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What changed in RBB Bancorp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of RBB Bancorp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+504 added−571 removedSource: 10-K (2024-03-12) vs 10-K (2023-04-07)

Top changes in RBB Bancorp's 2023 10-K

504 paragraphs added · 571 removed · 380 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

123 edited+25 added−24 removed227 unchanged
Biggest changeThe Bank originates these loans through its correspondent banking relationships, and through its branch network, in addition, we offer 15-year and 30-year qualified mortgage loans that are sold directly to the Federal National Mortgage Association (“FNMA”), in most cases, the Bank retains the loan servicing rights and obligations and; o Through our Small Business Administration ("SBA") Preferred Lender status, SBA loans consisting primarily of 7(a) loans to Asian Americans that are accumulated on the Bank’s balance sheet with the SBA guaranteed portion sold in the secondary market generally on a quarterly basis. o Consider new markets, products and services o Invest in new technologies or products where appropriate to improve efficiency, increase earnings, acquire new bank customers, or deepen relationships with existing clients o Explore digital banking initiatives for consumers and businesses to improve convenience, speed, and user experience o Explore new niche markets to gain a competitive advantage 5 Our Competition We view the Asian-American banking market, including the Company, as comprised of 23 banks divided into three overlapping segments: publicly-traded banks, locally-owned banks, and banks that are subsidiaries of Taiwanese or Chinese banks.
Biggest changeWe sell the SBA guarantee portion of the loan in the secondary market generally on a quarterly basis, subject to market conditions. ● Consider new markets, products and services; ● Invest in new technologies or products where appropriate to improve efficiency, increase earnings, acquire new bank customers, or deepen relationships with existing clients; ● Explore digital banking initiatives for consumers and businesses to improve convenience, speed, and user experience; and ● Explore new niche markets to gain a competitive advantage. 5 Table of Contents Our Competition We view the Asian-American banking market, including the Company, as comprised of 29 banks divided into three overlapping segments: publicly-traded banks, locally-based banks, and banks that are subsidiaries of Taiwanese or Chinese banks.
In connection with our 2018 acquisition of FAIB and its holding company, FAIC, the Company acquired the FAIC Statutory Trust, a statutory business trust that was established by FAIC in 2004 under the laws of Delaware as a wholly-owned subsidiary (the “FAIC Trust”). PGBH Trust .
In connection with our 2018 acquisition of FAIB and its holding company, FAIC, the Company acquired the FAIC Statutory Trust (the “FAIC Trust”), a statutory business trust that was established by FAIC in 2004 under the laws of Delaware as a wholly-owned subsidiary. PGBH Trust .
Among other items, the CCFPL: ● Establishes UDAAP authority for the DFPI, adding “abusive” to “unfair or deceptive” acts or practices prohibited by California law, and authorizing remedies similar to those provided in the Dodd-Frank Act; ● Authorizes the DFPI to impose penalties of $2,500 for “each act or omission” in violation of the law without a showing that the violation was willful, which, arguably, represents an enhancement of DFPI’s existing enforcement powers in contrast to Dodd-Frank and existing California law, enhanced penalties for “reckless” violations of up to $25,000 per day or $10,000 per violation, and for “knowing” violations, the penalty may be up to $1,000,000 per day or 1% of the violator’s net worth (whichever is less) or $25,000 per violation; ● Exempts from the DFPI’s UDAAP authority, banks, credit unions, federal savings and loan associations, and similar entities, as well as current licensees of the DFPI and licensees of other California agencies, “to the extent that licensee or employee is acting under the authority of” the license; ● Creates a “registration” requirement (subject to the DFPI’s implementing regulations) that greatly expands the reach of the DFPI to oversee entities that are not currently subject to licensure/registration; ● Provides DFPI with broad discretion to determine what constitutes a “financial product or service” within the law’s coverage, including by a regulation finding that the financial product or service is either: “(A) Entered into or conducted as a subterfuge or with a purpose to evade any consumer financial law,” or “(B) Permissible for a bank to offer or provide but has, or likely will have, a material impact on consumers,” with certain enumerated exclusions; and ● Provides that administration of the law will be funded through the fees generated by the new registration process and other funds generated from fines, penalties, settlements, or judgments.
Among other items, the CCFPL: ● Establishes UDAAP authority for the DFPI, adding “abusive” to “unfair or deceptive” acts or practices prohibited by California law, and authorizing remedies similar to those provided in the Dodd-Frank Act; ● Authorizes the DFPI to impose penalties of $2,500 for “each act or omission” in violation of the law without a showing that the violation was willful, which, arguably, represents an enhancement of DFPI’s existing enforcement powers in contrast to Dodd-Frank and existing California law, enhanced penalties for “reckless” violations of up to $25,000 per day or $10,000 per violation, and for “knowing” violations, the penalty may be up to $1,000,000 per day or 1% of the violator’s net worth (whichever is less) or $25,000 per violation; ● Exempts from the DFPI’s UDAAP authority, banks, credit unions, federal savings and loan associations, and similar entities, as well as current licensees of the DFPI and licensees of other California agencies, “to the extent that licensee or employee is acting under the authority of” the license; ● Creates a “registration” requirement (subject to the DFPI’s implementing regulations) that greatly expands the reach of the DFPI to oversee entities that are not currently subject to licensure/registration; ● Provides the DFPI with broad discretion to determine what constitutes a “financial product or service” within the law’s coverage, including by a regulation finding that the financial product or service is either: “(A) Entered into or conducted as a subterfuge or with a purpose to evade any consumer financial law,” or “(B) Permissible for a bank to offer or provide but has, or likely will have, a material impact on consumers,” with certain enumerated exclusions; and ● Provides that administration of the law will be funded through the fees generated by the new registration process and other funds generated from fines, penalties, settlements, or judgments.
The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of proposed legislation (or modification or repeal of existing legislation) could impact the regulatory structure under which the Company and Bank operate and may significantly increase its costs, impede the efficiency of its internal business processes, require the Bank to increase its regulatory capital and modify its business strategy, and limit its ability to pursue business opportunities in an efficient manner.
The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of proposed legislation (or modification or repeal of existing legislation) could impact the regulatory structure under which the Company and the Bank operate and may significantly increase its costs, impede the efficiency of its internal business processes, require the Bank to increase its regulatory capital and modify its business strategy, and limit its ability to pursue business opportunities in an efficient manner.
(See “The Bank – Anti-Money Laundering and OFAC Regulation" below.) ● Limitations on the amount of loans to one borrower and its affiliates and to executive officers and directors. ● Limitations on transactions with affiliates. ● Restrictions on the nature and amount of any investments in, and the ability to underwrite, certain securities. ● Requirements for opening of intra- and interstate branches. ● Compliance with truth in lending and other consumer protection and disclosure laws to ensure equal access to credit and to protect consumers in credit transactions.
(See “The Bank – Anti-Money Laundering and OFAC Regulation" below). ● Limitations on the amount of loans to one borrower and its affiliates and to executive officers and directors. ● Limitations on transactions with affiliates. ● Restrictions on the nature and amount of investments in, and the ability to underwrite, certain securities. ● Requirements for opening of intra- and interstate branches. ● Compliance with truth in lending and other consumer protection and disclosure laws to ensure equal access to credit and to protect consumers in credit transactions.
Our size and infrastructure allow us to serve customers that require higher lending limits than normally associated with other smaller, local banking institutions that serve the Asian-American communities in which we operate. Our strategic plan is centered on delivering high-touch, superior customer service, customized solutions, and quick and local decision-making with respect to loan originations and servicing.
Our size and infrastructure allow us to serve customers who require higher lending limits than normally associated with other smaller, local banking institutions that serve the Asian-American communities in which we operate. Our strategic plan is centered on delivering high-touch, superior customer service, customized solutions, and quick and local decision-making with respect to loan originations and servicing.
Due to the decline in the DIF reserve ratio below the statutory minimum of 1.35 percent as of June 30, 2020, caused by extraordinary growth in insured deposits during the first and second quarters of 2020, the FDIC established a Restoration Plan in September 2020 to restore the DIF reserve ratio to meet or exceed the statutory minimum of 1.35 percent within eight years.
Due to the decline in the DIF reserve ratio below the statutory minimum of 1.35% as of June 30, 2020, caused by extraordinary growth in insured deposits during the first and second quarters of 2020, the FDIC established a Restoration Plan in September 2020 to restore the DIF reserve ratio to meet or exceed the statutory minimum of 1.35% within eight years.
Bancorp is dependent on the performance of the Bank for funds which may be received as dividends from the Bank for use in the operation of Bancorp and the ability of Bancorp to pay dividends to stockholders. Future cash dividends by the Bank will also depend upon management’s assessment of future capital requirements, contractual restrictions, and other factors.
Bancorp is dependent on the performance of the Bank for funds, which may be received as dividends from the Bank, for use in the operation of Bancorp and the ability of Bancorp to pay dividends to its stockholders. Future cash dividends by the Bank will also depend upon management’s assessment of future capital requirements, contractual restrictions, and other factors.
The Bank currently operates 24 branches across two separate regions: the Western region with branches in Los Angeles County, California; Orange County, California; Ventura County, California; Clark County, Nevada; and Honolulu, Hawaii; and our Eastern region with branches in Manhattan, Brooklyn and Queens, New York; Chicago, Illinois and Edison, New Jersey.
The Bank currently operates 24 branches across two separate regions: the Western region with branches in Los Angeles County, California; Orange County, California; Ventura County, California; Clark County, Nevada; and Honolulu, Hawaii; and the Eastern region with branches in Manhattan, Brooklyn and Queens, New York; Chicago, Illinois and Edison, New Jersey.
If the Bank fails to adequately serve its communities, restrictions may be imposed, including denials of applications for branches, for adding subsidiaries or affiliate companies, for engaging in new activities or for the merger with or purchase of other financial institutions.
If the Bank fails to adequately serve its communities, restrictions may be imposed, including denials of applications for adding branches, subsidiaries or affiliate companies, for engaging in new activities or for merger or purchase of other financial institutions.
These proposals touched on such areas as commercial real estate exposure, credit loss allowances under U.S. generally accepted accounting principles (“GAAP”), capital requirements for covered swap entities, among others.
These proposals touched on such areas as commercial real estate exposure, credit loss allowances under U.S. generally accepted accounting principles (“GAAP”) and capital requirements for covered swap entities, among others.
Bancorp has elected to be a bank holding company. In order to maintain Bancorp’s status as a bank holding company, Bancorp and the Bank must be well-capitalized, well-managed, and have a least a satisfactory CRA rating.
Bancorp has elected to be a bank holding company. In order to maintain Bancorp’s status as a bank holding company, Bancorp and the Bank must be well-capitalized, well-managed, and have at least a satisfactory CRA rating.
We offer real estate loans for owner occupied and non-owner occupied commercial property, including loans secured by single-family residences for a business purposes, multi-family residential property and construction and land development loans.
We offer real estate loans for owner occupied and non-owner occupied commercial property, including loans secured by single-family residences for business purposes, multi-family residential property and construction and land development loans.
In addition to the grounds discussed above under “Prompt Corrective Actions”, the appropriate federal bank regulatory agency may appoint the FDIC as conservator or receiver for a banking institution (or the FDIC may appoint itself, under certain circumstances) if any one or more of a number of circumstances exist, including, without limitation, the fact that the banking institution is undercapitalized and has no reasonable prospect of becoming adequately capitalized, fails to become adequately capitalized when required to do so, fails to submit a timely and acceptable capital restoration plan or materially fails to implement an accepted capital restoration plan.
In addition to the grounds discussed above under “Prompt Corrective Actions,” the appropriate federal bank regulatory agency may appoint the FDIC as conservator or receiver for a banking institution (or the FDIC may appoint itself, under certain circumstances) if any one or more of a number of circumstances exist, including, without limitation, the fact that the banking institution is undercapitalized and has no reasonable prospect of becoming adequately capitalized, fails to become adequately capitalized when required to do so, fails to submit a timely and acceptable capital restoration plan or materially fails to implement an accepted capital restoration plan.
If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized”, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks.
If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks.
In approving interstate acquisitions, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its insured depository institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.
In approving interstate acquisitions, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its IDI affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.
This 2020 plan did not include an increase in the deposit insurance assessment rate. On June 21, 2022, however, the FDIC adopted an Amended Restoration Plan and notice of proposed rulemaking to increase the deposit insurance assessment rates as it was otherwise at risk of not reaching the statutory minimum by the statutory deadline of September 30, 2028.
The Restoration Plan did not include an increase in the deposit insurance assessment rate. On June 21, 2022, however, the FDIC adopted an Amended Restoration Plan and notice of proposed rulemaking to increase the deposit insurance assessment rates as it was otherwise at risk of not reaching the statutory minimum by the statutory deadline of September 30, 2028.
As described above, the Bank exceeded its minimum capital requirements under applicable regulatory guidelines as of December 31, 2022. Transactions with Affiliates and Insiders. Depository institutions are subject to the restrictions contained in the Federal Reserve Act (the “FRA”) with respect to loans to directors, executive officers and principal stockholders.
As described above, the Bank exceeded its minimum capital requirements under applicable regulatory guidelines as of December 31, 2023. Transactions with Affiliates and Insiders. Depository institutions are subject to the restrictions contained in the Federal Reserve Act (the “FRA”) with respect to loans to directors, executive officers and principal stockholders.
As of December 31, 2022, we met the requirements to be “well-capitalized” based upon the aforementioned ratios for purposes of the PCA regulations, as currently in effect. The Company General. Bancorp, as the sole shareholder of the Bank, is a bank holding company under federal law and regulation.
As of December 31, 2023, we met the requirements to be “well-capitalized” based upon the aforementioned ratios for purposes of the PCA regulations, as currently in effect. The Company General. Bancorp, as the sole shareholder of the Bank, is a bank holding company under federal law and regulation.
As fully phased-in on January 1, 2019, Basel III subjects bank holding companies and banks to the following risk-based capital requirements: ● a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer”, or 7.0%; ● a minimum ratio of Tier I capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer, or 8.5%; ● a minimum ratio of Total (Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer, or 10.5%; and ● a minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures.
As fully phased-in on January 1, 2019, Basel III subjects bank holding companies and banks to the following risk-based capital requirements: ● a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer,” or 7.0%; ● a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer, or 8.5%; ● a minimum ratio of Total (Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer, or 10.5%; and ● a minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures.
The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision. Bank Holding Company and Bank Regulation Bancorp is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the "BHCA"), and is registered as such with the Federal Reserve.
The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision. Bank Holding Company and Bank Regulation Bancorp is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the “BHCA”), and is registered as such with the Federal Reserve.
A bank’s capital category is determined solely for the purpose of applying PCA regulations and the capital category may not constitute an accurate representation of such bank’s overall financial condition or prospects for other purposes. 16 The FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company, if the depository institution would thereafter be “undercapitalized.” “Undercapitalized” institutions are subject to growth limitations and are required to submit capital restoration plans.
A bank’s capital category is determined solely for the purpose of applying PCA regulations and the capital category may not constitute an accurate representation of such bank’s overall financial condition or prospects for other purposes. 15 Table of Contents The FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company, if the depository institution would thereafter be “undercapitalized.” “Undercapitalized” institutions are subject to growth limitations and are required to submit capital restoration plans.
These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. 12 Specific federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds, their activities relating to dividends, the nature and amount of and collateral for certain loans, servicing and foreclosing on loans, borrowings, capital requirements, certain check-clearing activities, branching, and mergers and acquisitions.
These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. 11 Table of Contents Specific federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds, their activities relating to dividends, the nature and amount of collateral for certain loans, servicing and foreclosing on loans, borrowings, capital requirements, certain check-clearing activities, branching, and mergers and acquisitions.
Overall, the Company believes that implementation of the more stringent Basel III minimum capital requirements has not had and will not have a material adverse effect on Bancorp’s or the Bank’s capital ratios, earnings, shareholder’s equity, or its ability to pay dividends, effect stock repurchases or pay discretionary bonuses to executive officers. 15 In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”).
Overall, the Company believes that implementation of the more stringent Basel III minimum capital requirements has not had and will not have a material adverse effect on Bancorp’s or the Bank’s capital ratios, earnings, shareholder’s equity, or its ability to pay dividends, effect stock repurchases or pay discretionary bonuses to executive officers. 14 Table of Contents In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”).
As of December 31, 2022, the Bank’s capital ratios exceeded the minimum capital adequacy guideline percentage requirements of the federal banking agencies for “well capitalized” institutions under the Basel III capital rules on a fully phased-in basis.
As of December 31, 2023, the Bank’s capital ratios exceeded the minimum capital adequacy guideline percentage requirements of the federal banking agencies for “well capitalized” institutions under the Basel III capital rules on a fully phased-in basis.
