Taxation and Regulatory Environment - The Tax Cuts and Jobs Act of 2017 reduced the corporate tax rate from a maximum of 35% to 21%, which is expected to lower future tax expenses[12]. - Taxpayers with consolidated assets over $50 billion are prohibited from deducting FDIC insurance premiums, impacting financial performance[13]. - The Tax Reform Act limits deductions for employee compensation exceeding $1 million per year, affecting the company's ability to deduct certain high compensation[14]. - The company may incur additional compliance costs due to heightened regulatory concerns related to various consumer protection laws[29]. - Future legislative changes may alter the regulatory landscape, increasing supervision and compliance costs for the company[17]. - The company is subject to the Sarbanes-Oxley Act, requiring management to assess the effectiveness of internal controls over financial reporting as of December 31, 2023[39]. - The company is regulated as a bank holding company by the Federal Reserve and as a commercial bank by the California Department of Financial Protection and Innovation[71]. Financial Performance and Risk - The allowance for credit losses is an estimate, and actual credit losses exceeding this estimate could adversely affect financial results[20]. - The company is subject to interest rate risk, which could reduce net interest income and negatively impact business operations[21]. - The bank's performance is influenced by monetary policies, which affect interest rates on loans and deposits[38]. - The Bank utilizes a net interest income simulation model to assess interest rate risk, projecting future earnings under various interest rate scenarios[896]. - Interest-sensitive assets include loans totaling $19.55 billion with an average interest rate of 6.00%, while interest-sensitive liabilities total $6.46 billion with an average interest rate of 2.21%[899]. - The Bank's time deposits amount to $9.33 billion with an average interest rate of 3.75%[899]. - The Bank's advances from the Federal Home Loan Bank total $540 million at an average interest rate of 5.64%[899]. - The Bank's strategy includes monitoring and managing interest rate risk to minimize adverse effects on earnings and cash flows[895]. Operational and Market Risks - The company faces operational risks due to ineffective risk management processes, which could lead to significant losses[24]. - Environmental liabilities may arise from properties the company forecloses on, potentially leading to substantial investigation and remediation costs[35]. - The bank's loan portfolio is primarily secured by real estate, indicating potential vulnerability to downturns in the real estate market[40]. Company Structure and Operations - As of December 31, 2023, the company reported total consolidated assets of $23.08 billion, net loans of $19.38 billion, deposits of $19.33 billion, and shareholders' equity of $2.74 billion[55]. - The company operates 24 branches in Southern California, 19 in Northern California, and additional branches in New York, Washington, Illinois, Texas, Maryland, Massachusetts, Nevada, New Jersey, and Hong Kong[76]. - The bank offers a range of financial products including commercial real estate loans, SBA loans, and residential mortgage loans, targeting individuals and small to medium-sized businesses[77]. - The company has a centralized document department that supervises the loan application process, ensuring thorough documentation and review[81]. - The bank's securities portfolio is managed according to a written investment policy reviewed annually by the Board of Directors[79]. - The Bank holds a preferred lender status for SBA loans, allowing it to expedite the loan processing time under the 7(a) program, which is used for various business financing needs[84]. - The Bank originates single-family residential mortgage loans, including conforming, non-conforming, and jumbo loans, and retains all originated loans in its portfolio, thus avoiding risk retention requirements under the Dodd-Frank Act[85]. - The Bank offers variable-rate home equity lines of credit, generally tied to the prime rate, for purposes such as home improvement and debt consolidation[86]. Workforce and Demographics - As of December 31, 2023, the Bank employed approximately 1,246 full-time equivalent employees, with 740 being banking officers[96]. - The employee demographic includes 80% of Asian descent, 13% from non-Asian underrepresented groups, and 7% Caucasian, with 57% of management positions held by women[97].

