contents The table set forth below reflects management’s allocation of the allowance for loan losses by loan category and the ratio of each loan category to the total loans as of the dates indicated: Allocation of Allowance for Loan Losses As of December 31, 2023 2022 2021 2020 2019 Percentage Percentage Percentage Percentage Percentage of Loans in of Loans in of Loans in of Loans in of Loans in Each Each Each Each Each Category Category Category Category Category to Average to Average to Average to Average to Average Amount Gross Loans Amount Gross Loans Amount Gross Loans Amount Gross Loans Amount Gross Loans (In thousands) Type of Loans: Commercial loans $ 53,791 17.1 % $ 49,435 18.2 % $ 43,394 18.4 % $ 68,742 18.8 % $ 57,021 18.9 % Residential mortgage loans and equity lines 18,140 31.0 18,232 30.2 25,379 28.7 17,737 29.4 13,108 29.1 Commercial real estate loans 74,428 49.1 68,366 48.2 61,081 48.7 49,205 47.8 33,602 48.0 Construction loans 8,180 2.8 10,417 3.4 6,302 4.2 30,854 4.0 19,474 4.0 Installment and other loans 23 — 35 — 1 — — — 19 — Total $ 154,562 100.0 % $ 146,485 100.0 % $ 136,157 100.0 % $ 166,538 100.0 % $ 123,224 100.0 % The allowance allocated to commercial loans was $53.8 million at December 31, 2023, compared to $49.4 million at December 31, 2022.
Net income available to common stockholders and key financial performance ratios are presented below for the three years indicated: Year Ended December 31, 2022 2021 2020 (In thousands, except per share data) Net income $ 360,642 $ 298,304 $ 228,860 Basic earnings per common share $ 4.85 $ 3.81 $ 2.88 Diluted earnings per common share $ 4.83 $ 3.80 $ 2.87 Return on average assets 1.69 % 1.52 % 1.22 % Return on average stockholders' equity 14.70 % 12.11 % 9.70 % Total average assets $ 21,383,732 $ 19,591,537 $ 18,736,854 Total average equity $ 2,453,391 $ 2,463,021 $ 2,359,735 Efficiency ratio 38.38 % 43.92 % 47.65 % Effective income tax rate 23.68 % 21.88 % 9.89 % Net Interest Income Comparison of 2022 with 2021 Net interest income increased $135.9 million, or 22.7%, from $597.8 million in 2021 to $733.7 million in 2022.
Net income available to common stockholders and key financial performance ratios are presented below for the three years indicated: Year Ended December 31, 2023 2022 2021 (In thousands, except per share data) Net income $ 354,124 $ 360,642 $ 298,304 Basic earnings per common share $ 4.88 $ 4.85 $ 3.81 Diluted earnings per common share $ 4.86 $ 4.83 $ 3.80 Return on average assets 1.56 % 1.69 % 1.52 % Return on average stockholders' equity 13.56 % 14.70 % 12.11 % Total average assets $ 22,705,192 $ 21,383,526 $ 19,591,537 Total average equity $ 2,610,582 $ 2,453,391 $ 2,463,021 Efficiency ratio 46.97 % 38.38 % 43.92 % Effective income tax rate 12.25 % 23.68 % 21.88 % Net Interest Income Comparison of 2023 with 2022 Net interest income increased $8.0 million, or 1.1%, from $733.7 million in 2022 to $741.7 million in 2023.
Comparison of 2021 with 2020 Non-interest expense totaled $286.5 million in 2021 compared to $283.5 million in 2020.
Comparison of 2022 with 2021 Non-interest expense totaled $303.4 million in 2022 compared to $286.5 million in 2021.
At December 31, 2022, if interest rates were to increase instantaneously by 100 basis points, the simulation indicated that our net interest income over the next twelve months would increase by 4.27%, and if interest rates were to increase instantaneously by 200 basis points, the simulation indicated that our net interest income over the next twelve months would increase by 8.54%.
At December 31, 2023, if interest rates were to increase instantaneously by 100 basis points, the simulation indicated that our net interest income over the next twelve months would increase by 6.9%, and if interest rates were to increase instantaneously by 200 basis points, the simulation indicated that our net interest income over the next twelve months would increase by 13.7%.
The allowance for loan losses was $146.5 million and the allowance for off-balance sheet unfunded credit commitments was $8.7 million at December 31, 2022, which represented the amount believed by management to be appropriate to absorb credit losses inherent in the loan portfolio.