For purposes of applicable total risk-based capital regulatory guidelines, Tier 2 capital (sometimes referred to as “supplementary capital”) is defined to include, subject to limitations: perpetual preferred stock not included in Tier 1 capital, intermediate-term preferred stock and any related surplus, certain hybrid capital instruments, perpetual debt and mandatory convertible debt securities, allowances for loan and lease losses, and intermediate-term subordinated debt instruments.
For purposes of applicable total risk-based capital regulatory guidelines, Tier 2 capital (sometimes referred to as “supplementary capital”) is defined to include, subject to limitations: perpetual preferred stock not included in Tier 1 capital, intermediate-term preferred stock and any related surplus, certain hybrid capital instruments, perpetual debt and mandatory convertible debt securities, allowances for credit losses, and intermediate-term subordinated debt instruments.
Department of the Treasury (“Treasury”), which provide funds to CDFIs through a variety of programs. We have established a CDFI advisory board to assist the Bank in finding organizations that provide services to low-to-moderate income people.
Department of the Treasury (“Treasury”), which provide funds to CDFIs through a variety of programs. We have established a CDFI advisory board to assist the Bank in finding organizations that provide services to low-to-moderate income individuals.
The minimum capital conservation buffer was phased in over a four year transition period with minimum buffers of 0.625%, 1.25%, 1.875%, and 2.50% during 2017, 2018, 2019 and 2020, respectively.
The minimum capital conservation buffer was phased in over a four year transition period with minimum buffers of 0.625%, 1.25%, 1.875%, and 2.50% during 2016, 2017, 2018 and 2019, respectively.
After working for many years in positions of increasing responsibility at such banks, these individuals identified an opportunity resulting from the 2007 credit crisis to capitalize on the general dissatisfaction that many customers had with the nature and level of services that were being provided by existing Asian-American and Chinese-American banks.
After working for many years in positions of increasing responsibility at such banks, these individuals identified an opportunity resulting from the 2007 credit crisis to capitalize on the general dissatisfaction that many customers had with the nature and level of services being provided by existing Asian-American banks at that time.
On October 18, 2022, the FDIC adopted a final rule that increases initial base deposit insurance assessment rates by 2 basis points, beginning with the first quarterly assessment period of 2023.
On October 18, 2022, the FDIC adopted a final rule that increased initial base deposit insurance assessment rates by 2 basis points, beginning with the first quarterly assessment period of 2023.
Under the revised PCA provisions of the FDIA, an insured depository institution generally will be classified in the following categories based on the capital measures indicated: PCA Category Total Risk-Based Capital Ratio Tier I Risk-Based Capital Ratio CET1 Risk-Based Ratio Tier I Leverage Ratio Well capitalized 10 % 8 % 6.5 % 5 % Adequately capitalized 8 % 6 % 4.5 % 4 % Undercapitalized Significantly undercapitalized Critically undercapitalized Tangible Equity/Total Assets = An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios, if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.
Under the revised PCA provisions of the FDIA, an IDI generally will be classified in the following categories based on the capital measures indicated: PCA Category Total Risk-Based Capital Ratio Tier 1 Risk-Based Capital Ratio CET1 Risk-Based Ratio Tier 1 Leverage Ratio Well capitalized 10% 8% 6.5% 5% Adequately capitalized 8% 6% 4.5% 4% Undercapitalized Significantly undercapitalized Critically undercapitalized Tangible Equity/Total Assets = An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.
Furthermore, if the Federal Reserve subsequently determines that the Bank, as a bank holding company subsidiary, has not received a satisfactory CRA rating, Bancorp would not be able to commence any new financial activities or acquire a company that engages in such activities. 17 Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator.
Furthermore, if the Federal Reserve subsequently determines that the Bank, as a bank holding company subsidiary, has not received a satisfactory CRA rating, Bancorp would not be able to commence any new financial activities or acquire a company that engages in such activities. 16 Table of Contents Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator.
Many of our management team members, including in many cases branch managers, have worked together for up to 30 years, and our deposits relationships have been cultivated over that time period.
Many of our management team members, including our branch managers, have worked together for up to 30 years, and our deposits relationships have been cultivated over that time period.
In the event of Bancorp’s bankruptcy, any commitment by Bancorp to a federal bank regulatory agency to maintain the capital of the Bank will be assumed by the bankruptcy trustee and entitled to priority of payment. 23 Enforcement Authority The federal and California regulatory structure gives the bank regulatory agencies extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.
In the event of Bancorp’s bankruptcy, any commitment by Bancorp to a federal bank regulatory agency to maintain the capital of the Bank will be assumed by the bankruptcy trustee and entitled to priority of payment. 22 Table of Contents Enforcement Authority The federal and California regulatory structure gives the bank regulatory agencies extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.
There can be no assurance that the FHLB will pay dividends at the same rate it has paid in the past, or that it will pay any dividends in the future. 25 Impact of Monetary Policies The earnings and growth of the Bank are largely dependent on its ability to maintain a favorable differential or spread between the yield on its interest-earning assets and the rates paid on its deposits and other interest-bearing liabilities.
There can be no assurance that the FHLB will pay dividends at the same rate it has paid in the past, or that it will pay any dividends in the future. 24 Table of Contents Impact of Monetary Policies The earnings and growth of the Bank are largely dependent on its ability to maintain a favorable differential or spread between the yield on its interest-earning assets and the rates paid on its deposits and other interest-bearing liabilities.
In September 2020, the Federal Reserve released for public comment its proposed rules to modernize CRA regulations. We will continue to evaluate the impact of any changes to the CRA regulations. The Bank received a “satisfactory” rating on its most recent CRA examination, which was conducted in April 2020.
In September 2020, the Federal Reserve released for public comment its proposed rules to modernize CRA regulations. We will continue to evaluate the impact of any changes to the CRA regulations. The Bank received a “satisfactory” rating on its most recent CRA examination, which was conducted in May 2023.
Some of these laws are further discussed below: 24 The Equal Credit Opportunity Act (“ECOA”) generally prohibits discrimination in any credit transaction, whether for consumer or business purposes, on the basis of race, color, religion, national origin, sex, marital status, age, receipt of income from public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act.
Some of these laws are further discussed below: 23 Table of Contents The Equal Credit Opportunity Act (“ECOA”) generally prohibits discrimination in any credit transaction, whether for consumer or business purposes, on the basis of race, color, religion, national origin, sex, marital status, age, receipt of income from public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act.
It cannot be determined at this time whether compliance with such policies will adversely affect the Company’s ability to hire, retain, and motivate its key employees. 26 Audit Requirements The Bank is required to have an annual independent audit, alone or as a part of its bank holding company’s audit, and to prepare all financial statements in accordance with GAAP.
It cannot be determined at this time whether compliance with such policies will adversely affect the Company’s ability to hire, retain, and motivate its key employees. 25 Table of Contents Audit Requirements The Bank is required to have an annual independent audit, alone or as a part of its bank holding company’s audit, and to prepare all financial statements in accordance with GAAP.
To be considered “well capitalized,” a bank holding company or bank must have the following minimum ratios: (i) a Tier 1 leverage ratio of 5.0%, (ii) a common equity Tier 1 risk-based capital ratio of 6.5%, (iii) a Tier 1 risk-based capital ratio of 8.0%, and (iv) a total risk-based capital ratio of 10.0%.
To be considered “well capitalized,” a bank holding company or bank must have the following minimum ratios: (i) a Tier 1 leverage ratio of 5.0%, (ii) a CET1 capital ratio of 6.5%, (iii) a Tier 1 risk-based capital ratio of 8.0%, and (iv) a Total risk-based capital ratio of 10.0%.
The Bank does not currently expect the CFPB’s rules to have a significant impact on its operations, except for higher compliance costs. 21 Incentive Compensation Guidance The federal bank regulatory agencies have issued comprehensive guidance intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of those organizations by encouraging excessive risk-taking.
The Bank does not currently expect the CFPB’s rules to have a significant impact on its operations, except for higher compliance costs. 20 Table of Contents Incentive Compensation Guidance The federal bank regulatory agencies have issued comprehensive guidance intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of those organizations by encouraging excessive risk-taking.
The Company guarantees on a limited basis the payments of distributions on the capital securities of the trusts and payments on redemption of the capital securities of the trusts. The Company is the owner of all the beneficial interests represented by the common securities of the trusts. FAIB Capital Corp.
The Company guarantees on a limited basis the payments of distributions on the capital securities of the trusts and payments on redemption of the capital securities of the trusts. The Company is the owner of all the beneficial interests represented by the common securities of the trusts.
The proposed rule was adopted as final without change. Also, in the final rule adopted on October 18, 2022, the FDIC incorporated Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures in the risk-based deposit insurance assessment system applicable to all large and highly complex insured depository institutions.
The proposed rule was adopted as final without change. Also, in the final rule adopted on October 18, 2022, the FDIC incorporated Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures in the risk-based deposit insurance assessment system applicable to all large and highly complex IDIs.
Banking regulators also examine banks for compliance with the economic sanctions regulations administered by OFAC. Failure of a financial institution to maintain and implement adequate anti-money laundering and OFAC programs, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution. 20 Concentrations in Commercial Real Estate.
Banking regulators also examine banks for compliance with the economic sanctions regulations administered by OFAC. Failure of a financial institution to maintain and implement adequate anti-money laundering and OFAC programs, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution. 19 Table of Contents Concentrations in Commercial Real Estate.
We track all deposit relationships over $250,000 on a quarterly basis and consider a relationship to be core if there are any three or more of the following: (i) relationships with us (as a director or shareholder); (ii) deposits within our market area; (iii) additional non-deposit services with us; (iv) electronic banking services with us; (v) active demand deposit account with us; (vi) deposits at market interest rates; and (vii) longevity of the relationship with us.
We monitor all deposit relationships over $250,000 on a quarterly basis and consider a relationship to be stable if there are any three or more of the following characteristics: (i) relationships with us (as a director or shareholder); (ii) deposits within our market area; (iii) additional non-deposit services with us; (iv) electronic banking services with us; (v) active demand deposit account with us; (vi) deposits at market interest rates; and (vii) longevity of the relationship with us.
Interchange Fees Under the Durbin Amendment to the Dodd-Frank Act, the Federal Reserve adopted rules establishing standards for assessing whether the interchange fees that may be charged with respect to certain electronic debit transactions are “reasonable and proportional” to the costs incurred by issuers for processing such transactions. 13 Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions.
Interchange Fees Under the Durbin Amendment to the Dodd-Frank Act, the Federal Reserve adopted rules establishing standards for assessing whether the interchange fees that may be charged with respect to certain electronic debit transactions are “reasonable and proportional” to the costs incurred by issuers for processing such transactions. 12 Table of Contents Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions.
In our commitment to this designation, the Bank has a policy that requires all directors and management above the level of vice president to contribute at least 24 hours of community service annually to a qualified organization.
In our commitment to this designation, the Bank has a policy that requires management above the level of vice president to contribute at least 24 hours of community service annually to a qualified organization.
As a result, the growth and earnings performance of the Company and its subsidiaries may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the California Department of Financial Protection and Innovation (“DFPI”), the Board of Governors of the Federal Reserve System (“Federal Reserve”), the FDIC, and the Consumer Financial Protection Bureau (“CFPB”).
As a result, the growth and earnings performance of the Company and its subsidiaries may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the DFPI, the Board of Governors of the Federal Reserve System (“Federal Reserve”), the FDIC, and the Consumer Financial Protection Bureau (“CFPB”).
Although we were founded by and market primarily to Chinese Americans, we are broadening our marketing efforts to include all categories of Asian Americans. In certain geographic markets where we currently operate, there is overlap between Chinese-American, Korean-American and other Asian-American banks for loan and deposit business. We aim to grow both organically and potentially through acquisitions in these markets.
Although we were founded by and market primarily to Chinese-Americans, we are broadening our marketing efforts to include all Asian-American communities. In certain geographic markets where we currently operate, there is an overlap between Chinese-American, Korean-American and other Asian-American banks for loan and deposit business. We aim to grow both organically and potentially through opportunistic acquisitions in these markets.
The FDIC final rule amends the assessment regulations to include a new term, “modifications to borrowers experiencing financial difficulty,” in two financial measures—the underperforming assets ratio and the higher-risk assets ratio—used to determine deposit insurance assessments for large and highly complex insured depository institutions.
The FDIC final rule amends the assessment regulations to include a new term, “modifications to borrowers experiencing financial difficulty,” in two financial measures—the underperforming assets ratio and the higher-risk assets ratio—used to determine deposit insurance assessments for large and highly complex IDIs.
(See “The Company – Dividend Payments” below) 11 ● Limitations on dividends payable by bank subsidiaries. These dividends are subject to various legal and regulatory restrictions. The federal banking agencies have indicated that paying dividends that deplete a depositary institution’s capital base to an inadequate level would be an unsafe and unsound banking practice.
(See “The Company – Dividend Payments” below). 10 Table of Contents ● Limitations on dividends payable by bank subsidiaries. These dividends are subject to various legal and regulatory restrictions. The federal banking agencies have indicated that paying dividends that deplete a depositary institution’s capital base to an inadequate level would be an unsafe and unsound banking practice.
Lending Activities Our lending strategy is to maintain a broadly diversified loan portfolio based on the type of customer (i.e., businesses versus individuals), type of loan product (e.g., owner occupied commercial real estate, commercial loans, etc.), geographic location and industries in which our business customers are engaged (e.g., manufacturing, retail, hospitality, etc.).
Our lending strategy is to maintain a broadly diversified loan portfolio based on the type of customer (e.g., businesses versus individuals), type of loan product (e.g., owner occupied commercial real estate, commercial loans, etc.), geographic location and industries in which our business customers are engaged.
As the Bank has less than $10 billion in assets, it is not examined for compliance with CFPB regulation by the CFPB, although it is examined by the FDIC and the DFPI. The CFPB has enforcement authority over unfair, deceptive or abusive act and practices (“UDAAP”).
As the Bank has less than $10 billion in assets, it is not examined by the CFPB for compliance with CFPB regulations, although it is examined by the FDIC and the DFPI. The CFPB has enforcement authority over unfair, deceptive or abusive acts and practices (“UDAAP”).
Of this amount, $14.7 million is attributable to subordinated debentures issued to statutory trusts in connection with prior issuances of trust preferred securities, which qualifies as Tier 1 capital, and $173.6 million is attributable to outstanding subordinated notes, which qualifies as Tier 2 capital. Basel III changed the manner of calculating risk-weighted assets.
Of this amount, $14.9 million is attributable to subordinated debentures issued to statutory trusts in connection with prior issuances of trust preferred securities, which qualifies as Tier 1 capital, and $119.1 million is attributable to outstanding subordinated notes, which qualifies as Tier 2 capital. Basel III changed the manner of calculating risk-weighted assets.
These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits. 22 The Volcker Rule.
These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits. 21 Table of Contents The Volcker Rule.
As of December 31, 2022, we had 379 full-time equivalent staff. We do not outsource job functions or use subcontractors to fill open positions. None of our employees are represented by any collective bargaining unit or are parties to a collective bargaining agreement. Diversity, Equity and Inclusion.
As of December 31, 2023, we had 376 full-time equivalent employees. We do not outsource job functions or use subcontractors to fill open positions. None of our employees are represented by any collective bargaining unit or are parties to a collective bargaining agreement. Diversity, Equity and Inclusion.
As a result of the EGRRCPA, Bancorp was not subject to the more stringent Basel III minimum capital requirements until Bancorp’s total consolidated assets equaled or exceeded $3 billion. However, as of December 31, 2022, Bancorp had total consolidated assets of $3.9 billion and, consequently, the more stringent Basel III minimum capital requirements are applicable.
As a result of the EGRRCPA, Bancorp was not subject to the more stringent Basel III minimum capital requirements until Bancorp’s total consolidated assets equaled or exceeded $3 billion. However, as of December 31, 2023, Bancorp had total consolidated assets of $4.03 billion and, consequently, the more stringent Basel III minimum capital requirements are applicable.
In its last reported examination by the FDIC in April 2020, the Bank received a CRA rating of “Satisfactory.” ● Compliance with the Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "USA Patriot Act"), and other anti-money laundering laws (“AML”), and the regulations of the Treasury’s Office of Foreign Assets Control (“OFAC”).
In its last reported examination by the FDIC in May 2023, the Bank received a CRA rating of “Satisfactory.” ● Compliance with the Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA Patriot Act”) and other anti-money laundering laws (“AML”), and the regulations of the Treasury’s Office of Foreign Assets Control (“OFAC”).
Bancorp’s Code of Ethics and other corporate governance documents are located on its website at www.royalbusinessbankusa.com. Supervision and Regulation General Financial institutions, their holding companies and their affiliates are extensively regulated under U.S. federal and state law.
Our Code of Ethics and other corporate governance documents are located on our website at www.royalbusinessbankusa.com. Supervision and Regulation General Financial institutions, their holding companies and their affiliates are extensively regulated under U.S. federal and state laws.