Financial Data and Key Metrics Changes - The company reported net income of $82.5 million for Q4 2023, a slight increase of 0.1% compared to $82.4 million in Q3 2023 [8][26] - Diluted earnings per share remained stable at $1.13 for Q4 2023, unchanged from Q3 2023 [21] - Net interest margin decreased to 3.27% in Q4 2023 from 3.38% in Q3 2023 [13] - Non-interest expense increased by 17.6% to $110.5 million in Q4 2023, primarily due to FDIC special assessments and higher salaries [14][26] Business Line Data and Key Metrics Changes - Gross loans increased by $524 million, or 11.5% annualized, in Q4 2023, driven by increases in commercial real estate loans, residential mortgage loans, and commercial loans [21] - Net charge-offs were $4.1 million in Q4 2023, down from $6.6 million in Q3 2023 [10] - The average loan-to-value ratio for commercial real estate loans was 50% as of December 31, 2023 [9] Market Data and Key Metrics Changes - Total average deposits increased by $244.3 million, or 5.2% annualized, during Q4 2023 [11] - Total uninsured deposits were $8.7 billion, with uninsured and uncollateralized deposits at $7.9 billion, representing 40.9% of total deposits [24] Company Strategy and Development Direction - The company expects overall deposit growth for 2024 to range between 4% and 5% [11] - Loan growth for 2024 is anticipated to be between 4% and 5% [21] - The company plans to engage in discussions with the Federal Reserve regarding capital buybacks in Q1 2024 [41] Management's Comments on Operating Environment and Future Outlook - Management noted a provision for credit loss of $1.7 million in Q4 2023, down from $7 million in Q3 2023, indicating improved credit quality [23] - The effective tax rate for Q4 2023 was 11.28%, slightly up from 10.95% in Q3 2023 [28] - Management expects net interest margin for 2024 to be between 3.15% and 3.25%, based on anticipated Fed rate cuts [27][52] Other Important Information - The company recorded a $9 million unrealized gain on equity securities in Q4 2023, compared to a $6.2 million unrealized loss in Q3 2023 [26] - The company has unused borrowing capacity from the Federal Home Loan Bank of $6.6 billion as of December 31, 2023 [12] Q&A Session Summary Question: What are the updated thoughts on capital and buyback? - Management plans to discuss with the Fed in Q1 regarding buyback approvals, with potential activity in Q2 [41][42] Question: What is the outlook for net interest margin? - The company expects three Fed rate cuts in 2024, which will influence net interest margin [52] Question: What are the drivers of loan growth for 2024? - Management anticipates modest growth in commercial mortgages and increased activity if rate cuts occur [68]

• $19.3 billion Total Loan Portfolio • $19.5 billion as of 12.31.23 Commercial Real Estate Portfolio Multi-Family Residential Office CRE Portfolio % based on $1.54 billion loans outstanding $ in millions Office CRE Loan Portfolio -5 5 15 25 35 45 55 65 75 85 0% 20% 40% 60% 80% 100% 533 649 440 530 830 581 778 458 560 921 593 790 477 575 946 613 840 496 595 935 621 847 514 598 964 0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 850 900 950 1000 Total Loans C & I Residential Mortgage CRE Cons ...

For the quarter ended December 2023, Cathay General (CATY) reported revenue of $205.24 million, down 4.1% over the same period last year. EPS came in at $1.25, compared to $1.33 in the year-ago quarter.The reported revenue represents a surprise of +3.68% over the Zacks Consensus Estimate of $197.95 million. With the consensus EPS estimate being $1.10, the EPS surprise was +13.64%.While investors closely watch year-over-year changes in headline numbers -- revenue and earnings -- and how they compare to Wall ...

Cathay General (CATY) came out with quarterly earnings of $1.25 per share, beating the Zacks Consensus Estimate of $1.10 per share. This compares to earnings of $1.33 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 13.64%. A quarter ago, it was expected that this holding company for Cathay Bank would post earnings of $1.12 per share when it actually produced earnings of $1.13, delivering a surprise of 0.89%.Over the last four ...

Wall Street analysts forecast that Cathay General (CATY) will report quarterly earnings of $1.10 per share in its upcoming release, pointing to a year-over-year decline of 17.3%. It is anticipated that revenues will amount to $197.95 million, exhibiting a decline of 7.5% compared to the year-ago quarter.The consensus EPS estimate for the quarter has undergone a downward revision of 0.3% in the past 30 days, bringing it to its present level. This represents how the covering analysts, as a whole, have reasses ...