The allowance for loan losses was $154.6 million and the allowance for off-balance sheet unfunded credit commitments was $9.1 million at December 31, 2023, which represented the amount believed by management to be appropriate to absorb credit losses inherent in the loan portfolio, including unfunded credit commitments.
The following table summarizes the carrying value of our portfolio of securities for each of the past two years: As of December 31, 2022 2021 (In thousands) Securities Available-for-Sale: U.S. treasury securities $ 240,500 $ — U.S. government agency entities 63,610 87,509 U.S. government sponsored entities 30,000 — Mortgage-backed securities 867,094 888,665 Collateralized mortgage obligations 31,061 9,117 Corporate debt securities 241,083 142,018 Total $ 1,473,348 $ 1,127,309 Equity Securities Mutual funds 5,509 6,230 Preferred stock of government sponsored entities 1,289 1,811 Other equity securities 15,360 14,278 Total $ 22,158 $ 22,319 Effective January 1, 2021, upon the adoption of ASU 2016-13, Financial Instruments - Credit Losses, debt securities available-for-sale are measured at fair value and subject to impairment testing.
The following table summarizes the carrying value of our portfolio of securities for each of the past two years: As of December 31, 2023 2022 (In thousands) Securities Available-for-Sale: U.S. treasury securities $ 495,300 $ 240,500 U.S. government agency entities 48,169 63,610 U.S. government sponsored entities — 30,000 Mortgage-backed securities 786,723 867,094 Collateralized mortgage obligations 28,044 31,061 Corporate debt securities 246,334 241,083 Total $ 1,604,570 $ 1,473,348 Equity Securities Mutual funds 5,585 5,509 Preferred stock of government sponsored entities 1,821 1,289 Other equity securities 33,000 15,360 Total $ 40,406 $ 22,158 Effective January 1, 2021, upon the adoption of ASU 2016-13, Financial Instruments - Credit Losses, debt securities available-for-sale are measured at fair value and subject to impairment testing.
Average long-term debt of $119.1 million remained unchanged at 0.9% of total interest-bearing liabilities in 2021 compared to 0.9% in 2020.
Average long-term debt of $119.1 million decreased to 0.8% of total interest-bearing liabilities in 2022 compared to 0.9% in 2021.
Investment Securities Investment securities were $1.5 billion and represented 6.8% of total assets at December 31, 2022, compared with $1.1 billion and 5.5% of total assets at December 31, 2021.
Investment Securities Investment securities were $1.60 billion and represented 7.0% of total assets at December 31, 2023, compared with $1.47 billion and 6.8% of total assets at December 31, 2022.
As of December 31, 2022, construction loans of $443.9 million were disbursed with pre-established interest reserves of $54.5 million compared to $520.5 million of such loans disbursed with pre-established interest reserves of $51.1 million at December 31, 2021.
As of December 31, 2023, construction loans of $220.6 million were disbursed with pre-established interest reserves of $41.3 million compared to $443.9 million of such loans disbursed with pre-established interest reserves of $54.5 million at December 31, 2022.
The following table displays the deposit mix balances as of the end of the past three years: Deposit Mix Year Ended December 31, 2022 2021 2020 Amount % Amount % Amount % (In thousands) Deposits Non-interest-bearing demand deposits $ 4,168,989 22.5 % $ 4,492,054 24.9 % $ 3,365,086 20.9 % Interest bearing demand deposits 2,509,736 13.6 2,522,442 14.0 1,926,135 12.0 Money market deposits 3,812,724 20.6 4,611,579 25.5 3,359,191 20.8 Savings deposits 1,000,460 5.4 915,515 5.1 785,672 4.9 Time deposits 7,013,370 37.9 5,517,252 30.5 6,673,317 41.4 Total deposits $ 18,505,279 100.0 % $ 18,058,842 100.0 % $ 16,109,401 100.0 % Average total deposits increased $1.6 billion, or 9.5%, to $18.3 billion in 2022, compared with average total deposits of $16.7 billion in 2021.
The following table displays the deposit mix balances as of the end of the past three years: Deposit Mix Year Ended December 31, 2023 2022 2021 Amount % Amount % Amount % (In thousands) Deposits Non-interest-bearing demand deposits $ 3,529,018 18.3 % $ 4,168,989 22.5 % $ 4,492,054 24.9 % Interest bearing demand deposits 2,370,685 12.3 2,509,736 13.6 2,522,442 14.0 Money market deposits 3,049,754 15.8 3,812,724 20.6 4,611,579 25.5 Savings deposits 1,039,203 5.4 1,000,460 5.4 915,515 5.1 Time deposits 9,336,787 48.3 7,013,370 37.9 5,517,252 30.5 Total deposits $ 19,325,447 100.0 % $ 18,505,279 100.0 % $ 18,058,842 100.0 % Average total deposits increased $900.4 million, or 4.9%, to $19.18 billion in 2023, compared with average total deposits of $18.28 billion in 2022.