The Bank’s current strategic plan contains the following key elements: ● Maintain regulatory capital levels well in excess of fully phased-in Basel III requirements; ● Provide commercial banking services and products primarily to businesses and their owners operating within Asian-American communities; ● Maintain a board of directors comprised of business leaders who work closely with community leaders; ● Attract and retain an experienced management team with demonstrated industry knowledge and lending expertise; ● Focus on a target market consisting of businesses that: o are located in southern California, the San Francisco Bay area, the Chicago metropolitan area, the New York metropolitan area (including northern New Jersey), Nevada and Hawaii o provide or receive goods or services to or from Asian countries, primarily China (including Hong Kong and Macau) and Taiwan; o have annual sales between $5 million and $50 million and between approximately 50 to 500 employees; o have loan needs of $1 million to $40 million; and o prioritize using bankers with strong market knowledge who are dedicated to serving the local markets in which we operate. ● Provide four main lending products: o Commercial real estate ("CRE") lending consisting of commercial real estate loans and construction and land development (“C&D”) loans; o Commercial and Industrial "C&I" lending that emphasizes trade finance, operating lines of credit, and working capital loans secured by inventory, accounts receivables, fixed assets and real estate; o Single family residential ("SFR") mortgage lending primarily to Asian Americans willing to provide higher down payment amounts and pay higher fees and interest rates in return for reduced documentation requirements.
The Company’s current strategic plan contains the following key elements: ● Maintain regulatory capital levels in excess of fully phased-in Basel III requirements; ● Provide commercial banking services and products primarily to businesses and their owners operating within Asian-American communities; ● Maintain a board of directors comprised of business leaders who work closely with community leaders; ● Attract and retain an experienced management team with demonstrated industry knowledge and lending expertise; ● Focus on a target market consisting of businesses that: o are located in southern California, the San Francisco Bay area, the Chicago metropolitan area, the New York metropolitan area (including northern New Jersey), Nevada and Hawaii; o provide or receive goods or services to or from Asian countries, primarily Chinese-speaking regions, such as China, Hong Kong, Macau, Taiwan; o have annual sales between $5 million and $50 million and between approximately 50 to 500 employees; o have loan needs of $1 million to $40 million; and o prioritize using bankers with strong market knowledge who are dedicated to serving the local markets in which we operate. ● Provide five main lending products: o Commercial real estate (“CRE”) lending consisting of owner occupied and non-owner occupied commercial property, including loans secured by single-family residences for a business purposes and multi-family residential property; o Construction and land development (“C&D”) loans comprised of residential construction, commercial construction and land acquisition and development construction; o Commercial and Industrial (“C&I”) lending that emphasizes trade finance, operating lines of credit, and working capital loans secured by inventory, accounts receivables, fixed assets and real estate; o Single-family residential (“SFR”) mortgage lending primarily to Asian-Americans willing to provide higher down payment amounts and pay higher fees and interest rates in return for reduced documentation requirements.
As permitted by Basel III, Bancorp and the Bank elected to exclude AOCI from CET1. 14 The Dodd-Frank Act excludes trust preferred securities issued after May 19, 2010, from being included in Tier 1 capital, unless the issuing company is a bank holding company with less than $500 million in total assets.
As permitted by Basel III, the Company elected to exclude AOCI from CET1. 13 Table of Contents The Dodd-Frank Act excludes trust preferred securities issued after May 19, 2010 from being included in Tier 1 capital, unless the issuing company is a bank holding company with less than $500 million in total assets.
During the years ended December 31, 2022 and 2021, the Bank paid supervisory assessments to the DFPI totaling $212,000 and $201,000, respectively. 18 Capital Requirements. Banks are generally required to maintain capital levels in excess of other businesses. For a discussion of capital requirements, see “Regulatory Capital Requirements” above. Dividend Payments.
During the years ended December 31, 2023 and 2022, the Bank paid supervisory assessments to the DFPI totaling $268,000 and $212,000, respectively. 17 Table of Contents Capital Requirements. Banks are generally required to maintain capital levels in excess of other businesses. For a discussion of capital requirements, see “Regulatory Capital Requirements” above. Dividend Payments.
The Company received a payment of $71.0 million to acquire all the premises and equipment at the Hawaii Branch, all deposits totaling $81.7 million and performing loans totaling $7.4 million as of January 14, 2022, reflecting a premium paid by us of approximately $2.3 million.
We received a payment of $71.0 million to acquire all the premises and equipment at the Hawaii Branch, all deposits totaling $81.7 million and performing loans totaling $7.4 million as of the purchase date, reflecting a premium paid by us of approximately $2.3 million.
The Company views these banks as competition for attracting deposits and making loans. In addition to Chinese-American banks, we also compete with other banks in the region, particularly with Korean-American banks in our SFR and SBA lending areas.
These banks promote competition for attracting deposits and making loans in the markets we target. In addition to Chinese-American banks, we also compete with other banks in the region, particularly with Korean-American banks in our lending areas for SFR and SBA loans.
We believe that diversity of thought and experiences results in better outcomes and empowers our employees to make more meaningful contributions within our company and communities. Our board of directors is comprised of 11 Asian-Americans and one Caucasian, of which four members are women.
We believe that diversity of thought and experiences results in better outcomes and empowers our employees to make more meaningful contributions within our company and communities. Our board of directors is comprised of six Asian-Americans and four Caucasians, of which seven members are men and three members are women.
As many of our customers have more than $250,000 on deposit with us, we believe that using this method reflects a more accurate assessment of our deposit base. As of December 31, 2022, $2.2 billion or 75.2% of our relationships are considered adjusted core relationships.
As many of our customers have more than $250,000 on deposit with us, we believe that using this method reflects a more accurate assessment of our deposit base. As of December 31, 2023, $2.36 billion or 74.4% of our relationships are considered stable relationships.
These bankers observed that first generation Chinese immigrants were not well-served by existing banks. Our strategic plan focuses on providing commercial banking services to first generation immigrants, concentrating on Chinese immigrants, as well as Koreans and other Asian ethnicities.
These bankers observed that first generation Chinese immigrants were not well served by existing banks. Our strategic plan focuses on providing commercial and consumer banking services to Asian American communities.
We operate as a minority depository institution, which is defined by the Federal Deposit Insurance Corporation (“FDIC”) as a federally insured depository institution where 51% or more of the voting stock is owned by minority individuals.
We operate as a minority depository institution, which is defined by the FDIC as a federally insured depository institution (“IDI”) where 51% or more of the voting stock is owned by minority individuals.
This final rule is effective January 1, 2023, and applicable to the first quarterly assessment period of 2023.
The final rule became effective on January 1, 2023, and was applicable to the first quarterly assessment period of 2023.
Our management team has an extensive knowledge of the markets where we operate and our borrowers and takes a conservative approach to commercial real estate lending, focusing on what we believe to be high quality credits with low loan-to-value ratios, income-producing properties with strong cash flow characteristics, and strong collateral profiles.
Our management team has an extensive knowledge of the markets where we operate and our borrowers; we take a conservative approach to CRE lending, focus on high quality credits with low loan-to-value ratios, income-producing properties with stable cash flow, and strong collateral profiles.
Available Information We invite you to visit our website at www.royalbusinessbankusa.com , to access free of charge 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.
Suite 1200, Los Angeles, California 90017, and our telephone number at that address is (213) 627-9888. 9 Table of Contents Available Information We invite you to visit our website at www.royalbusinessbankusa.com , to access free of charge our 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 effect of these statutes, regulations, regulatory policies and rules are significant to the financial condition and results of operations of the Company and its subsidiaries, including the Bank, and the nature and extent of future legislative, regulatory or other changes affecting financial institutions are impossible to predict with any certainty. 10 Additional initiatives may be proposed or introduced before Congress, the California Legislature, and other governmental bodies in the future.
The effect of these statutes, regulations, regulatory policies and rules are significant to the financial condition and results of operations of the Company and its subsidiaries, including the Bank, and the nature and extent of future legislative, regulatory or other changes affecting financial institutions are impossible to predict with any certainty.
The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as offices, warehouses and production facilities, hotels, mixed-use residential and commercial, retail centers, multi-family properties and assisted living facilities. 7 The total commercial real estate portfolio was $1.3 billion, or 39.3% of our total loan portfolio, at December 31, 2022 of which $255.2 million was secured by owner occupied properties.
The real estate securing our existing CRE loans includes a wide variety of property types, such as multi-family properties, mixed-use residential and commercial, mobile home parks, hotels, offices, apartments, warehouses and retail centers. 6 Table of Contents The total CRE portfolio was $1.2 billion, or 38.5% of our total loan portfolio, at December 31, 2023 of which $193.4 million was secured by owner occupied properties compared to $1.3 billion, or 39.3% of our total loan portfolio, at December 31, 2022, of which $255.2 million was secured by owner occupied properties.
Under California law, our ability to make aggregate secured and unsecured loans-to-one-borrower is limited to 25% and 15%, respectively, of unimpaired capital and surplus. At December 31, 2022, the Bank’s regulatory limit on aggregate secured loans-to-one-borrower was $159.8 million and unsecured loans-to-one borrower was $95.9 million. 19 Safety and Soundness Standards /Risk Management.
Under California law, our ability to make aggregate secured and unsecured loans-to-one-borrower is limited to 25% and 15%, respectively, of unimpaired capital and surplus. At December 31, 2023, the Bank’s regulatory limit on aggregate secured loans-to-one-borrower was $163.9 million and unsecured loans-to-one borrower was $98.3 million.
We are focused on conducting our business in a safe and efficient manner and in compliance with all local, state and federal safety and health regulations, and special safety concerns. Benefits. We are committed to offering a competitive total compensation package.
We are focused on conducting our business in a safe manner and in compliance with all local, state and federal safety and health regulations, and special safety concerns. Benefits. We are committed to offering a competitive total compensation package. We regularly compare compensation and benefits with peer companies and market data, making adjustments as needed to ensure compensation stays competitive.
Item 1. Business. Company Overview The Bank began operations in 2008 as a California state-chartered commercial bank. The Bank was organized by a group of very experienced bankers, some of whom began their banking careers in Asia and have worked together at various banks in California in the 1980s and 1990s.
The Bank was organized by a group of experienced bankers, some of whom began their banking careers in Asia and have worked together at various banks in California during the 1980s and 1990s.
Department of Housing and Urban Development (“HUD”), and agencies such as FNMA and the Federal Home Loan Mortgage Corporation (“FHLMC”), have an impact on the Company’s business.
Department of Housing and Urban Development, and agencies such as FNMA and FHLMC, have an impact on the Company’s business.
As of December 31, 2022, the Company had total consolidated assets of $3.9 billion, total consolidated held for investment loans of $3.3 billion, total consolidated deposits of $3.0 billion and total consolidated shareholders’ equity of $484.6 million.
As of December 31, 2023, the Company had total consolidated assets of $4.03 billion, total consolidated held for investment loans of $3.03 billion, total consolidated deposits of $3.17 billion and total consolidated shareholders’ equity of $511.3 million.
It cannot be predicted whether, or in what form, any such legislation or regulatory changes in policy may be enacted or the extent to which the business of the Bank would be affected thereby.
In addition, the various bank regulatory agencies often adopt new rules, regulations and policies to implement and enforce existing legislation. It cannot be predicted whether, or in what form, any such legislation or regulatory changes in policy may be enacted or the extent to which the business of the Bank would be affected thereby.
In the meantime, the Bank removed the “Return Items Fees” from the Bank’s Schedule of Deposit Accounts, Services and Fees. Financial Regulatory Reform The Dodd-Frank Act, which was enacted in July 2010, significantly restructured the financial regulatory landscape in the United States, including the creation of a systemic risk oversight body, the Financial Stability Oversight Council (the “FSOC”).
Financial Regulatory Reform The Dodd-Frank Act, which was enacted in July 2010, significantly restructured the financial regulatory landscape in the United States, including the creation of a systemic risk oversight body, the Financial Stability Oversight Council (the “FSOC”).
On greenhouse gas emissions, the disclosures would include a company’s direct emissions, indirect emissions in the form of purchased energy, and emissions from “upstream and downstream activities in a registrant’s value chain” — otherwise known as Scope 1, Scope 2, and Scope 3 emissions, respectively. As a financial institution, the Company has minimal Scope 1 direct GHG emissions.
The disclosures related to GHG emissions would include a company’s material direct emissions and indirect emissions in the form of purchased energy — otherwise known as Scope 1 and Scope 2 emissions, respectively. As a financial institution, the Company has minimal Scope 1 direct GHG emissions.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn the wake of actions by government authorities and other parties to mitigate health risks, and fiscal and monetary policy measures used to mitigate the adverse effects of the COVID-19 pandemic on individual households and businesses, a number of macroeconomic challenges emerged, including inflation, supply chain issues, labor market disruptions, and other economic and market issues.
Biggest changeChanges in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control, are difficult to predict and could have a material adverse effect on our business, financial position, results of operations and growth prospects. 27 Table of Contents In the wake of actions by government authorities and other parties to mitigate health risks associated with the COVID-19 pandemic, and fiscal and monetary policy measures used to mitigate the adverse effects of the pandemic on individual households and businesses, a number of macroeconomic challenges emerged, including, without limitation, inflation, supply chain issues and labor market disruptions.
When interest rates rise, the rate of interest we pay on our assets, such as loans, rises more quickly than the rate of interest that we receive on our interest-bearing liabilities, such as deposits, which may cause our profits to increase.
When interest rates rise, the rate of interest we receive on our assets, such as loans, rises more quickly than the rate of interest that we pay on our interest-bearing liabilities, such as deposits, which may cause our profits to increase.
When interest rates decrease, the rate of interest we pay on our assets, such as loans, declines more quickly than the rate of interest that we receive on our interest-bearing liabilities, such as deposits, which may cause our profits to decrease.
When interest rates decrease, the rate of interest we receive on our assets, such as loans, declines more quickly than the rate of interest that we pay on our interest-bearing liabilities, such as deposits, which may cause our profits to decrease.
Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income. Rising interest rates will result in a decline in value of the fixed-rate debt securities we hold in our investment securities portfolio.
Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income. Rising interest rates will result in a decline in the value of the fixed-rate debt securities we hold in our investment securities portfolio.
The non-guaranteed portion of SBA loans have a higher degree of credit risk and risk of loss as compared to the guaranteed portion of such loans. We attempt to limit this risk by generally requiring such loans be collateralized and limiting the overall amount that can be held on our balance sheet to 75% of our total capital.
The non-guaranteed portion of SBA loans have a higher degree of credit risk and risk of loss as compared to the guaranteed portion of such loans. We attempt to limit this risk by generally requiring such loans to be collateralized and limiting the overall amount that can be held on our balance sheet to 75% of our total capital.
A general decline in real estate sales and prices across the United States or locally in the relevant real estate market, a decline in demand for residential real estate, economic weakness, high rates of unemployment, and reduced availability of mortgage credit, are some of the factors that can adversely affect the borrowers’ ability to repay their obligations to us and the value of our security interest in collateral, and thereby adversely affect our results of operations and financial results.
A general decline in real estate sales and prices across the United States or locally in the relevant real estate market, a decline in demand for residential real estate, economic weakness, higher interest rates, high rates of unemployment, and reduced availability of mortgage credit, are some of the factors that can adversely affect the borrowers’ ability to repay their obligations to us and the value of our security interest in collateral, and thereby adversely affect our results of operations and financial results.
Following identification of the material weakness, we implemented a number of controls and procedures designed to improve our control environment, which we believe will be sufficient to remediate our previously identified material weakness.
Following identification of the material weaknesses, we implemented a number of controls and procedures designed to improve our control environment, which we believe will be sufficient to remediate our previously identified material weakness.
Additions to the ACL, which are charged to earnings through the provision for credit losses, are determined based on a variety of factors, including an analysis of the loan portfolio, historical loss experience, reasonable and supportable forecast and an evaluation of current economic conditions in our market areas.
Additions to the ACL, which are charged to earnings through the provision for credit losses, are determined based on a variety of factors, including an analysis of the loan portfolio, historical loss experience, reasonable and supportable forecasts and an evaluation of current economic conditions in our market areas.
Although, we are taking steps to reduce our dependence on these banks, and we are attempting to expand the number of banks that we sell our non-qualified SFR mortgages, we may not be successful expanding our sales market for our non-qualified mortgage loans. These loans also present pricing risk as rates change, and our sale premiums cannot be guaranteed.
Although, we are taking steps to reduce our dependence on these banks by expanding the number of banks that we sell our non-qualified SFR mortgages to, we may not be successful expanding our sales market for our non-qualified mortgage loans. These loans also present pricing risk as rates change, and our sale premiums cannot be guaranteed.
These changes also may require us to invest significant management attention and resources to make any necessary changes to operations to comply and could have an adverse effect on our business, financial condition and results of operations. Our use of third party vendors and our other ongoing third party business relationships are subject to increasing regulatory requirements and attention.
These changes also may require us to invest significant management attention and resources to make any necessary changes to operations to comply and could have an adverse effect on our business, financial condition and results of operations. 35 Table of Contents Our use of third party vendors and our other ongoing third party business relationships are subject to increasing regulatory requirements and attention.