[PART I – FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Item 1. FINANCIAL STATEMENTS (Unaudited)](index=6&type=section&id=Item%201.%20FINANCIAL%20STATEMENTS%20(Unaudited)) This section presents Cathay General Bancorp's unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, for the periods ending September 30, 2023 [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) | Balance Sheet Highlights | Sep 30, 2023 (in billions) | Dec 31, 2022 (in billions) | | :--- | :--- | :--- | | **Total Assets** | **$22.84** | **$21.95** | | Loans, net | $18.86 | $18.10 | | Total Deposits | $19.64 | $18.51 | | **Total Liabilities** | **$20.21** | **$19.47** | | **Total Stockholders' Equity** | **$2.64** | **$2.47** | [Consolidated Statements of Operations and Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) | Income Statement Highlights | Three Months Ended Sep 30, 2023 (in millions) | Three Months Ended Sep 30, 2022 (in millions) | | :--- | :--- | :--- | | Net Interest Income | $185.6 | $197.5 | | Provision for Credit Losses | $7.0 | $2.0 | | Non-Interest Income | $7.8 | $9.9 | | Non-Interest Expense | $94.0 | $75.4 | | **Net Income** | **$82.4** | **$99.0** | | **Diluted EPS** | **$1.13** | **$1.33** | | Income Statement Highlights | Nine Months Ended Sep 30, 2023 (in millions) | Nine Months Ended Sep 30, 2022 (in millions) | | :--- | :--- | :--- | | Net Interest Income | $559.6 | $531.9 | | Provision for Credit Losses | $24.3 | $13.1 | | Non-Interest Income | $45.2 | $44.7 | | Non-Interest Expense | $270.0 | $222.2 | | **Net Income** | **$271.6** | **$263.0** | | **Diluted EPS** | **$3.73** | **$3.50** | [Notes to Consolidated Financial Statements (Unaudited)](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) - The company adopted ASU 2022-02, eliminating Troubled Debt Restructurings (TDRs) accounting guidance and enhancing loan modification disclosures, effective January 1, 2023[347](index=347&type=chunk)[358](index=358&type=chunk) - On February 7, 2022, Cathay Bank acquired HSBC's West Coast retail and business banking operations, adding **10 branches**, **$646.1 million in loans**, and **$575.2 million in deposits**[307](index=307&type=chunk)[355](index=355&type=chunk) [Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=48&type=section&id=Item%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management provides an in-depth analysis of the company's financial condition and operational results for the third quarter and first nine months of 2023, highlighting key performance drivers and balance sheet trends [Quarterly Statement of Operations Review](index=48&type=section&id=Quarterly%20Statement%20of%20Operations%20Review) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Net Income (in millions) | $82.4 | $99.0 | | Diluted EPS | $1.13 | $1.33 | | Return on Average Assets | 1.42% | 1.81% | | Return on Average Equity | 12.36% | 15.94% | - Net interest income decreased **6.0%** year-over-year to **$185.6 million**, driven by higher interest expense on deposits offsetting increased interest income from loans and securities[199](index=199&type=chunk) - The net interest margin compressed to **3.38%** in Q3 2023 from **3.83%** in Q3 2022, reflecting rising funding costs[181](index=181&type=chunk) - The provision for credit losses was **$7.0 million** in Q3 2023, compared to **$2.0 million** in Q3 2022 and **$9.2 million** in Q2 2023[185](index=185&type=chunk) - Non-interest expense increased **24.7%** to **$94.0 million**, primarily due to higher amortization of investments and increased salaries and employee benefits[207](index=207&type=chunk) [Balance Sheet Review](index=54&type=section&id=Balance%20Sheet%20Review) - Total assets grew **4.1%** to **$22.84 billion** as of September 30, 2023, from **$21.95 billion** at year-end 2022[190](index=190&type=chunk) - Gross loans increased **4.2%** to **$19.02 billion**, driven by commercial and residential mortgage growth, partially offset by declines in commercial and construction