The $62.3 million increase in net income from 2021 to 2022 was primarily the result of increases in net interest income partially offset by increases in provision for credit losses, and increases in income taxes. The return on average assets in 2022 was 1.69%, compared to 1.52% in 2021, and to 1.22% in 2020.
The $6.5 million decrease in net income from 2022 to 2023 was primarily the result of increases in non-interest expense, and provision for credit losses, partially offset by increases in net interest income and non-interest income. The return on average assets in 2023 was 1.56%, compared to 1.69% in 2022, and to 1.52% in 2021.
As of December 31, 2022, $43.1 million, or 62.6%, of the $68.9 million of non-accrual loans were secured by real estate compared to $49.3 million, or 74.9% of the $65.8 million of non-accrual loans that were secured by real estate as of December 31, 2021.
As of December 31, 2023, $52.3 million, or 78.4%, of the $66.7 million of non-accrual loans were secured by real estate compared to $43.1 million, or 62.6% of the $68.9 million of non-accrual loans that were secured by real estate as of December 31, 2022.
Financial Statements and Supplementary Data.” In calculating our allowance for credit losses for the year ended 2022, the change in Moody’s forecast of future GDP, unemployment rates, CRE and home price indexes, resulted in an increase in the allowance for credit losses.
Financial Statements and Supplementary Data.” In calculating our allowance for credit losses for the year ended 2023, the change in Moody’s forecast of future GDP, unemployment rates, CRE and home price indexes, did not result in a significant impact to the allowance for credit losses.
Equity securities were $22.2 million as of December 31, 2022, compared to $22.3 million as of December 31, 2021. Loans Loans represented 90.2% of average interest-earning assets during 2022, compared with 85.4% during 2021. Gross loans increased by $1.9 billion, or 11.7%, to $18.3 billion at December 31, 2022, compared with $16.3 billion at December 31, 2021.
Equity securities were $40.4 million as of December 31, 2023, compared to $22.2 million as of December 31, 2022. Loans Loans represented 91.0% of average interest-earning assets during 2023, compared with 90.2% during 2022. Gross loans increased by $1.30 billion, or 7.1%, to $19.55 billion at December 31, 2023, compared with $18.25 billion at December 31, 2022.
The efficiency ratio, defined as non-interest expense divided by the sum of net interest income before provision for loan losses plus non-interest income, decreased to 43.92% in 2021 compared to 47.65% in 2020 due primarily to an increase in non-interest expense and higher net interest income as explained above.
The efficiency ratio, defined as non-interest expense divided by the sum of net interest income before provision for loan losses plus non-interest income, increased to 46.97% in 2023 compared to 38.38% in 2022 due primarily to higher net interest income offset by an increase in non-interest expense as explained above.
Interest-Earning Assets and Interest-Bearing Liabilities Average Average Average 2022 Interest Yield/ 2021 Interest Yield/ 2020 Interest Yield/ Average Income/ Rate Average Income/ Rate Average Income/ Rate Balance Expense (1)(2) Balance Expense (1)(2) Balance Expense (1)(2) ($ In thousands) Interest-earning assets: Total loans (1) $ 17,631,943 $ 801,981 4.55 % $ 15,827,550 $ 649,224 4.10 % $ 15,500,910 $ 677,193 4.37 % Investment securities 1,321,346 28,240 2.14 % 1,046,187 14,151 1.35 % 1,215,957 20,599 1.69 % Federal Home Loan Bank stock 17,630 1,103 6.26 % 17,250 991 5.74 % 17,300 952 5.50 % Interest-bearing deposits 1,261,878 19,957 1.58 % 1,649,564 2,145 0.13 % 960,276 1,830 0.19 % Total interest-earning assets $ 20,232,797 $ 851,281 4.21 % $ 18,540,551 $ 666,511 3.59 % $ 17,694,443 $ 700,574 3.96 % Non-interest earning assets: Cash and due from banks $ 173,825 $ 157,952 $ 