If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity, and results of operations could be materially and adversely affected. A natural or man-made disaster or recurring energy shortage in our geographic markets , especially in California, could harm our business.
If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity, and results of operations could be materially and adversely affected. 34 Table of Contents A natural or man-made disaster or recurring energy shortage in our geographic markets , especially in California, could harm our business.
If the overall economic climate in the United States, generally, or our market areas, specifically, declines, our borrowers may experience difficulties in repaying their loans, and the level of nonperforming loans, charge-offs and delinquencies could rise and require further increases in the provision for loan losses, which would cause our net income, return on equity and capital to decrease.
If the overall economic climate in the U.S., generally, or our market areas, specifically, declines, our borrowers may experience difficulties in repaying their loans, and the level of nonperforming loans, charge-offs and delinquencies could rise and require further increases in the provision for loan losses, which would cause our net income, return on equity and capital to decrease.
As of January 1, 2022, we adopted ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the CECL model, which changes how we estimate credit losses and increased the required level of our allowance for credit losses.
As of January 1, 2022, we adopted ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the CECL model, which changes how we estimate credit losses and increased the required level of our ACL.
We have paid quarterly dividends since our initial public offering in the third quarter of 2017. We paid $0.33 per share in 2020, $0.51 per share in 2021 and $0.56 per share in 2022. We have no obligation to pay dividends and we may change our dividend policy at any time without notice to our shareholders.
We have paid quarterly dividends since our initial public offering in the third quarter of 2017. We paid $0.51 per share in 2021, $0.56 per share in 2022 and $0.64 per share in 2023. We have no obligation to pay dividends and we may change our dividend policy at any time without notice to our shareholders.
We have grown our consolidated assets from $300.5 million as of December 31, 2010 to $3.9 billion as of December 31, 2022, and our deposits from $236.4 million as of December 31, 2010 to $3.0 billion as of December 31, 2022. Some of this growth has resulted from several acquisitions that we have completed since 2010.
We have grown our consolidated assets from $300.5 million as of December 31, 2010 to $4.0 billion as of December 31, 2023, and our deposits from $236.4 million as of December 31, 2010 to $3.2 billion as of December 31, 2023. Some of this growth has resulted from several acquisitions that we have completed since 2010.
Real estate construction loans, including land development loans, comprised approximately 8.3% of our total loan portfolio as of December 31, 2022, and such lending involves additional risks because funds are advanced upon the security of the project, which is of uncertain value prior to its completion, and costs may exceed realizable values in declining real estate markets.
Real estate construction loans, including land development loans, comprised approximately 6.0% of our total loan portfolio as of December 31, 2023, and such lending involves additional risks because funds are advanced upon the security of the project, which is of uncertain value prior to its completion, and costs may exceed realizable values in declining real estate markets.
At December 31, 2022, approximately 91.5% of our loan portfolio was comprised of loans with real estate as a primary or secondary component of collateral. Adverse developments affecting real estate values in our market areas could increase the credit risk associated with our real estate loan portfolio.
At December 31, 2023, approximately 93.6% of our loan portfolio was comprised of loans with real estate as a primary or secondary component of collateral. Adverse developments affecting real estate values in our market areas could increase the credit risk associated with our real estate loan portfolio.
Accordingly, prospective investors need to be aware of and comply with these requirements, if applicable, in connection with any purchase of shares of our common stock. Moreover, the combination of these provisions effectively inhibits certain mergers or other business combinations, which, in turn, could adversely affect the market price of our common stock. 28 Item 1B. Unresolved Staff Comments. None.
Accordingly, prospective investors need to be aware of and comply with these requirements, if applicable, in connection with any purchase of shares of our common stock. Moreover, the combination of these provisions effectively inhibits certain mergers or other business combinations, which, in turn, could adversely affect the market price of our common stock. 37 Table of Contents Item 1B.
As of December 31, 2022, our CRE loans represented 215% of our Bank total risk-based capital, as compared to 251% and 211% as of December 31, 2021 and 2020, respectively.
As of December 31, 2023, our CRE loans represented 183% of our Bank total risk-based capital, as compared to 215% and 251% as of December 31, 2022 and 2021, respectively.
We offer two SFR mortgage products, a low loan-to-value, alternative document hybrid non-qualified SFR mortgage loan, or non-qualified SFR mortgage loan, and a qualified SFR mortgage loan. As of December 31, 2022, our non-qualified SFR mortgage loans had an average loan-to-value of 58.0% and an average FICO score of 763.
We offer two SFR mortgage products, a low loan-to-value, alternative document hybrid non-qualified SFR mortgage loan, or non-qualified SFR mortgage loan, and a qualified SFR mortgage loan. As of December 31, 2023, our non-qualified SFR mortgage loans had an average loan-to-value of 57.3% and an average FICO score of 763.
Therefore, we are susceptible to the risks of natural disasters, such as earthquakes, wildfires, floods and mudslides. Certain of these natural disasters may be exacerbated by climate change.
Historically, California has been vulnerable to natural disasters. Therefore, we are susceptible to the risks of natural disasters, such as earthquakes, wildfires, floods and mudslides. Certain of these natural disasters may be exacerbated by climate change.
As of December 31, 2022, our SFR mortgage loan portfolio amounted to $1.5 billion or 43.9% of our held for investment loan portfolio. As of that dat e, 96.4% of our SFR mortgage loans consisted of non-qualified mortgage loans, which are considered to have a higher degree of risk and are less liquid than qualified mortgage loans.
As of December 31, 2023, our SFR mortgage loan portfolio amounted to $1.49 billion or 49.1% of our held for investment loan portfolio. As of that dat e, 96.7% of our SFR mortgage loans consisted of non-qualified mortgage loans, which are considered to have a higher degree of risk and are less liquid than qualified mortgage loans.
At December 31, 2022, total loans held for investment were 90.9% of our earning assets and exhibited a positive 5% sensitivity to rising interest rates in a 100 basis point parallel shock. Changes in interest rates also can affect the value of loans, securities and other assets.
At December 31, 2023, total loans held for investment were 80.2% of our earning assets and exhibited a positive 4% sensitivity to rising interest rates in a 100 basis point parallel shock. Changes in interest rates also can affect the value of loans, securities and other assets.
Among the factors that could affect our stock price are: ● actual or anticipated quarterly fluctuations in our operating results and financial condition and prospects; ● changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts; ● failure to meet analysts’ revenue or earnings estimates; ● speculation in the press or investment community; ● strategic actions by us or our competitors, such as acquisitions or restructurings; ● acquisitions of other banks or financial institutions; ● actions by institutional stockholders; ● fluctuations in the stock price and operating results of our competitors; ● general market conditions and, in particular, developments related to market conditions for the financial services industry; ● proposed or adopted regulatory changes or developments; ● anticipated or pending investigations, proceedings, or litigation that involve or affect us; ● successful management of reputational risk; ● geopolitical and public health conditions such as acts or threats of terrorism, military conflicts, pandemics and public health issues or crises, such as that related to COVID-19; and ● domestic and international economic factors, such as interest or foreign exchange rates, stock, commodity, credit, or asset valuations or volatility, unrelated to our performance.
Among the factors that could affect our stock price are: ● actual or anticipated quarterly fluctuations in our operating results and financial condition and prospects; ● changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts; ● failure to meet analysts’ revenue or earnings estimates; ● speculation in the press or investment community; ● strategic actions by us or our competitors, such as acquisitions or restructurings; ● acquisitions of other banks or financial institutions; ● actions by institutional stockholders; ● fluctuations in the stock price and operating results of our competitors; ● general market conditions and, in particular, developments related to market conditions for the financial services industry; ● adverse audit opinion on the effectiveness of our internal controls; ● existing or increased regulatory compliance requirements, changes or proposed changes in laws or regulations, or differing interpretations thereof, affecting our business, or enforcement of laws and regulations; ● anticipated or pending investigations, proceedings, or litigation that involve or affect us; ● successful management of reputational risk; ● geopolitical and public health conditions such as acts or threats of terrorism, military conflicts, pandemics and public health issues or crises; and ● domestic and international economic factors, such as interest rates or foreign exchange rates, stock, commodity, credit, or asset valuations or volatility, unrelated to our performance.
If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Any such adjustments are reflected in our results of operations in the periods in which they become known.
If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Any such adjustments are reflected in our results of operations in the periods in which they become known. As of December 31, 2023, our goodwill totaled $71.5 million.
C&I loans represented 6.0% of our total loan portfolio at December 31, 2022. Commercial loans are often larger and involve greater risks than other types of lending.
C&I loans represented 4.3% of our total loan portfolio at December 31, 2023. Commercial loans are often larger and involve greater risks than other types of lending.
If we experience increases in nonperforming loans and nonperforming assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which could have an adverse effect on our net income and related ratios, such as return on assets and equity.
If we experience increases in nonperforming loans and nonperforming assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which could have an adverse effect on our net income and related ratios, such as return on assets and equity. 30 Table of Contents Adverse conditions in Asia and elsewhere could adversely affect our business.
We have outstanding options to purchase 454,610 shares of our common stock as of December 31, 2022 that may be exercised and sold (assuming all vesting requirements are met), and we have the ability to issue options exercisable for up to an additional 1,043,617 shares of common stock pursuant to our 2017 Omnibus Stock Incentive Plan.
We have outstanding options to purchase 397,903 shares of our common stock as of December 31, 2023 that may be exercised and sold (assuming all vesting requirements are met), and we have the ability to issue options exercisable for up to an additional 1,032,173 shares of common stock pursuant to our 2017 Omnibus Stock Incentive Plan.
We are exposed to risks related to fraud and cyber-attacks. The Company is continuously enhancing and expanding our digital products and services to meet client and business needs with desired outcomes. These digital products and services often include storing, transmitting, and processing confidential client, employee, monetary, and business information.
The Company is continuously enhancing and expanding our digital products and services to meet client and business needs with desired outcomes. These digital products and services often include storing, transmitting, and processing confidential client, employee, monetary, and business information.
The forecasts, assumptions, and models required by CECL are based upon third-party forecasts, subject to management’s review and adjustment in light of information currently available. As of December 31, 2022, our ACL as a percentage of total loans was 1.23% and as a percentage of total nonperforming loans was 174.6%.
The forecasts, assumptions, and models required by CECL are based upon third-party forecasts, subject to management’s review and adjustment in light of information currently available. 31 Table of Contents As of December 31, 2023, our ACL as a percentage of total loans was 1.38% and as a percentage of total nonperforming loans was 132.5%.
Many of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans. At December 31, 2022, we had $1.8 billion of commercial loans, consisting of $1.3 billion of CRE loans, $201.2 million of C&I loans for which real estate is not the primary source of collateral and $276.9 million of C&D loans.
Many of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans. At December 31, 2023, we had $1.5 billion of commercial loans, consisting of $1.17 billion of CRE loans, $130.1 million of C&I loans for which real estate is not the primary source of collateral and $181.5 million of C&D loans.
We primarily operate in California, New York, New Jersey and Illinois markets with a concentration of Asian-American individuals and businesses; however, one of our strategies is to expand beyond California into other domestic markets that have concentrations of Asian-American individuals and businesses.
As we expand our business outside of California markets, we may encounter risks that could adversely affect us. We primarily operate in California, New York, New Jersey and Illinois markets with a concentration of Asian-American individuals and businesses; however, one of our strategies is to expand beyond California into other domestic markets that have concentrations of Asian-American individuals and businesses.
To the extent such conditions exist or worsen, we could experience adverse effects on our business, financial condition, and results of operations. Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including military actions between Russia and Ukraine, terrorism, or other geopolitical events.
To the extent such conditions exist or worsen, we could experience adverse effects on our business, financial condition, and results of operations. Financial markets may be adversely affected by the current or anticipated impact of military conflict, other geopolitical risk, and trade tensions.
Other factors, for example a cybersecurity breach that is specific to us, could also impair our ability to acquire or retain deposits. Our business depends on our ability to attract and retain Asian-American immigrants as clients . Our business is based on successfully attracting and retaining Asian-American immigrants as clients for both our non-qualified residential mortgage loans and deposits.
Other factors, for example a cybersecurity breach that is specific to us, could also impair our ability to acquire or retain deposits. Our business depends on our ability to attract and retain Asian-American immigrants as clients .
While we intend to continue to grow our business through strategic acquisitions coupled with organic loan and deposit growth, we anticipate that much of our future growth will be dependent on our ability to successfully implement our acquisition growth strategy. A risk exists, however, that we will not be able to identify suitable additional candidates for acquisitions.
While we intend to continue to grow our business through strategic acquisitions coupled with organic loan and deposit growth, we anticipate that much of our future growth will be dependent on our ability to successfully implement our acquisition growth strategy.
As of December 31, 2022, 3.7% of our total SFR mortgage loan portfolio was originated to foreign nationals.
As of December 31, 2023, 3.3% of our total SFR mortgage loan portfolio were loans originated to foreign nationals.
Consequently, as of December 31, 2022, we held $61.4 million of SBA loans on our balance sheet, $55.3 million of which consisted of the non-guaranteed portion of SBA loans and $6.1 million or 9.9% consisted of the guaranteed portion of SBA loans.
Consequently, as of December 31, 2023, we held $52.1 million of SBA loans on our balance sheet, $47.4 million of which consisted of the non-guaranteed portion of SBA loans and $4.7 million or 8.9% consisted of the guaranteed portion of SBA loans.
In addition, even if suitable targets are identified, we expect to compete for such businesses with other potential bidders, many of which may have greater financial resources than we have, which may adversely affect our ability to make acquisitions at attractive prices.
A risk exists, however, that we will not be able to identify suitable additional candidates for acquisitions. 32 Table of Contents In addition, even if suitable targets are identified, we expect to compete for such businesses with other potential bidders, many of which may have greater financial resources than we have, which may adversely affect our ability to make acquisitions at attractive prices.
The impairment evaluation did not identify an impairment of goodwill or the core deposit intangible in those quarters of 2020, 2021 and 2022. There can be no assurance that our future evaluations of goodwill will not result in findings of impairment and related write-downs, which may have a material adverse effect on our financial condition and results of operations.
There can be no assurance that our future evaluations of goodwill will not result in findings of impairment and related write-downs, which may have a material adverse effect on our financial condition and results of operations.
We do not record interest income on nonaccrual loans or OREO, thereby adversely affecting our net income and returns on assets and equity, increasing our loan administration costs and adversely affecting our efficiency ratio.
Our nonperforming assets (which consist of nonperforming loans and other real estate owned) adversely affect our net income in various ways. We do not record interest income on nonaccrual loans or OREO, thereby adversely affecting our net income and returns on assets and equity, increasing our loan administration costs and adversely affecting our efficiency ratio.
At December 31, 2022, $256.8 million of our securities were classified as available-for-sale with an aggregate net unrealized loss of $31.3 million.
At December 31, 2023, $319.0 million of our securities were classified as available-for-sale with an aggregate net unrealized loss of $28.1 million.
Risk Related to our Allowance for Credit Losses (“ACL”) If we do not effectively manage our credit risk, we may experience increased levels of delinquencies, nonperforming loans and charge-offs, which could require increases in our provision for loan losses.
However, should a significant number of these customers leave the Bank, it could have a material adverse impact on the Bank. Risk Related to our Allowance for Credit Losses (“ACL”) If we do not effectively manage our credit risk, we may experience increased levels of delinquencies, nonperforming loans and charge-offs, which could require increases in our provision for loan losses.
Such limits are also tied to the earnings of our subsidiaries. If the Bank does not receive regulatory approval or if our subsidiaries’ earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, our ability to pay our expenses and our business, financial condition or results of operations could be materially and adversely impacted.
If the Bank does not receive regulatory approval or if our subsidiaries’ earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, our ability to pay our expenses and our business, financial condition or results of operations could be materially and adversely impacted. 36 Table of Contents Shares of certain shareholders may be sold into the public market in the near future.
We sold $12.7 million of the guaranteed portion of our SBA loans for the year ended December 31, 2022.
We originated $11.4 million of SBA loans for the year ended December 31, 2023. We sold $4.1 million of the guaranteed portion of our SBA loans for the year ended December 31, 2023.
We could recognize losses on securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate. As of December 31, 2022, the fair value of our securities portfolio was approximately $262.4 million.
This would have a material adverse effect on our net interest income and our results of operations. We could recognize losses on securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate. As of December 31, 2023, the fair value of our securities portfolio was approximately $324.2 million.
We are based in California and at December 31, 2022, approximately 45.2% of the aggregate outstanding principal of our mortgage loans was secured by real estate located in California. In addition, the computer systems that operate our Internet websites and some of their back-up systems are located in California. Historically, California has been vulnerable to natural disasters.
We are based in California and at December 31, 2023, approximately 50.5% of the aggregate outstanding principal of our total loan portfolio was secured by real estate located in California or business in California. In addition, the computer systems that operate our Internet websites and some of their back-up systems are located in California.