loans[216](index=216&type=chunk)[239](index=239&type=chunk) - Total deposits increased **6.1%** to **$19.64 billion**, with **$9.00 billion** in uninsured deposits, adequately covered by available liquidity sources[434](index=434&type=chunk)[452](index=452&type=chunk) - The non-performing assets to total assets ratio slightly increased to **0.41%** as of September 30, 2023, from **0.39%** at year-end 2022[219](index=219&type=chunk) - The allowance for credit losses (ACL) increased to **$166.0 million**, or **0.87%** of gross loans, from **$155.2 million**, or **0.85%** of gross loans, at year-end 2022[252](index=252&type=chunk) [Capital Resources](index=67&type=section&id=Capital%20Resources) - Total equity increased by **$164.7 million** to **$2.64 billion** as of September 30, 2023, primarily from **$271.6 million** in net income, partially offset by dividends and other comprehensive loss[439](index=439&type=chunk)[458](index=458&type=chunk) | Capital Ratios (Bancorp) | Sep 30, 2023 | Dec 31, 2022 | Well-Capitalized Minimum | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 | 12.70% | 12.21% | 6.50% | | Tier 1 Capital | 12.70% | 12.21% | 8.00% | | Total Capital | 14.21% | 13.73% | 10.00% | | Leverage Ratio | 10.44% | 10.08% | 5.00% | - The company declared a cash dividend of **$0.34 per share** in Q3 2023[462](index=462&type=chunk) [Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=70&type=section&id=Item%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company manages interest rate risk using a net interest income simulation model, projecting that a 200 basis point increase would raise net interest income by 11.6% over 12 months, while a decrease would reduce it by 14.3%, within established policy tolerance levels | Change in Interest Rate (Basis Points) | Net Interest Income Volatility (%) | Market Value of Equity Volatility (%) | | :--- | :--- | :--- | | +200 | +11.6 | -8.2 | | +100 | +5.8 | -3.9 | | -100 | -6.3 | +5.3 | | -200 | -14.3 | +11.8 | - The company's policy tolerance for net interest income volatility is a **+/- 5%** change for a hypothetical **+/- 200 basis point** rate change[406](index=406&type=chunk) [Item 4. CONTROLS AND PROCEDURES](index=71&type=section&id=Item%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the period end, with no material changes to internal control over financial reporting during Q3 2023 - The principal executive and financial officers concluded that the company's disclosure controls and procedures are **effective**[408](index=408&type=chunk) - No material changes occurred in the company's internal control over financial reporting during Q3 2023[391](index=391&type=chunk) [PART II – OTHER INFORMATION](index=72&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Item 1A. RISK FACTORS](index=72&type=section&id=Item%201A.%20RISK%20FACTORS) This section highlights risks related to recent financial services industry events, such as bank failures, which have decreased confidence and could lead to adverse regulatory changes, higher capital requirements, or increased FDIC insurance costs, potentially impacting the company's business - Recent bank failures, including Silicon Valley Bank and Signature Bank, have led to decreased confidence and significant market disruption in the banking sector[411](index=411&type=chunk) - Potential adverse impacts include regulatory changes, higher capital requirements, increased funding costs, and elevated FDIC premiums or special assessments[396](index=396&type=chunk)

Cathay General Bancorp (NASDAQ:CATY) Q3 2023 Earnings Conference Call October 23, 2023 6:00 PM ET Company Participants Georgia Lo - Investor Relations Chang Liu - President and Chief Executive Officer Heng Chen - Executive Vice President and Chief Financial Officer Conference Call Participants Matthew Clark - Piper Sandler Gary Tenner - D.A. Davidson Brandon King - Truist Securities Andrew Terrell - Stephens Inc. Nicholas Moutafakis - KBW Operator Good afternoon, ladies and gentlemen, and welcome to Cathay ...