148,234 Other non-earning assets 1,128,038 1,041,667 1,052,693 Total non-interest earning assets $ 1,301,863 $ 1,199,619 $ 1,200,927 Less: Allowance for loan losses (145,433 ) (142,969 ) (156,225 ) Deferred loan fees (5,701 ) (5,664 ) (2,291 ) Total assets $ 21,383,526 $ 19,591,537 $ 18,736,854 Interest-bearing liabilities: Interest-bearing demand deposits $ 2,471,256 $ 8,176 0.33 % $ 2,047,177 $ 2,249 0.11 % $ 1,591,924 $ 2,816 0.18 % Money market deposits 4,902,357 39,913 0.81 % 4,034,246 18,241 0.45 % 2,903,837 21,574 0.74 % Savings deposits 1,118,967 853 0.08 % 897,663 769 0.09 % 759,581 1,006 0.13 % Time deposits 5,398,808 56,354 1.04 % 5,979,191 40,542 0.68 % 7,268,738 111,629 1.54 % Total interest-bearing deposits $ 13,891,388 $ 105,296 0.76 % $ 12,958,277 $ 61,801 0.48 % $ 12,524,080 $ 137,025 1.09 % Other borrowings 247,276 6,742 2.73 % 75,516 1,182 1.57 % 326,023 5,648 1.73 % Long-term debt 119,136 5,546 4.66 % 119,136 5,773 4.85 % 119,136 5,791 4.86 % Total interest-bearing liabilities $ 14,257,800 $ 117,584 0.82 % $ 13,152,929 $ 68,756 0.52 % $ 12,969,239 $ 148,464 1.14 % Non-interest bearing liabilities: Demand deposits 4,386,526 3,751,626 3,158,828 Other liabilities 285,809 223,961 249,052 Today equity 2,453,391 2,463,021 2,359,735 Total liabilities and equity $ 21,383,526 $ 19,591,537 $ 18,736,854 Net interest spread 3.38 % 3.07 % 2.82 % Net interest income $ 733,697 $ 597,755 $ 552,110 Net interest margin 3.63 % 3.22 % 3.12 % (1) Yields and amounts of interest earned include loan fees.
Interest-Earning Assets and Interest-Bearing Liabilities Average Average Average 2023 Interest Yield/ 2022 Interest Yield/ 2021 Interest Yield/ Average Income/ Rate Average Income/ Rate Average Income/ Rate Balance Expense (1) (2) Balance Expense (1)(2) Balance Expense (1)(2) ($ In thousands) Interest-earning assets: Total loans (1) $ 18,763,271 $ 1,130,242 6.02 % $ 17,631,943 $ 801,981 4.55 % $ 15,827,550 $ 649,224 4.10 % Taxable investment securities 1,558,877 51,717 3.32 % 1,321,346 28,240 2.14 % 1,046,187 14,151 1.35 % Federal Home Loan Bank stock 18,620 1,349 7.25 % 17,630 1,103 6.26 % 17,250 991 5.74 % Interest-bearing deposits 1,141,720 58,914 5.16 % 1,261,878 19,957 1.58 % 1,649,564 2,145 0.13 % Total interest-earning assets $ 21,482,488 $ 1,242,222 5.78 % $ 20,232,797 $ 851,281 4.21 % $ 18,540,551 $ 666,511 3.59 % Non-interest earning assets: Cash and due from banks $ 196,819 $ 173,825 $ 157,952 Other non-earning assets 1,184,318 1,128,038 1,041,667 Total non-interest earning assets $ 1,381,137 $ 1,301,863 $ 1,199,619 Less: Allowance for loan losses (150,110 ) (145,433 ) (142,969 ) Deferred loan fees (8,323 ) (5,701 ) (5,664 ) Total assets $ 22,705,192 $ 21,383,526 $ 19,591,537 Interest-bearing liabilities: Interest-bearing demand deposits $ 2,388,080 $ 40,952 1.71 % $ 2,471,256 $ 8,176 0.33 % $ 2,047,177 $ 2,249 0.11 % Money market deposits 3,164,739 86,097 2.72 % 4,902,357 39,913 0.81 % 4,034,246 18,241 0.45 % Savings deposits 1,070,405 8,916 0.83 % 1,118,967 853 0.08 % 897,663 769 0.09 % Time deposits 8,849,293 331,997 3.75 % 5,398,808 56,354 1.04 % 5,979,191 40,542 0.68 % Total interest-bearing deposits $ 15,472,517 $ 467,962 3.02 % $ 13,891,388 $ 105,296 0.76 % $ 12,958,277 $ 61,801 0.48 % Other borrowings 505,218 26,034 5.15 % 247,276 6,742 2.73 % 75,516 1,182 1.57 % Long-term debt 119,136 6,480 5.44 % 119,136 5,546 4.66 % 119,136 5,773 4.85 % Total interest-bearing liabilities $ 16,096,871 $ 500,476 3.11 % $ 14,257,800 $ 117,584 0.82 % $ 13,152,929 $ 68,756 0.52 % Non-interest bearing liabilities: Demand deposits 3,705,788 4,386,526 3,751,626 Other liabilities 291,951 285,809 223,961 Today equity 2,610,582 2,453,391 2,463,021 Total liabilities and equity $ 22,705,192 $ 21,383,526 $ 19,591,537 Net interest spread 2.67 % 3.38 % 3.07 % Net interest income $ 741,746 $ 733,697 $ 597,755 Net interest margin 3.45 % 3.63 % 3.22 % (1) Yields and amounts of interest earned include loan fees.