In addition, our ten largest depositor relationships accounted for approximately 13.8% of our deposits at December 31, 2022. Our largest depositor relationship accounted for approximately 2.6% of our deposits at December 31, 2022. These deposits can and do fluctuate substantially.
This amounted to $844.4 million, or approximately 26.6%, of the Bank’s total deposits as of December 31, 2023. In addition, our ten largest depositor relationships accounted for approximately 7.8% of our deposits at December 31, 2023. Our largest depositor relationship accounted for approximately 1.4% of our deposits at December 31, 2023. These deposits can and do fluctuate substantially.
The Company is a California state chartered bank with operations in California, Hawaii, Illinois, New York, New Jersey, and Nevada. We have no overseas operations, including in China and the Far East.
The Bank is a California state chartered bank with operations in California, Hawaii, Illinois, New York, New Jersey, and Nevada. We have no overseas operations, including in China and the Far East. Risks Related to Our Deposits Our deposit portfolio includes significant concentrations and a large percentage of our deposits are attributable to a relatively small number of clients.
If short-term interest rates remain constant but longer term interest rates fall, we could experience net interest margin compression as our interest earning assets would continue to reprice downward while our interest-bearing liability rates could fail to decline in tandem. This would have a material adverse effect on our net interest income and our results of operations.
If debt securities in an unrealized loss position are sold, such losses become realized and will reduce our regulatory capital ratios. If short-term interest rates remain constant but longer-term interest rates fall, we could experience net interest margin compression as our interest earning assets would continue to reprice downward while our interest-bearing liability rates could fail to decline in tandem.
Further, the criteria for our loans to be purchased by other banks may change from time to time, which could result in a lower volume of corresponding loan originations. Mortgage production historically, including refinancing activity, declines in rising interest rate environments such as the current environment in which we have experienced increasing rates over the last year.
Further, the criteria for our loans to be purchased by other banks may change from time to time, which could result in a lower volume of corresponding loan originations.
In addition, concerns about the performance of international economies, especially in Europe and emerging markets, and economic conditions in Asia, particularly the economies of China and Taiwan, can impact the economy and financial markets here in the United States.
In addition, concerns about the performance of international economies, especially in Europe and emerging markets, and economic conditions in Asia, particularly the economies of China and Taiwan, can impact the economy and financial markets in the U.S. If the national, regional and local economies experience worsening economic conditions, including high levels of unemployment, our growth and profitability could be constrained.
Risks Related to Our Loans Because a significant portion of our loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses.
Changes to U.S. immigration policies that restrain the flow of immigrants may inhibit our ability to meet our goals and budgets for non-qualified SFR mortgage loans and deposits, which may adversely affect our net interest income and net income. 28 Table of Contents Risks Related to Our Loans Because a significant portion of our loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses.
Shares of certain shareholders may be sold into the public market in the near future. This could cause the market price of our common stock to decline.
This could cause the market price of our common stock to decline.
These estimates may be inaccurate, and we may be exposed to significant losses on loans for these projects.
Real estate construction loans are based upon estimates of costs and values associated with the complete project. These estimates may be inaccurate, and we may be exposed to significant losses on loans for these projects.
In the course of this expansion, we will encounter significant risks and uncertainties that could have a material adverse effect on our operations.
We also currently have operations in Las Vegas, Nevada and Honolulu, Hawaii, including operating a branch office, and would consider strategic opportunities for additional branch expansion. In the course of any expansion, we may encounter significant risks and uncertainties that could have a material adverse effect on our operations.
We may be limited in our ability to attract Asian-American clients to the extent the U.S. adopts restrictive domestic immigration laws.
A significant portion of our business is based on successfully attracting and retaining Asian-American immigrants as clients for both our non-qualified residential mortgage loans and deposits. We may be limited in our ability to attract Asian-American clients to the extent the U.S. adopts restrictive domestic immigration laws.
The non-guaranteed portion of SBA loans that we retain on our balance sheet as well as the guaranteed portion of SBA loans that we sell could expose us to various credit and default risks. We originated $29.7 million of SBA loans for the year ended December 31, 2022.
Mortgage production historically, including refinancing activity, declines in rising interest rate environments such as the current environment in which we have experienced increasing rates over the last year. 29 Table of Contents The non-guaranteed portion of SBA loans that we retain on our balance sheet as well as the guaranteed portion of SBA loans that we sell could expose us to various credit and default risks.
As of December 31, 2022, our nonperforming loans (which consist of nonaccrual loans and loans modified under troubled debt restructurings) totaled $23.5 million (1) , or 0.71% (1) , of our held for investment (HFI) loan portfolio, and our nonperforming assets (which include nonperforming loans plus OREO) totaled $24.1 (1) million, or 0.61% (1) , of total assets.
As of December 31, 2023, our nonperforming loans (which consist of nonaccrual loans and modified loans) totaled $31.6 million, or 1.04%, of our held for investment (HFI) loan portfolio, and our nonperforming assets totaled $31.6 million, or 0.79%, of total assets. In addition, we had $16.8 million in accruing loans that were 30-89 days delinquent as of December 31, 2023.
At December 31, 2022, 135 clients maintained balances (aggregating all related accounts, including multiple business entities and personal funds of business owners) in excess of $2.0 million. This amounted to $1.3 billion or approximately 43.5% of the Bank’s total deposits as of December 31, 2022.
As a commercial bank, we provide services to a number of clients whose deposit levels vary considerably and have a significant amount of seasonality. At December 31, 2023, 148 clients maintained balances (aggregating all related accounts, including multiple business entities and personal funds of business owners) in excess of $2.0 million per client.
The continuing COVID-19 pandemic could adversely affect our business and our customers, counterparties, employees, and third-party service providers.
Health crises have in the past, and could in the future, materially and adversely affect our business and our customers, counterparties, employees, and third-party service providers. Pandemics, epidemics, or other health crises, including COVID-19, have had and could have repercussions that could impact household, business, economic, and market conditions.
Additionally, our operations have been impacted by the need to close certain offices and limit how customers conduct business through our branch network.
Additionally, our operations may be impacted by the need to close certain offices and limit how customers conduct business through our branch network. Pandemics, epidemics, or other health crises could impact our business, capital, liquidity, financial position, results of operations, and business prospects due to the potential effect on our customers, employees, and third-party service providers.
The extent of the continuing impact of COVID-19 and any future outbreaks or other public health crises on our business, results of operations and financial condition will depend on future developments, which are highly uncertain and difficult to predict. We are subject to liquidity risk, which could adversely affect our financial condition and results of operations.
In addition, health crises can lead to lingering impacts on economies and markets, for example, the unprecedented extent of economic stimulus during the COVID-19 pandemic that caused and/or exacerbated inflationary pressures. We are subject to liquidity risk, which could adversely affect our financial condition and results of operations. Effective liquidity management is essential for the operation of our business.
Removed
If debt securities in an unrealized loss position are sold, such losses become realized and will reduce our regulatory capital ratios.
Added
Military conflicts include military actions between Russia and Ukraine, Israel and Hamas, overall tension and conflict in the Middle East, and terrorism. Geopolitical risk is generally rising, with shipping incidents in the Red Sea causing losses and disruption to commercial shipping routes. In addition, trade tensions between the U.S. and China, the two largest global economies, increases economic uncertainty.
Removed
For example, at December 31, 2022, our total shareholders’ equity was $17.9 million lower than at December 31, 2021, largely due to a decline in the estimated fair value of our available-for-sale securities portfolio during 2022.
Added
W hile customer confidence in the banking system has improved considerably since the first half of 2023, risk related to disintermediation and uninsured deposits remain, and could continue to have a material effect on the Company’s operations and/or stock price.
Removed
If the national, regional and local economies experience worsening economic conditions, including high levels of unemployment, our growth and profitability could be constrained.
Added
Several high-profile bank failures in the first half of 2023 generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks. The industry has stabilized since these failures and the customer confidence in the safety and soundness of smaller regional banks has improved considerably.
Removed
Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control, are difficult to predict and could have a material adverse effect on our business, financial position, results of operations and growth prospects.
Added
Nevertheless, risks remain that customers may choose to invest in higher yielding and higher-rated short-term fixed income securities or maintain deposits with larger more systematically important financial institutions, all of which could materially and adversely impact our liquidity, loan funding capacity, net interest margin, capital, and results of operations.
Removed
Unprecedented financial and monetary steps by U.S. governmental bodies in response to the COVID-19 pandemic in 2020 and 2021, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the American Rescue Plan Act, injected nearly $5 trillion of financial relief and economic stimulus into the U.S. economy.
Added
In addition, the banking operating environments and public trading prices of banking institutions can be highly correlated, in particular during times of stress, which could adversely impact the trading prices of our common stock and potentially, our results of operations. Separately, banking regulators have announced a more stringent supervisory posture after the bank failures.
Removed
In addition, the Federal Reserve reduced the target range for the federal funds rate to 0 to 25 basis points from March 2020 through 2021, purchased Treasury securities, and took other actions to support the flow of credit to households and businesses.
Added
These events have caused and could in the future, cause us to implement measures to combat such health crises, including restrictions impacting individual, including our current and potential investors and customers, and the manner in which business continues to operate.
Removed
Recent and future bank failures may adversely affect the national, regional, and local business environment, results of operations, and capital. Recent and future bank failures may have a profound impact on the national, regional, and local business environment in which the Bank operates.
Added
During 2023, noninterest-bearing deposits decreased by $259.1 million due to the Bank's customers pursuing higher rates offered by the Bank's time deposits, interest-bearing non-maturity deposits increased by $17.4 million, and time deposits increased by $438.8 million.
Removed
These impacts can range from business disruptions to adversely affecting their customers and customers withdrawing their deposits from the Bank.
Added
We evaluated our goodwill and core deposit intangibles in the fourth quarter of 2022 and the third and fourth quarter of 2023. The impairment evaluation did not identify an impairment of goodwill or the core deposit intangibles in those quarters of 2022 and 2023.
Removed
Management currently does expect that one result of the events in connection with the closure of Silicon Valley Bank in California and Signature Bank in New York by regulators is that FDIC assessments will more likely than not increase as a cost of doing business to the Bank.
Added
The Bank is operating under enhanced regulatory supervision that could materially and adversely affect our business.

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Item 2. Properties

Properties — owned and leased real estate

6 edited+0 added−1 removed1 unchanged
Biggest changeExcept for our Monterey Park, California branch, our Buena Park, California operations center, our Eastern region loan center, Bensonhurst, New York branch and two branches in Chicago, all of our offices are leased. We believe that the leases to which we are subject are generally on terms consistent with prevailing market terms.
Biggest changeOur operations center is located at 7025 Orangethorpe Avenue, Buena Park, California 90621 and houses the operations, IT, marketing and finance teams. We lease 20 locations and own six locations for our operations. We believe that the leases to which we are subject are generally on terms consistent with prevailing market terms.
The headquarters is in downtown Los Angeles and houses our risk management unit, including audit, compliance and BSA groups, our single-family residential mortgage group, SBA lending, commercial lending, credit administration, human resources and administrative group. Our administrative center is located at 123 East Valley Blvd., San Gabriel, California and houses our branch administration and marketing.
The headquarters is in downtown Los Angeles and houses our risk management unit, including audit, compliance and BSA groups, our single-family residential mortgage group, SBA lending, commercial lending, credit administration, human resources and administrative group. Our administrative center is located at 1055 Wilshire Blvd., Suite 1200, Los Angeles, California 91776 and houses our branch administration.
We operate two branches in Ventura County, California, in Westlake Village and in Oxnard. We operate one branch in the Las Vegas, Nevada. We have two branches in Chicago, Illinois. We also have one branch in Honolulu, Hawaii, which we acquired from BOTO in January 2022.
We operate two branches in Ventura County, California, in Westlake Village and in Oxnard. We operate one branch in Las Vegas, Nevada. We also have one branch in Honolulu, Hawaii.
Our Eastern region loan center, located at 4401 8th Avenue, Brooklyn, New York, houses our Eastern region mortgage unit, FNMA servicing, commercial lending and credit administration areas. In November 2020, we opened a new branch in Edison, New Jersey. 29 Our headquarters office is located at 1055 Wilshire Blvd. Suite 1200, Los Angeles, California 90017.
Our Eastern Region loan center, located at 4101 8th Avenue, Brooklyn, New York, houses our Eastern Region mortgage unit, FNMA and Freddie Mac servicing, commercial lending and credit administration areas. 38 Table of Contents Our headquarters office is located at 1055 Wilshire Blvd. Suite 1200, Los Angeles, California 90017.
None of the leases are with our directors, officers, beneficial owners of more than 5% of our voting securities or any affiliates of the foregoing.
None of the leases are with our directors, officers, beneficial owners of more than 5% of our voting securities or any affiliates of the foregoing. The owned locations include our Monterey Park, California branch, our Buena Park, California operations center, our Eastern region loan center, our Bensonhurst, New York branch and two branches in Chicago.
The Company has seven branches in the New York City metropolitan area located in Manhattan, Brooklyn, and Queens. We opened our Bensonhurst branch on 86th Street in Brooklyn, New York on May 2, 2022.
We have ten branches in the Eastern Region, with seven branches in the New York City metropolitan area located in Manhattan, Brooklyn, and Queens, two branches in Chicago, Illinois and one branch in New Jersey.
Removed
We plan to close the 2 nd floor of our San Gabriel location at the expiration of the lease. Our operations center is located at 7025 Orangethorpe Avenue, Buena Park, California and houses the operations, IT and finance groups.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+1 added−2 removed2 unchanged
Biggest changeThe outcome of litigation and other legal and regulatory matters is inherently uncertain, however, and it is possible that one or more of the legal or regulatory matters currently pending or threatened could have a material adverse effect on our liquidity, consolidated financial position, and/or results of operations.
Biggest changeThe Company accrues reserves for outstanding lawsuits, claims and proceedings when a loss contingency is probable and can be reasonably estimated in accordance with FASB guidance ASC 450, “Contingencies." The outcome of litigation and other legal and regulatory matters is inherently uncertain, however, and it is possible that one or more of the legal or regulatory matters currently pending or threatened could have a material adverse effect on our liquidity, consolidated financial position, and/or results of operations.
Removed
The Company accrues reserves for outstanding lawsuits, claims and proceedings when a loss contingency is probable and can be reasonably estimated in accordance with FASB guidance ASC 450, “Contingencies".
Added
As of December 31, 2023, the Company had a litigation reserve of $100,000 for a potential claim from a former director of the Company.
Removed
As of December 31, 2022, the Company does not have any litigation reserves. Item 4. Mine Safety Disclosures. Not applicable. 30 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

10 edited+1 added−1 removed5 unchanged
Biggest changeAs of December 31, 2022, the Company may repurchase up to 433,124 shares under the repurchase program. The Company repurchased 48,896 shares of its outstanding common stock during the fourth quarter of 2022.
Biggest changeWe repurchased 396,374 shares for $6.8 million of our outstanding common stock during the fourth quarter of 2023 and as of December 31, 2023, there are 36,750 shares remaining under an authorized repurchase program.
Under the terms of our subordinated notes issued in November 2018 and March 2021, and the related subordinated note purchase agreements, we are not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the subordinated notes.
Under the terms of our subordinated notes issued in March 2021, and the related subordinated note purchase agreements, we are not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the subordinated notes.
The graph compares the Company's common stock with the Russell 2000 Index and the SNL Bank $1B-$5B Index. The graph assumes an investment of $100.00 in the Company's common stock and each index on December 29, 2017 and reinvestment of all quarterly dividends.
The graph compares the Company's common stock with the Russell 2000 Index and the SNL Bank $1B-$5B Index. The graph assumes an investment of $100.00 in the Company's common stock and each index on December 31, 2018 and reinvestment of all quarterly dividends.
Measurement points are December 29, 2017 and the last trading day of each year-end through December 31, 2022. There is no assurance that the Company's common stock performance will continue in the future with the same or similar results as shown in the graph.
Measurement points are December 31, 2018 and the last trading day of each year-end through December 31, 2023. There is no assurance that the Company's common stock performance will continue in the future with the same or similar results as shown in the graph.
The Bank is also subject to various legal, regulatory and other restrictions on its ability to pay dividends and make other distributions and payments to us, as further discussed in “Part I, Item I – Business – Supervision and Regulation—The Bank—Dividend Payments”. 31 Stock Performance Graph The following graph compares the cumulative total shareholder return on the Company's common stock from December 29, 2017 through December 31, 2022.
The Bank is also subject to various legal, regulatory and other restrictions on its ability to pay dividends and make other distributions and payments to us, as further discussed in “Part I, Item I – Business – Supervision and Regulation—The Bank—Dividend Payments.” 40 Table of Contents Stock Performance Graph The following graph compares the cumulative total shareholder return on the Company's common stock from December 31, 2018 through December 31, 2023.