[PART I – FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20FINANCIAL%20STATEMENTS%20(Unaudited)) The unaudited financial statements detail the company's financial position, performance, equity changes, and cash flows as of June 30, 2023 [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Total assets grew to $23.03 billion, driven by loan growth, while liabilities rose due to increased deposits and borrowings Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Loans, net | $18,788,188 | $18,100,898 | | Securities available-for-sale | $1,487,321 | $1,473,348 | | **Total Assets** | **$23,028,438** | **$21,947,976** | | **Liabilities & Equity** | | | | Total Deposits | $19,097,003 | $18,505,279 | | Advances from FHLB | $815,000 | $485,000 | | **Total Liabilities** | **$20,425,767** | **$19,473,936** | | **Total Stockholders' Equity** | **$2,602,671** | **$2,474,040** | [Consolidated Statements of Operations and Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Net income for Q2 2023 rose to $93.2 million, driven by higher net interest income despite increased credit provisions Key Performance Indicators | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $181.5M | $175.2M | $374.0M | $334.4M | | Provision for Credit Losses | $9.2M | $2.5M | $17.3M | $11.1M | | **Net Income** | **$93.2M** | **$89.0M** | **$189.2M** | **$164.0M** | | **Diluted EPS** | **$1.28** | **$1.18** | **$2.60** | **$2.17** | [Consolidated Statements of Changes in Stockholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Stockholders' equity grew to $2.60 billion, primarily from net income, partially offset by dividends and stock buybacks Changes in Stockholders' Equity (Six months ended June 30, 2023, in thousands) | Component | Amount | | :--- | :--- | | Balance at Dec 31, 2022 | $2,474,040 | | Net Income | $189,227 | | Other Comprehensive Income | $3,246 | | Cash Dividends Paid | $(49,266) | | Purchases of Treasury Stock | $(16,692) | | **Balance at June 30, 2023** | **$2,602,671** | [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash increased by $319.9 million, with financing inflows from deposits offsetting investing outflows from loan growth Cash Flow Summary (Six months ended June 30, in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $211,847 | $177,448 | | Net Cash used for Investing Activities | $(746,023) | $(1,086,866) | | Net Cash from Financing Activities | $854,039 | $(386,324) | | **Net Increase/(Decrease) in Cash** | **$319,863** | **$(1,295,742)** | [Notes to Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, loan and investment portfolios, CECL methodology, and derivative instruments - The company operates **61 branches** across nine U.S. states, one in Hong Kong, and three representative offices in Asia[60](index=60&type=chunk) - Adopted **ASU 2022-02**, which eliminates the Troubled Debt Restructuring (TDR) accounting model and enhances disclosure for certain loan modifications[40](index=40&type=chunk)[123](index=123&type=chunk) - The Allowance for Credit Losses (ACL) is determined using the **Current Expected Credit Loss (CECL) methodology**, incorporating economic forecasts[77](index=77&type=chunk)[388](index=388&type=chunk) - The company uses interest rate swaps to mitigate interest rate risk, with a notional amount of fair value hedges of **$758.7 million**[234](index=234&type=chunk)[258](index=258&type=chunk)[261](index=261&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=55&type=section&id=Item%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS.) Management analyzes Q2 2023 performance, including loan growth, margin compression, and strong capital and liquidity positions [Financial Performance Review](index=55&type=section&id=Financial%20Performance%20Review) Q2 2023 net income rose to $93.2 million, with higher net interest income offset by margin compression and rising expenses Q2 2023 Financial Highlights | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Net Income | $93.2 million | $89.0 million | | Diluted EPS | $1.28 | $1.18 | | Return on Average Assets | 1.67% | 1.69% | | Net Interest Margin | 3.44% | 3.52% | | Efficiency Ratio | 45.36% | 39.06% | - The provision for credit losses was **$9.2 million in Q2 2023**, compared to $2.5 million in Q2 2022, reflecting loan growth and a cautious economic outlook[283](index=283&type=chunk) [Balance Sheet Analysis](index=62&type=section&id=Balance%20Sheet%20Analysis) Assets grew to $23.03 billion, driven by a $698.8 million increase in gross loans and improved asset quality Loan Portfolio Composition (in billions) | Loan Type | June 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Commercial loans | $3.32 | $3.32 | | Commercial mortgage loans | $9.29 | $8.79 | | Residential mortgage & equity lines | $5.81 | $5.58 | | **Gross Loans** | **$18.95** | **$18.25** | - **Non-performing assets to total assets