Comparison of 2022 with 2021 The increase in non-interest income from 2021 to 2022 was primarily due to a $1.4 million increase in wealth management fees, and a $1.8 million decrease in loss on equity securities. 60 Table of Contents Comparison of 2021 with 2020 The increase in non-interest income from 2020 to 2021 was primarily due to a $4.5 million increase in wealth management fees, $4.3 million increase in derivative fees and $1.3 million increase in the Bank Owned Life Insurance death benefit income.
Comparison of 2023 with 2022 The increase in non-interest income from 2022 to 2023 was primarily due to a $17.9 million increase in unrealized gain on equity securities, and a $1.1 million increase in wealth management fees, offset, in part, by a $3.0 million increase in securities losses, a $3.2 million decrease in derivative fees and a $1.7 million decrease in BOLI death benefit. 60 Table of Contents Comparison of 2022 with 2021 The increase in non-interest income from 2021 to 2022 was primarily due to a $1.4 million increase in wealth management fees, and a $1.8 million decrease in loss on equity securities.
The changes in rate contributed to interest income decrease of $46.5 million. ● Change in the mix of interest-earning assets: Average gross loans, which generally have a higher yield than other types of investments, comprised 85.4% of total average interest-earning assets in 2021, a decrease from 87.6% in 2020.
The changes in rate contributed to an interest income increase of $333.0 million. ● Change in the mix of interest-earning assets: Average gross loans, which generally have a higher yield than other types of investments, comprised 87.3% of total average interest-earning assets in 2023, an increase from 87.2% in 2022.
Because the December 2022 baseline scenario did not forecast a recession in the forecast period, we increased the weighing of the downside scenario to reflect our expectations that a recession in the forecast period was more likely than not.
As of December 31, 2022, since the baseline scenario did not forecast a recession in the R&S period, we increased the weighting of the downside scenario to mirror the consensus among economists and reflect our expectations that a recession in the forecast period was more likely than not.
Loss given default rates would be computed based on the net charge-offs recognized and then applied to the expected exposure at default of defaulted loans starting with the fourth quarter of 2007 through the fourth quarter of 2020.
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 Bancorp obtains funding for its activities primarily through dividend income contributed by the Bank, proceeds from the issuance of the Bancorp common stock through our Dividend Reinvestment Plan and the exercise of stock options. Dividends paid to the Bancorp by the Bank are subject to regulatory limitations.
The business activities of the Bancorp consist primarily of the operation of the Bank and limited activities in other investments. The Bancorp obtains funding for its activities primarily through dividend income contributed by the Bank, proceeds from the issuance of the Bancorp common stock through our Dividend Reinvestment Plan and the exercise of stock options.
December 31, 2022 December 31, 2021 Real Real Estate (1) Commercial Estate (1) Commercial (In thousands) Type of Business Real estate development $ 32,206 $ 50 $ 13,775 $ — Wholesale/Retail 1,907 11,628 24,600 12,468 Food/Restaurant 85 479 — — Import/Export — 13,382 — 3,190 Other 8,884 233 10,913 900 Total $ 43,082 $ 25,772 $ 49,288 $ 16,558 (1) Real estate includes commercial mortgage loans, real estate construction loans, and residential mortgage loans, equity lines and installment & other loans.
December 31, 2023 December 31, 2022 Real Real Estate (1) Commercial Estate (1) Commercial (In thousands) Type of Business Real estate development $ 25,429 $ — $ 32,206 $ 50 Wholesale/Retail 14,350 13,215 1,907 11,628 Food/Restaurant 71 361 85 479 Import/Export — 828 — 13,382 Other 12,427 — 8,884 233 Total $ 52,277 $ 14,404 $ 43,082 $ 25,772 (1) Real estate includes commercial real estate loans, real estate construction loans, and residential mortgage loans, equity lines and installment & other loans.

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