In addition, because we are a holding company, we are dependent upon the payment of dividends by the Bank to us as our principal source of funds to pay dividends in the future, if any, and to make other payments.
Information on regulatory restrictions on our ability to pay dividends is set forth in “Part I, Item I – Business – Supervision and Regulation – The Company – Dividend Payments.” In addition, because we are a holding company, we are dependent upon the payment of dividends by the Bank to us as our principal source of funds to pay dividends in the future, if any, and to make other payments.
Issuer Purchases of Equity Securities (a) (b) (c) (d) Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Maximum Number of Shares that May Yet Be Purchased Under the Plan October 1, 2022 to October 31, 2022 48,896 $ 20.77 48,896 433,124 November 1, 2022 to November 30, 2022 — $ — — 433,124 December 1, 2022 to December 31, 2022 — $ — — 433,124 Total 48,896 $ — — 433,124 32 Item 6. [Reserved.]
Issuer Purchases of Equity Securities (a) (b) (c) (d) Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Maximum Number of Shares that May Yet Be Purchased Under the Plan October 1, 2023 to October 31, 2023 — $ — — 433,124 November 1, 2023 to November 30, 2023 118,596 $ 14.82 118,596 314,528 December 1, 2023 to December 31, 2023 277,778 $ 17.96 277,778 36,750 Total 396,374 $ 17.02 396,374 36,750 41 Table of Contents Item 6. [Reserved.]
Shareholders As of March 29, 2023, the Company had approximately 2,885 common stock shareholders of record, and the closing price of the Company’s common stock was $15.89 per share.
Shareholders As of March 8, 2024, the Company had approximately 1,730 common stock shareholders of record, and the closing price of the Company’s common stock was $17.67 per share.
Period Ending Index 12/29/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 RBB Bancorp 100.00 65.01 79.95 59.41 103.59 84.43 Russell 2000 Index 100.00 88.99 111.70 134.00 153.85 122.41 KBW Nasdaq Regional Banking Index 100.00 82.50 102.15 93.25 127.42 118.59 Source: S&P Global Market Intelligence © 2023 Unregistered Sales and Issuer Purchases of Equity Securities On April 22, 2021, March 16, 2022 and June 14, 2022 the Board of Directors approved a stock repurchase program to buy back up to an aggregate of 500,000 shares, 500,000 shares and 500,000 shares, respectively, of our common stock.
Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 RBB Bancorp 100.00 122.98 91.38 159.34 129.87 124.13 Russell 2000 Index 100.00 125.53 150.58 172.90 137.56 160.85 KBW Nasdaq Regional Banking Index 100.00 123.81 113.03 154.45 143.75 143.17 Source: S&P Global Market Intelligence © 2024 Unregistered Sales and Issuer Purchases of Equity Securities On April 22, 2021, March 16, 2022 and June 14, 2022 the Board of Directors approved a stock repurchase program to buy back up to an aggregate of 500,000 shares of Company common stock for each authorization date.
The terms of the debentures underlying our Trust Preferred Securities also prohibit us from paying dividends on our capital stock if we are in deferral of interest payments on those debentures. As a bank holding company, our ability to pay dividends is affected by the policies and enforcement powers of the Federal Reserve.
The terms of the debentures underlying our Trust Preferred Securities also prohibit us from paying dividends on our capital stock if we are in deferral of interest payments on those debentures. There have been no events of default under the terms of the subordinated notes as of December 31, 2023.
Removed
Information on regulatory restrictions on our ability to pay dividends is set forth in “Part I, Item I – Business – Supervision and Regulation – The Company – Dividend Payments”.
Added
As a bank holding company, our ability to pay dividends is affected by the policies and enforcement powers of the Federal Reserve.

Item 7. Management's Discussion & Analysis

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

167 edited+75 added−107 removed51 unchanged
Biggest changeAt December 31, 2022, total loans held for investment, net of ACL, totaled $3.3 billion. 50 The following table presents the balance and associated percentage of each major category in our loan portfolio at December 31 for the past five years: As of December 31, 2022 2021 2020 2019 2018 (dollars in thousands) $ % $ % $ % $ % $ % Loans: (1) Commercial and industrial $ 201,223 6.0 % $ 268,709 9.2 % $ 290,139 10.7 % $ 274,586 12.5 % $ 304,084 14.2 % SBA 61,411 1.8 % 76,136 2.6 % 97,821 3.6 % 74,985 3.4 % 84,500 3.9 % Construction and land development 276,876 8.3 % 303,144 10.3 % 186,723 6.9 % 96,020 4.4 % 113,235 5.3 % Commercial real estate (2) 1,312,132 39.3 % 1,247,999 42.6 % 1,003,637 37.1 % 793,268 36.1 % 758,721 35.4 % Single-family residential mortgages 1,464,108 43.9 % 1,004,576 34.3 % 1,124,357 41.5 % 957,254 43.6 % 881,249 41.1 % Other loans 20,699 0.7 % 30,786 1.0 % 4,089 0.2 % 821 0.0 % 226 0.1 % Total loans 3,336,449 100.0 % 2,931,350 100.0 % 2,706,766 100.0 % 2,196,934 100.0 % 2,142,015 100.0 % Allowance for credit losses (41,076 ) (32,912 ) (29,337 ) (18,816 ) (17,577 ) Total loans, net $ 3,295,373 $ 2,898,438 $ 2,677,429 $ 2,178,118 $ 2,124,438 (1) Net of discounts and deferred fees and costs (2) Includes non-farm and non-residential real estate loans, multifamily residential and 1-4 family SFR loans originated for a business purpose Net loans held for investment increased $396.9 million, or 13.7%, to $3.3 billion at December 31, 2022 as compared to $2.9 billion at December 31, 2021.
Biggest changeSFR mortgage loans represent approximately 50% of our total loans as of December 31, 2023, up from approximately 44% as of the end of 2022. 55 Table of Contents The following table presents the balance and associated percentage of each major category in our loan portfolio at December 31 for the past five years: As of December 31, 2023 2022 2021 2020 2019 (dollars in thousands) $ % $ % $ % $ % $ % Loans:(1) Construction and land development $ 181,469 6.0 % $ 276,876 8.3 % $ 303,144 10.3 % $ 186,723 6.9 % $ 96,020 4.4 % Commercial real estate (2) 1,167,857 38.5 % 1,312,132 39.3 % 1,247,999 42.6 % 1,003,637 37.1 % 793,268 36.1 % Single-family residential mortgages 1,487,796 49.1 % 1,464,108 43.9 % 1,004,576 34.3 % 1,124,357 41.5 % 957,254 43.6 % Commercial and industrial 130,096 4.3 % 201,223 6.0 % 268,709 9.2 % 290,139 10.7 % 274,586 12.5 % SBA 52,074 1.7 % 61,411 1.8 % 76,136 2.6 % 97,821 3.6 % 74,985 3.4 % Other loans 12,569 0.4 % 20,699 0.7 % 30,786 1.03 % 4,089 0.2 % 821 0.0 % Total loans 3,031,861 100.0 % 3,336,449 100.0 % 2,931,350 100.0 % 2,706,766 100.0 % 2,196,934 100.0 % Allowance for loan losses (41,903 ) (41,076 ) (32,912 ) (29,337 ) (18,816 ) Total loans, net $ 2,989,958 $ 3,295,373 $ 2,898,438 $ 2,677,429 $ 2,178,118 (1) Net of discounts on acquired loans and deferred fees and costs (2) Includes non-farm and non-residential real estate loans, multifamily residential and 1-4 family SFR loans originated for a business purpose The locations of loans in the Company's total loan portfolio as of December 31, 2023 were as follows: As of December 31, Construction and land development Commercial real estate Single-family residential mortgages Commercial and Industrial SBA Other Total loans, net (dollars in thousands) $ $ $ $ $ $ $ % Loans: California $ 115,943 $ 558,771 $ 702,779 $ 117,788 $ 32,755 $ 1,749 $ 1,529,785 50.5 % Hawaii — 2,057 4,263 841 — 11 7,172 0.2 % Illinois 229 41,745 51,192 1,309 — 107 94,582 3.1 % New Jersey — 19,797 24,184 470 — 196 44,647 1.5 % Nevada — 64,136 21,522 912 2,820 122 89,512 3.0 % New York 53,625 171,695 676,509 830 3,287 4,067 910,013 30.0 % Other 11,672 309,656 7,347 7,946 13,212 6,317 356,150 11.7 % Total loans, net $ 181,469 $ 1,167,857 $ 1,487,796 $ 130,096 $ 52,074 $ 12,569 $ 3,031,861 100.0 % The majority of our loan portfolio is based on collateral or businesses in California and New York, which represent 81% of our loan portfolio.
The preparation of these audited consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.
The preparation of these audited consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.
CRE loans include owner-occupied and non-occupied commercial real estate, multi-family residential and SFR loans originated for a business purpose.
Commercial Real Estate Loans. CRE loans include owner-occupied and non-occupied commercial real estate, multi-family residential and SFR loans originated for a business purpose.
Except for the multi-family residential loan portfolio, the interest rate for the majority of these loans are Prime based and have a maturity of five years or less except for the SFR loans originated for a business purpose which may have a maturity of one year.
Except for the multi-family residential loan portfolio, the interest rate for the majority of these loans are Prime rate based and have a maturity of five years or less except for the SFR loans originated for a business purpose which may have a maturity of one year.
As is customary in the banking industry, loans that meet underwriting criteria can be renewed by mutual agreement between us and the borrower. Because we are unable to estimate the extent to which our borrowers will renew their loans, the table is based on contractual maturities.
As is customary in the banking industry, loans that meet underwriting criteria can be renewed by mutual agreement between the borrower and us. Because we are unable to estimate the extent to which our borrowers will renew their loans, the table is based on contractual maturities.
(2) Includes non-farm and non-residential real estate loans, multi-family residential and SFR loans originated for a business purpose. Allowance for credit losses. The Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination.
(2) Includes non-farm and non-residential real estate loans, multi-family residential and SFR loans originated for a business purpose. Allowance for Credit Losses - Loans The Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination.
Tangible Common Equity to Tangible Assets Ratio and Tangible Book Value Per Share. The tangible common equity to tangible assets ratio and tangible book value per share are non-GAAP measures generally used by financial analysts and investment bankers to evaluate capital adequacy.
The tangible common equity to tangible assets ratio and tangible book value per share are non-GAAP measures generally used by financial analysts and investment bankers to evaluate capital adequacy.
The ACL is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated balance sheet. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts.
The ACL for loans is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated balance sheet. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts.
For SFR loans sold to FNMA and to investment funds we provide limited representations and warranties and with a repurchase and premium refund for loans that become delinquent in the first 90-days or a premium refund if paid-off in the first 90-days with respect to all loans sold.
For SFR loans sold to FNMA, FHLMC and to investment funds we provide limited representations and warranties and with a repurchase and premium refund for loans that become delinquent in the first 90-days or a premium refund if paid-off in the first 90-days with respect to all loans sold.
Our C&D loans are comprised of residential construction, commercial construction and land acquisition and development construction. Interest reserves are generally established on real estate construction loans. These loans are typically Prime based and have maturities of less than 18 months.
Our C&D loans are comprised of residential construction, commercial construction and land acquisition and development construction. Interest reserves are generally established on real estate construction loans. These loans are typically Prime rate based and have maturities of less than 18 months.
The subordinated notes are considered Tier 2 capital at the Company. The Company used the net proceeds from these subordinated debt offerings for general corporate purposes, including providing capital to the Bank and maintaining adequate liquidity at Bancorp.
The 2031 Subordinated Notes are considered Tier 2 capital at the Company. The Company used the net proceeds from these subordinated debt offerings for general corporate purposes, including providing capital to the Bank and maintaining adequate liquidity at Bancorp.
These loans generally require more frequent loan officer contact and receipt of financial data to closely monitor borrower performance. Potential problem loans are managed and monitored regularly through a number of processes, procedures and committees, including oversight by a loan administration committee comprised of executive officers and other members of the Bank’s senior management. Cash and Cash Equivalents.
These loans generally require more frequent loan officer contact and receipt of financial data to closely monitor borrower performance. Potential problem loans are managed and monitored regularly through a number of processes, procedures and committees, including oversight by a loan administration committee comprised of executive officers and other members of the Bank’s senior management.
If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation reserve would be reduced, but not more than the amount of the current existing reserve for that security. Our significant accounting policies are described in greater detail in our 2022 audited financial statements included in Item 8.
If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation reserve would be reduced, but not more than the amount of the current existing reserve for that security. Our significant accounting policies are described in greater detail in our 2023 audited financial statements included in Item 8.
See “Analysis of Financial Condition— Capital Resources and Liquidity Management” and Item 7A “ Quantitative and Qualitative Disclosures about Market Risk” included herein. The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the years 2022, 2021 and 2020.
See “Analysis of Financial Condition— Capital Resources and Liquidity Management” and Item 7A “ Quantitative and Qualitative Disclosures about Market Risk” included herein. The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the years 2023, 2022 and 2021.
The ACL is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated balance sheet. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts.
The ACL is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated balance sheets. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts.
We calculate: (i) tangible common equity as total shareholders’ equity less goodwill and other intangible assets (excluding mortgage servicing rights); (ii) tangible assets as total assets less goodwill and other intangible assets; and (iii) tangible book value per share as tangible common equity divided by shares of common stock outstanding. 64 Our management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions.
We calculate: (i) tangible common equity as total shareholders’ equity less goodwill and other intangible assets (excluding mortgage servicing rights); (ii) tangible assets as total assets less goodwill and other intangible assets; and (iii) tangible book value per share as tangible common equity divided by shares of common stock outstanding. 69 Table of Contents Our management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions.
Net interest margin and net interest spread are included on a tax equivalent (“TE”) basis by adjusting interest income utilizing the federal statutory tax rate of 21% for 2022, 2021 and 2020. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions.
Net interest margin and net interest spread are included on a tax equivalent (“TE”) basis by adjusting interest income utilizing the federal statutory tax rate of 21% for 2023, 2022 and 2021. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions.
Financial Statements and Supplementary Data of this Annual Report, specifically in “Note 2 – Summary of Significant Accounting Policies,” which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Financial Statements and Supplementary Data of this Annual Report, specifically in “Note 2 – Basis of Presentation and Summary of Significant Accounting Policies,” which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Allowance for Credit Losses on Loans Held for Investment The Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination.
Allowance for Credit Losses (“ ACL” ) on Loans Held for Investment The Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination.
(2) Tangible book value per share, return on average tangible common equity, and tangible common equity to tangible assets are non-GAAP financial measures. See "Non-GAAP Financial Measures" for a reconciliation of these measures to their most comparable GAAP measures.
(2) Tangible book value per share, return on average tangible common equity, and tangible common equity to tangible assets are non-GAAP financial measures. See “Non-GAAP Financial Measures” for a reconciliation of these measures to their most comparable GAAP measures.
In addition to deposits, we have used long- and short-term borrowings, such as federal funds purchased and FHLB long-and short-term advances, as a source of funds to meet the daily liquidity needs of our customers and fund growth in earning assets. We had $70.0 million and no FHLB short-term advances at December 31, 2022 and at December 31, 2021, respectively.
In addition to deposits, we have used long- and short-term borrowings, such as federal funds purchased and FHLB long-and short-term advances, as a source of funds to meet the daily liquidity needs of our customers and fund growth in earning assets. We had no FHLB short-term advances at December 31, 2023 and $70.0 million at December 31, 2022.
The loans sold to other banks are sold with no representation or warranties and with a replacement feature for the first 90-days if the loan pays off early.
The loans sold to other banks are sold with no representations or warranties and with a replacement feature for the first 90-days if the loan pays off early.
If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities AFS that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.
If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors.
The interest rate on these loans are generally Wall Street Journal Prime rate based. 51 Our trade finance unit supplies financial needs to many of our core customers including trade financing needs for many of our commercial and industrial loan customers. The unit provides international letters of credit, SWIFT, export advice, trade finance discounts and foreign exchange.
The interest rate on these loans are generally Wall Street Journal Prime rate based. 56 Table of Contents Our trade finance unit supplies financial needs to many of our core customers including trade financing needs for many of our commercial and industrial loan customers. The unit provides international letters of credit, SWIFT, export advice, trade finance discounts and foreign exchange.
Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable. 57 In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a modified loan.
Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable. 62 Table of Contents In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a modified loan.
The following table sets forth the maturity distribution of time deposits in amounts of more than $250,000 as of December 31, 2022.
The following table sets forth the maturity distribution of time deposits in amounts of more than $250,000 as of December 31, 2023.
The Company performs goodwill impairment test in accordance with ASC 350 “Intangibles- Goodwill and Other.” Fair value of goodwill is based on selection and weighting of valuations methods using management assumptions not limited to discounted cash flow, diversification, market position, customer dependence, access to capital markets, financial risk, growth, and earnings trends.