ratio improved to 0.3%** at June 30, 2023, from 0.5% at December 31, 2022[326](index=326&type=chunk) - Total uninsured deposits were **$8.42 billion**, with available liquidity sources exceeding 100% of uninsured and uncollateralized deposits[372](index=372&type=chunk) [Allowance for Credit Losses (ACL) Analysis](index=69&type=section&id=Allowance%20for%20Credit%20Losses%20(ACL)%20Analysis) The ACL increased to $165.6 million (0.87% of loans), reflecting loan growth and a conservative economic outlook - The **ACL to non-performing loans coverage ratio increased to 220.9%** from 193.0% at year-end 2022[353](index=353&type=chunk) - The CECL model placed the **most weight on the downside economic scenario**, which contemplates a recession, for its 8-quarter forecast period[344](index=344&type=chunk)[390](index=390&type=chunk) - A sensitivity analysis indicates that a 100% weighting to the downside scenario would have increased the ACL by approximately **$51.8 million**[368](index=368&type=chunk) [Capital Resources and Liquidity](index=76&type=section&id=Capital%20Resources%20and%20Liquidity) The company maintains a strong capital position, with all ratios exceeding 'well capitalized' minimums and robust liquidity Regulatory Capital Ratios (Bancorp) | Ratio | June 30, 2023 | Well Capitalized Minimum | | :--- | :--- | :--- | | Common Equity Tier 1 (CET1) | 12.38% | 6.50% | | Tier 1 Capital | 12.38% | 8.00% | | Total Capital | 13.88% | 10.00% | | Leverage Ratio | 10.45% | 5.00% | - The company declared a quarterly cash dividend of **$0.34 per share**[433](index=433&type=chunk) - The Bank had access to a **$7.71 billion credit line with the FHLB** and borrowing capacity of **$1.6 million** from the Federal Reserve Bank Discount Window[412](index=412&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=84&type=section&id=Item%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company manages interest rate risk through simulation models, remaining within policy tolerance levels Interest Rate Sensitivity Analysis (as of June 30, 2023) | Change in Interest Rate (bps) | % Change in Net Interest Income (12-month) | % Change in Market Value of Equity | | :--- | :--- | :--- | | +200 | 9.9% | -8.0% | | +100 | 4.9% | -3.9% | | -100 | -5.9% | 2.8% | | -200 | -13.6% | 8.7% | [Item 4. Controls and Procedures](index=84&type=section&id=Item%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - Management confirms the **effectiveness of disclosure controls and procedures** as of June 30, 2023[445](index=445&type=chunk) - **No material changes** occurred in Q2 2023 that are reasonably likely to materially affect the Company's internal control over financial reporting[417](index=417&type=chunk) [PART II – OTHER INFORMATION](index=85&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=85&type=section&id=Item%201.%20LEGAL%20PROCEEDINGS) Litigation arising from the ordinary course of business is not expected to have a material adverse financial impact - The company states that any liability from ordinary course litigation is **not expected to have a material adverse impact**[448](index=448&type=chunk) [Item 1A. Risk Factors](index=85&type=section&id=Item%201A.%20RISK%20FACTORS) A new risk factor addresses potential impacts from recent financial industry instability and bank failures - A new risk factor was added related to recent events impacting the financial services industry, such as the **failures of several U.S. banks**[421](index=421&type=chunk)[450](index=450&type=chunk) - Potential impacts include **decreased depositor confidence**, market volatility, adverse regulatory changes, and increased funding costs[422](index=422&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=85&type=section&id=Item%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) No unregistered sales of equity securities were conducted during the reporting period - **None reported**[451](index=451&type=chunk)[463](index=463&type=chunk) [Item 6. Exhibits](index=86&type=section&id=Item%206.%20EXHIBITS) This section lists all exhibits filed with the Form 10-Q, including required certifications and XBRL data - Lists filed exhibits, including **CEO/CFO certifications** (Exhibits 31.1, 31.2, 32.1, 32.2) and XBRL data files[426](index=426&type=chunk)[453](index=453&type=chunk)[465](index=465&type=chunk)[466](index=466&type=chunk)

5 C & I 17% Residential Mortgage* 31% Construction 3% Residential 16% Retail 11% Office 8% Warehouse 6% industrial 3% hotel /motel 2% special use 1% restaurant 1% land 0.6% theater 0.1% Total CRE 49% Total Loans $19.0 Billion CA 48% NY 34% TX 4% WA 3% IL 3% Other 8% Total CRE $9.3 Billion Commercial Real Estate Portfolio • $1.74 mil avg. outstanding size • weighted avg. LTV 50% LTV & Size by Property Type 7 0% Industrial & MultiUse Single Family Residence Retail CRE Portfolio 30% 24% 21% 13% 11% <1% 0% 5% 1 ...