The Company performs goodwill impairment tests in accordance with ASC 350 “Intangibles- Goodwill and Other.” Fair value of goodwill is based on selection and weighting of valuation methods using management assumptions not limited to discounted cash flow (“DCF”), diversification, market position, customer dependence, access to capital markets, financial risk, growth, and earnings trends.
Initial setup or an increase to deferred tax asset valuation allowance would be charged to income tax expense that would negatively impacted our earnings. Our significant accounting policies are described in greater detail in our 2022 audited financial statements included in Item 8.
Initial setup or an increase to deferred tax asset valuation allowance would be charged to income tax expense that would negatively impact our earnings. Our significant accounting policies are described in greater detail in our 2023 audited financial statements included in Item 8.
The measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. The Company has elected to utilize a discounted cash flow (“DCF”) approach for all segments except consumer loans and warehouse mortgage loans, for these a remaining life approach was elected.
The measurement of the ACL for loans is performed by collectively evaluating loans with similar risk characteristics. The Company has elected to utilize a DCF approach for all segments except consumer loans and warehouse mortgage loans, for these a remaining life approach was elected.
Other sources of liquidity include the sale of loans, the ability to acquire additional national market noncore deposits, the issuance of additional collateralized borrowings such as FHLB advances, the issuance of debt securities, additional borrowings through the Federal Reserve’s discount window and the issuance of preferred or common securities.
Other sources of liquidity include the sale of loans, the ability to acquire additional national market noncore deposits, the issuance of additional collateralized borrowings through FHLB advances or the Federal Reserve’s discount window, and the ability to access the capital markets through the issuance of debt securities, preferred securities or common securities.
Substantially all of our C&I loans are collateralized by business assets or by real estate. We originate commercial and industrial lines of credit, term loans, mortgage warehouse lines and international trade discounts which totaled $201.2 million as of December 31, 2022 and $268.7 million at December 31, 2021.
Substantially all of our C&I loans are collateralized by business assets or by real estate. We originate commercial and industrial lines of credit, term loans, mortgage warehouse lines and international trade discounts, which totaled $130.1 million as of December 31, 2023 and $201.2 million at December 31, 2022.
The following table sets forth information on our total FHLB advances during the periods presented: Year Ended December 31, (dollars in thousands) 2022 2021 2020 Outstanding at period-end $ 220,000 $ 150,000 $ 150,000 Average amount outstanding 192,438 150,000 129,071 Maximum amount outstanding at any month-end 270,000 150,000 190,000 Weighted average interest rate: During period 1.49 % 1.18 % 1.15 % End of period 2.28 % 1.18 % 1.18 % Long-Term Debt .
The following table sets forth information on our total FHLB advances during the periods presented: Year Ended December 31, (dollars in thousands) 2023 2022 2021 Outstanding at period-end $ 150,000 $ 220,000 $ 150,000 Average amount outstanding 172,219 192,438 150,000 Maximum amount outstanding at any month-end 220,000 270,000 150,000 Weighted average interest rate: During period 1.67 % 1.49 % 1.18 % End of period 1.18 % 2.28 % 1.18 % Long-Term Debt .
For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis.
For AFS debt securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis.
Financial Statements and Supplementary Data of this Annual Report, specifically in “Note 2 – Summary of Significant Accounting Policies,” which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. OVERVIEW For the year 2022, we reported net earnings of $64.3 million, compared with $56.9 million for the year 2021.
Financial Statements and Supplementary Data of this Annual Report, specifically in “Note 2 – Basis of Presentation and Summary of Significant Accounting Policies,” which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. OVERVIEW For the year 2023, we reported net earnings of $42.5 million, compared with $64.3 million for the year 2022.
Specific goals of our investment portfolio are as follows: ● provide a ready source of balance sheet liquidity, ensuring adequate availability of funds to meet fluctuations in loan demand, deposit balances and other changes in balance sheet volumes and composition; ● serve as a means for diversification of our assets with respect to credit quality, maturity and other attributes; and ● serve as a tool for modifying our interest rate risk profile pursuant to our established policies.
Specific goals of our investment portfolio include: ● providing a ready source of balance sheet liquidity to ensure adequate availability of funds to meet fluctuations in loan demand, deposit balances and other changes in balance sheet volumes and composition; ● serving as a means for diversification of our assets with respect to credit quality, maturity and other attributes; and ● serving as a tool for modifying our interest rate risk profile pursuant to our established policies.
Approximately 19.0% of the securities in the total investment portfolio at December 31, 2022, are issued by the U.S. government or U.S. government-sponsored agencies and enterprises, which have the implied guarantee of payment of principal and interest.
Approximately 17.3% of the securities in the total investment portfolio at December 31, 2023, are issued by the U.S. government or U.S. government-sponsored agencies and enterprises, which have the implied guarantee of payment of principal and interest.
The table below also summarizes the capital requirements applicable to us and the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as our and the Bank’s capital ratios as of December 31, 2022 and December 31, 2021.
The table below also summarizes the capital requirements applicable to Bancorp and the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as Bancorp's and the Bank’s capital ratios as of December 31, 2023 and December 31, 2022.
We also have what we believe to be a comprehensive methodology to monitor these credit quality standards, including a risk classification system that identifies potential problem loans based on risk characteristics by loan type as well as the early identification of deterioration at the individual loan level. Discounts on Purchased Loans.
We also have what we believe to be a comprehensive methodology to monitor these credit quality standards, including a risk classification system that identifies potential problem loans based on risk characteristics by loan type as well as the early identification of deterioration at the individual loan level. 59 Table of Contents Analysis of the Allowance for Loan Losses.
The interest rate for multi-family residential loans are based on the 5 -y ear treasury, are 10 year maturity with a five year fixed rate period followed by a five year floating rate period, and have a declining prepayment penalty for the first five years. At December 31, 2022, approximately 14.5% of the CRE portfolio consisted of fixed-rate loans.
The multi-family residential loans generally have interest rates based on the 5 -y ear treasury, 10-year maturity with a five year fixed rate period followed by a five year floating rate period, and have a declining prepayment penalty over the first five years. At December 31, 2023, approximately 18% of the CRE portfolio consisted of fixed-rate loans.
As of December 31, 2022, no U.S. government agency bonds are callable. 48 The table below shows the Company’s investment securities’ amortized cost and fair value by maturity in the following maturity groupings as of December 31, 2022. The amortized cost and fair value of the investment securities portfolio are shown by expected maturity.
As of December 31, 2023, no U.S. government agency bonds are callable. 53 Table of Contents The table below shows the Company’s investment securities’ fair value and weighted average yields by maturity in the following maturity groupings as of December 31, 2023. The amortized cost and fair value of the investment securities portfolio are shown by expected maturity.
The Company did not have any loans past due 90 days or more but still accruing interest at any of the dates presented. The balances of nonperforming loans reflect the net investment in these assets.
Nonperforming loans include nonaccrual loans, loans past due 90 days or more and still accruing interest, and loans modified under troubled debt restructurings. The Company did not have any loans past due 90 days or more but still accruing interest at any of the dates presented. The balances of nonperforming loans reflect the net investment in these assets.
The Company uses both internal and external qualitative factors within the CECL model: lending policies, procedures, and strategies; changes in nature and volume of the portfolio; credit & lending personnel experience; changes in volume and trends in classified loans, delinquencies, and nonaccrual; concentration risk; collateral values; regulatory and business environment; loan review results; and economic conditions. 55 Individual loans considered to be uncollectible are charged off against the allowance.
The Company uses both internal and external qualitative factors within the CECL model including: lending policies, procedures, and strategies; changes in nature and volume of the portfolio; credit and lending personnel experience; changes in volume and trends in classified loans, delinquencies, and nonaccrual; concentration risk; collateral values; regulatory and business environment; loan review results; and economic conditions.
The following table allocates the ACL, or the allowance, by category: As of December 31, 2022 2021 2020 2019 2018 (dollars in thousands) $ % (1) $ % (1) $ % (1) $ % (1) $ % (1) Loans: Commercial and industrial $ 1,804 0.90 % $ 2,813 1.05 % $ 3,690 1.27 % $ 2,736 1.00 % $ 3,112 1.02 % SBA 621 1.01 % 980 1.29 % 927 0.95 % 852 1.14 % 1,027 1.22 % Construction and land development 2,638 0.95 % 4,150 1.37 % 2,473 1.32 % 1,268 1.32 % 1,500 1.32 % Commercial real estate (2) 17,657 1.35 % 16,603 1.33 % 13,718 1.37 % 7,668 0.97 % 6,449 0.85 % Single family residential mortgages 17,640 1.20 % 7,839 0.78 % 8,486 0.75 % 6,182 0.65 % 5,489 0.62 % Other 716 3.46 % 527 1.71 % 43 1.05 % 9 1.10 % — — Unallocated — — — — — — 101 — — — Allowance for credit losses $ 41,076 1.23 % $ 32,912 1.12 % $ 29,337 1.08 % $ 18,816 0.86 % $ 17,577 0.82 % (1) Represents the percentage of the allowance to total loans in the respective category.
The following table allocates the ALL, or the allowance, by category: As of December 31, 2023 2022 2021 2020 2019 (dollars in thousands) $ % (1) $ % (1) $ % (1) $ % (1) $ % (1) Loans: Construction and land development $ 1,219 0.67 % $ 2,638 0.95 % $ 4,150 1.37 % $ 2,473 1.32 % $ 1,268 1.32 % Commercial real estate (2) 17,826 1.53 % 17,657 1.35 % 16,603 1.33 % 13,718 1.37 % 7,668 0.97 % Single-family residential mortgages 20,117 1.35 % 17,640 1.20 % 7,839 0.78 % 8,486 0.75 % 6,182 0.65 % Commercial and industrial 1,348 1.04 % 1,804 0.90 % 2,813 1.05 % 3,690 1.27 % 2,736 1.00 % SBA 1,196 2.30 % 621 1.01 % 980 1.29 % 927 0.95 % 852 1.14 % Other 197 1.57 % 716 3.46 % 527 1.71 % 43 1.05 % 9 1.10 % Unallocated — — — — — — — — 101 — Allowance for loan losses $ 41,903 1.38 % $ 41,076 1.23 % $ 32,912 1.12 % $ 29,337 1.08 % $ 18,816 0.86 % (1) Represents the percentage of the allowance to total loans in the respective category.
Gains on sale of loans are comprised primarily of gains on sale of SFR mortgage loans and SBA loans. Gains on sale of loans totaled $1.9 million in 2022, compared to $10.0 million in 2021.
Gains on sale of loans are comprised primarily of gains on sale of SFR mortgage loans and SBA loans. Gains on sale of loans totaled $374,000 in 2023, compared to $1.9 million in 2022.
Results of Operations—Comparison of Results of Operations for the Years Ended December 31, 2022 to December 31, 2021 Net Interest Income/Average Balance Sheet In 2022, we generated fully-taxable equivalent net interest income of $149.7 million, an increase of $25.2 million, or 20.3%, from $124.4 million in 2021.
Results of Operations—Comparison of Results of Operations for the Years Ended December 31, 2023 to December 31, 2022 Net Interest Income/Average Balance Sheet In 2023, we generated fully-taxable equivalent net interest income of $119.4 million, a decrease of $30.3 million, or 20.2%, from $149.7 million in 2022.
This compares to a weighted-average yield of 1.03% at December 31, 2021 with a weighted-average life of 3.8 years. The weighted average life is the average number of years that each dollar of unpaid principal due remains outstanding.
This compares to a weighted-average yield of 2.55% at December 31, 2022 with a weighted-average life of 5.8 years. The weighted average life is the average number of years that each dollar of unpaid principal due remains outstanding.
As a condition of the sale, the buyer must have the loans audited for underwriting and compliance standards. SFR real estate loans held for investment increased $459.5 million, or 45.7%, to $1.5 billion as of December 31, 2022 as compared to $1.0 billion as of December 31, 2021.
As a condition of the sale, the buyer must have the loans audited for underwriting and compliance standards. SFR real estate loans held for investment increased $23.7 million, or 1.6%, to $1.49 billion as of December 31, 2023 as compared to $1.46 billion as of December 31, 2022.
There were no loans held for sale as of December 31, 2022 compared to $6.0 million as of December 31, 2021. In addition, our SFR mortgage lending unit originates mortgage warehouse lines to our correspondents.
There were $1.9 million loans held for sale as of December 31, 2023 compared to none as of December 31, 2022. In addition, our SFR mortgage lending unit originates mortgage warehouse lines to our correspondents.
The increase in net earnings reflected a $25.2 million increase in net interest income, which was partially offset by a $7.5 million decrease in non-interest income, a $2.1 million increase in the provision for credit losses, a $5.2 million increase in non-interest expenses and a $3.0 million increase in income tax expense.
The decrease in net earnings reflected a $30.3 million decrease in net interest income and a $6.2 million increase in non-interest expenses, which was partially offset by a $3.8 million increase in noninterest income, a $1.6 million decrease in the provision for credit losses and a $9.2 million decrease in income tax expense.
The Company’s CECL methodology utilizes a four-quarter reasonable and supportable forecast period, and a four-quarter reversion period. The Company is using the Federal Open Market Committee to obtain forecasts for the unemployment rate, while reverting to a long-run average of each considered economic factor.
The Company’s CECL methodology utilizes a four-quarter reasonable and supportable forecast period, and a four-quarter reversion period. The Company is using the Federal Open Market Committee to obtain forecasts for the unemployment rate, while reverting to a long-run average of each considered economic factor. 60 Table of Contents Individual loans considered to be uncollectible are charged off against the ACL.
The exchange of notes was completed in March 2019. In March 2021, the Company issued $120 million of 4.00% fixed to floating rate subordinated notes due April 1, 2031. The interest rate is fixed through April 1, 2026 and floats at three month SOFR plus 329 basis points thereafter. The Company can redeem these subordinated notes beginning April 1, 2026.
In March 2021, the Company issued $120.0 million of 4.00% fixed to floating rate subordinated notes due April 1, 2031 (the “2031 Subordinated Notes”). The interest rate is fixed through April 1, 2026 and floats at three month Secured Overnight Financing Rate (“SOFR”) plus 329 basis points thereafter. The Company can redeem the 2031 Subordinated Notes beginning April 1, 2026.
The following table sets forth the estimated deposits exceeding the FDIC insurance limit: (dollars in thousands) For the Year Ended December 31, 2022 2021 Uninsured deposits $ 1,212,517 $ 1,823,410 The estimated aggregate amount of time deposits in excess of the FDIC insurance limit is $581.2 million at December 31, 2022.
The following table sets forth the estimated deposits exceeding the FDIC insurance limit: (dollars in thousands) For the Year Ended December 31, 2023 2022 Uninsured deposits $ 1,367,568 $ 1,212,517 Of the $811.6 million in time deposits over $250,000, the estimated aggregate amount of time deposits in excess of the FDIC insurance limit is $629.2 million at December 31, 2023.
These non-GAAP financial measures include “tangible common equity to tangible assets”, “tangible book value per share”, “return on average tangible common equity”, “adjusted earnings”, “adjusted diluted earnings per share”, “adjusted return on average assets”, and “adjusted return on average tangible common equity”. Our management uses these non-GAAP financial measures in its analysis of our performance.
These non-GAAP financial measures include “tangible common equity to tangible assets,” “tangible book value per share” and “return on average tangible common equity.” Our management uses these non-GAAP financial measures in its analysis of our performance. Tangible Common Equity to Tangible Assets Ratio and Tangible Book Value per Share.
The Company’s discounted cash flow methodology incorporates a probability of default, loss given default and exposure at default model, as well as expectations of future economic conditions, using reasonable and supportable forecasts.
The Company’s DCF loss rate methodology incorporates a probability of default, loss given default and exposure at default to derive expected loss within the CECL model, as well as expectations of future economic conditions, using reasonable and supportable forecasts.
Under the terms of our subordinated notes and the related subordinated notes purchase agreements, we are not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the long term debt.
The 2028 Subordinated Notes were assigned an investment grade rating of BBB by the Kroll Bond Rating Agency, Inc. Under the terms of our subordinated notes and the related subordinated notes purchase agreements, we were not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the long-term debt.
The determination of credit losses when fair value decline in available for sale security involves significant judgment. Adverse changes in management’s assessment that concluded a credit impairment on investment security could result in an increase in impairment charges that negatively impacted our earnings.
The determination of credit losses when there is a decrease in fair value of an AFS debt security involves significant judgment. Adverse changes in management’s assessment that concluded a credit impairment on an investment security would result in an increase in impairment charges that would negatively impact our earnings.
The subordinated notes qualified as Tier 2 capital for Bancorp for regulatory purposes and the portion that Bancorp contributed to the Bank qualified as Tier 1 capital for the Bank. Subordinated Debentures. Subordinated debentures consist of subordinated debentures issued in connection with trust preferred securities.
The subordinated notes qualified as Tier 2 capital for Bancorp for regulatory purposes and the portion that Bancorp contributed to the Bank qualified as Tier 1 capital for the Bank. Subordinated Debentures.
As of December 31, 2022, $34.5 million or 62.3% is located in California; $4.1 million or 7.4% is located in Texas; $4.0 million or 7.2% is located in Nevada; $3.5 million or 6.3% is located in Washington; and $9.2 million or 16.8% is located in other states.
As of December 31, 2023, $28.3 million or 59.6% was located in California; $3.7 million or 7.8% was located in Texas; $3.9 million or 8.2% was located in Nevada; $3.5 million or 7.3% was located in Washington; and $8.1 million or 17.0% was located in other states.
In 2022, we originated $29.7 million in SBA loans, $17.8 million were SBA 7A originations and $11.9 million were SBA 504 originations. 52 As of December 31, 2022 our SBA portfolio totaled $61.4 million of which $6.1 million is guaranteed by the SBA and $55.3 million is unguaranteed, of which $54.1 million is secured by real estate and $1.2 million is unsecured or secured by business assets.
In 2023, we originated $11.4 million in SBA loans, of which $8.6 million were SBA 7A loans and $2.8 million were SBA 504 loans. 57 Table of Contents As of December 31, 2023, our SBA portfolio totaled $52.1 million of which $4.7 million was guaranteed by the SBA and $47.4 million was unguaranteed, of which $46.2 million was secured by real estate and $1.2 million was unsecured or secured by business assets.
From December 31, 2021 to December 31, 2022, the decrease in past due loans (excluding non-accrual loans) resulted from decreases of $1.6 million in C&I loans, $1.6 million in SBA loans, $1.1 million in commercial real estate loans, partially offset by a $1.7 million increase in SFR mortgage loans and a $167,000 increase in other loans. 58 We did not recognize any interest income on nonaccrual loans during the years ended December 31, 2022 and December 31, 2021 while the loans were in nonaccrual status.
From December 31, 2022 to December 31, 2023, the increase in past due loans (excluding non-accrual loans) resulted from increases of $1.5 million in C&I loans, $206,000 in SBA loans, and $543,000 in CRE loans, partially offset by a $688,000 decrease in SFR mortgage loans and a $51,000 decrease in other loans. 63 Table of Contents We did not recognize any interest income on non-accrual loans during the years ended December 31, 2023 and December 31, 2022 while the loans were in non-accrual status.
Less than Twelve Months Twelve Months or More Total (dollars in thousands) Unrealized Unrealized Unrealized December 31, 2022 Fair Value Losses Fair Value Losses Fair Value Losses Government sponsored agencies $ 354 $ (24 ) $ 4,141 $ (493 ) $ 4,495 $ (517 ) SBA securities 2,411 (223 ) — — 2,411 (223 ) Mortgage-backed securities: residential 5,535 (362 ) 32,522 (6,390 ) 38,057 (6,752 ) Mortgage-backed securities: commercial 4,871 (16 ) — — 4,871 (16 ) Collateralized mortgage obligations: residential 27,050 (1,842 ) 39,815 (11,014 ) 66,865 (12,856 ) Collateralized mortgage obligations: commercial 18,741 (790 ) 22,949 (2,111 ) 41,690 (2,901 ) Commercial paper 39,624 (16 ) — — 39,624 (16 ) Corporate debt securities 22,977 (1,843 ) 10,330 (2,322 ) 33,307 (4,165 ) Municipal securities — — 8,854 (3,815 ) 8,854 (3,815 ) Total available for sale $ 121,563 $ (5,116 ) $ 118,611 $ (26,145 ) $ 240,174 $ (31,261 ) Municipal taxable securities $ 498 $ (3 ) $ — $ — $ 498 $ (3 ) Municipal securities 4,556 (170 ) — — 4,556 (170 ) Total held to maturity $ 5,054 $ (173 ) $ — $ — $ 5,054 $ (173 ) Less than Twelve Months Twelve Months or More Total Unrealized Unrealized Unrealized December 31, 2021 Fair Value Losses Fair Value Losses Fair Value Losses Government sponsored agencies $ 4,860 $ (83 ) $ — $ — $ 4,860 $ (83 ) Mortgage-backed securities: residential 44,009 (536 ) — — 44,009 (536 ) Mortgage-backed securities: commercial — — 9,974 (4 ) 9,974 (4 ) Collateralized mortgage obligations: residential 59,540 (1,595 ) — — 59,540 (1,595 ) Collateralized mortgage obligations: commercial 20,311 (321 ) 17,782 (78 ) 38,093 (399 ) Commercial paper 129,926 (36 ) — — 129,926 (36 ) Corporate debt securities 13,208 (254 ) — — 13,208 (254 ) Municipal securities 11,447 (160 ) 1,067 (27 ) 12,514 (187 ) Total available for sale $ 283,301 $ (2,985 ) $ 28,823 $ (109 ) $ 312,124 $ (3,094 ) The Company did not record any charges for other-than-temporary impairment losses for the twelve months ended December 31, 2022 and 2021.
Less than Twelve Months Twelve Months or More Total (dollars in thousands) Unrealized Unrealized Unrealized December 31, 2022 Fair Value Losses Fair Value Losses Fair Value Losses Government sponsored agencies $ 354 $ (24 ) $ 4,141 $ (493 ) $ 4,495 $ (517 ) SBA securities 2,411 (223 ) — — 2,411 (223 ) Mortgage-backed securities: residential 5,535 (362 ) 32,522 (6,390 ) 38,057 (6,752 ) Mortgage-backed securities: commercial 4,871 (16 ) — — 4,871 (16 ) Collateralized mortgage obligations: residential 27,050 (1,842 ) 39,815 (11,014 ) 66,865 (12,856 ) Collateralized mortgage obligations: commercial 18,741 (790 ) 22,949 (2,111 ) 41,690 (2,901 ) Commercial paper (1) 39,624 (16 ) — — 39,624 (16 ) Corporate debt securities 22,977 (1,843 ) 10,330 (2,322 ) 33,307 (4,165 ) Municipal securities — — 8,854 (3,815 ) 8,854 (3,815 ) Total available for sale $ 121,563 $ (5,116 ) $ 118,611 $ (26,145 ) $ 240,174 $ (31,261 ) Municipal taxable securities $ 498 $ (3 ) $ — $ — $ 498 $ (3 ) Municipal securities 4,556 (170 ) — — 4,556 (170 ) Total held to maturity $ 5,054 $ (173 ) $ — $ — $ 5,054 $ (173 ) (1) The Company held $9.9 million of commercial paper where the recorded value and fair value are equal as of December 31, 2022.
As of December 31, 2022, total deposits were comprised of 26.8% noninterest-bearing demand accounts, 20.7% interest-bearing non-maturity deposit accounts and 52.5% of time deposits. 60 FHLB Borrowings.
As of December 31, 2023, total deposits were comprised of 17.0% noninterest-bearing demand accounts, 19.9% interest-bearing non-maturity deposit accounts and 63.1% of time deposits compared to 26.8% noninterest-bearing demand accounts, 20.7% interest-bearing non-maturity deposit accounts and 52.5% of time deposits as of December 31, 2022.
Salaries and employee benefits expense increased $1.9 million due to normal salary increases. The number of full-time equivalent employees was 379 at December, 31, 2022, 365 at December 31, 2021 and 366 at December 31, 2020. None of our employees are represented by a labor union, or governed by any collective bargaining agreements. Occupancy and equipment expense.
The number of full-time equivalent employees was 376 at December 31, 2023, 379 at December 31, 2022 and 365 at December 31, 2021. None of our employees are represented by a labor union, or governed by any collective bargaining agreements. Occupancy and equipment expense.
December 31, 2022 December 31, 2021 December 31, 2020 (dollars in thousands) Amount % of Total Amount % of Total Amount % of Total Securities, available for sale, at fair value Government agency securities $ 4,495 1.7 % $ 5,610 1.5 % $ 1,294 0.6 % SBA agency securities 2,411 0.9 % 3,469 0.9 % 4,394 2.0 % Mortgage-backed securities: residential 38,057 14.4 % 45,052 12.0 % 1,498 0.7 % Mortgage-backed securities: commercial 4,871 1.9 % 9,973 2.7 % 16,179 7.4 % Collateralized mortgage obligations: residential 69,903 26.6 % 60,216 16.1 % 1,943 0.9 % Collateralized mortgage obligations: commercial 41,690 15.9 % 59,295 15.8 % 46,931 21.5 % Commercial paper 49,537 18.9 % 129,926 34.7 % 102,448 47.0 % Corporate debt securities (1) 37,012 14.1 % 42,205 11.3 % 34,563 15.9 % Municipal securities 8,854 3.4 % 12,514 3.3 % 1,617 0.7 % Total securities, available for sale, at fair value $ 256,830 97.8 % $ 368,260 98.3 % $ 210,867 96.7 % Securities, held to maturity, at amortized cost Taxable municipal securities $ 1,003 0.4 % $ 1,506 0.4 % $ 2,407 1.1 % Tax-exempt municipal securities 4,726 1.8 % 4,746 1.3 % 4,767 2.2 % Total securities, held to maturity, at amortized cost 5,729 2.2 % 6,252 1.7 % 7,174 3.3 % Total securities $ 262,559 100.0 % $ 374,512 100.0 % $ 218,041 100.0 % (1) Comprised of corporate debt securities and individual financial institution subordinated debentures 47 The tables below set forth investment securities AFS and HTM for the periods presented.
December 31, 2023 December 31, 2022 December 31, 2021 (dollars in thousands) Amount % of Total Amount % of Total Amount % of Total Securities, available for sale, at fair value Government agency securities $ 8,161 2.5 % $ 4,495 1.7 % $ 5,610 1.5 % SBA agency securities 13,217 4.1 % 2,411 0.9 % 3,469 0.9 % Mortgage-backed securities: residential 34,652 10.7 % 38,057 14.4 % 45,052 12.0 % Mortgage-backed securities: commercial — 0.0 % 4,871 1.9 % 9,973 2.7 % Collateralized mortgage obligations: residential 82,327 25.3 % 69,903 26.6 % 60,216 16.1 % Collateralized mortgage obligations: commercial 67,299 20.8 % 41,690 15.9 % 59,295 15.8 % Commercial paper 73,105 22.6 % 49,537 18.9 % 129,926 34.7 % Corporate debt securities (1) 30,691 9.5 % 37,012 14.1 % 42,205 11.3 % Municipal securities 9,509 2.8 % 8,854 3.4 % 12,514 3.3 % Total securities, available for sale, at fair value $ 318,961 98.3 % $ 256,830 97.8 % $ 368,260 98.3 % Securities, held to maturity, at amortized cost Taxable municipal securities $ 501 0.2 % $ 1,003 0.4 % $ 1,506 0.4 % Tax-exempt municipal securities 4,708 1.5 % 4,726 1.8 % 4,746 1.3 % Total securities, held to maturity, at amortized cost 5,209 1.7 % 5,729 2.2 % 6,252 1.7 % Total securities $ 324,170 100.0 % $ 262,559 100.0 % $ 374,512 100.0 % (1) Comprised of corporate debt securities and individual financial institution subordinated debentures 52 Table of Contents The tables below set forth the amortized cost and fair value of AFS and HTM securities and the corresponding amounts of gross unrealized gains and losses for the periods presented.
Investment Securities Effective January 1, 2022, upon the adoption of ASU 2016-13, the Company accounts for credit losses on available for sale ("AFS") securities in accordance with ASC 326-30. Debt securities are measured at fair value and subject to impairment testing.
Under the Major Stress scenario, ACL increased by $19.3 million or 46.0% as of December 31, 2023. Investment Securities Effective January 1, 2022, upon the adoption of ASU 2016-13, the Company accounts for credit losses on available for sale (“AFS”) securities in accordance with ASC 326-30. Debt securities are measured at fair value and subject to impairment testing.
The FAIC Trust issued thirty-year fixed-to-floating rate capital securities with an aggregate liquidation amount of $7,000,000 to an independent investor, and all of its common securities, amounting to $217,000, financed by the issuance of $7.2 million of debentures.
The FAIC Trust issued 7,000 units of fixed-to-floating rate capital securities with an aggregate liquidation amount of $7.0 million and all of its common securities with an aggregate liquidation amount of $217,000.
The Bank exceeded all regulatory capital requirements under Basel III and was considered to be “well-capitalized” as of the dates reflected in the table below: Ratio at December 31, 2022 Ratio at December 31, 2021 Regulatory Capital Ratio Requirements Regulatory Capital Ratio Requirements, including fully phased-in Capital Conservation Buffer Minimum Requirement for "Well Capitalized" Depository Institution Tier 1 Leverage Ratio Consolidated 11.67% 10.21% 4.00% 4.00% 5.00% Bank 14.89% 12.45% 4.00% 4.00% 5.00% Common Equity Tier 1 Risk-Based Capital Ratio (1) Consolidated 16.03% 14.86% 4.50% 7.00% 6.50% Bank 21.14% 18.80% 4.50% 7.00% 6.50% Tier 1 Risk-Based Capital Ratio Consolidated 16.58% 15.40% 6.00% 8.50% 8.00% Bank 21.14% 18.80% 6.00% 8.50% 8.00% Total Risk-Based Capital Ratio Consolidated 24.27% 23.15% 8.00% 10.50% 10.00% Bank 22.40% 20.05% 8.00% 10.50% 10.00% (1) The common equity tier 1 risk-based ratio, or CET1, is a ratio created by the Basel III regulations beginning January 1, 2015. 63 Contractual Obligations The following table contains supplemental information regarding our total contractual obligations at December 31, 2022: Payments Due Within One to Three to After Five (dollars in thousands) One Year Three Years Five Years Years Total Deposits without a stated maturity $ 1,414,080 $ — $ — $ — $ 1,414,080 Time deposits 1,540,582 21,780 1,241 — 1,563,603 FHLB advances 70,000 150,000 — — 220,000 Long-term debt — — — 173,585 173,585 Subordinated debentures — — — 14,720 14,720 Leases 4,469 7,450 7,356 9,410 28,685 Total contractual obligations $ 3,029,131 $ 179,230 $ 8,597 $ 197,715 $ 3,414,673 Off-Balance Sheet Arrangements We have limited off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.
We exceeded all regulatory capital requirements under Basel III and was considered to be “well-capitalized” as of the dates reflected in the table below: Ratio at December 31, 2023 Ratio at December 31, 2022 Regulatory Capital Ratio Requirements Regulatory Capital Ratio Requirements, including fully phased-in Capital Conservation Buffer Minimum Requirement for "Well Capitalized" Depository Institution Tier 1 Leverage Ratio Consolidated 11.99 % 11.67 % 4.00 % 4.00 % 5.00 % Bank 13.62 % 14.89 % 4.00 % 4.00 % 5.00 % Common Equity Tier 1 Risk-Based Capital Ratio (1) Consolidated 19.07 % 16.03 % 4.50 % 7.00 % 6.50 % Bank 22.41 % 21.14 % 4.50 % 7.00 % 6.50 % Tier 1 Risk-Based Capital Ratio Consolidated 19.69 % 16.58 % 6.00 % 8.50 % 8.00 % Bank 22.41 % 21.14 % 6.00 % 8.50 % 8.00 % Total Risk-Based Capital Ratio Consolidated 25.92 % 24.27 % 8.00 % 10.50 % 10.00 % Bank 23.67 % 22.40 % 8.00 % 10.50 % 10.00 % (1) The common equity tier 1 risk-based ratio, or CET1, is a ratio created by the Basel III regulations beginning January 1, 2015. 68 Table of Contents Contractual Obligations The following table contains supplemental information regarding our total contractual obligations at December 31, 2023: Payments Due Within One to Three to After Five (dollars in thousands) One Year Three Years Five Years Years Total Deposits without a stated maturity $ 1,172,350 $ — $ — $ — $ 1,172,350 Time deposits 1,994,517 6,689 1,204 — 2,002,410 FHLB advances — 150,000 — — 150,000 Long-term debt — — — 119,147 119,147 Subordinated debentures — — — 14,938 14,938 Leases 4,728 10,230 9,050 10,699 34,707 Total contractual obligations $ 3,171,595 $ 166,919 $ 10,254 $ 144,784 $ 3,493,552 Off-Balance Sheet Arrangements We have limited off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.
During 2022, we originated $672.1 million of SFR mortgage loans. The loans are generally originated through our retail branch network to our customers, many of whom establish a deposit relationship with us. During 2022, we originated $386.1 million of such loans through our retail channel, and $286.0 million through our wholesale and correspondent channel.
During 2023, we originated $192.3 million of SFR mortgage loans. Loans originated through our retail branch network are to our customers, many of whom establish a deposit relationship with us. During 2023, we originated $78.6 million through our retail channel and $113.7 million through our wholesale and correspondent channel of such loans.
These loans are included in our commercial and industrial lending unit and totaled $29.3 million as of December 31, 2022 and $47.2 million as of December 31, 2021. 53 The loan maturities in the table below are based on contractual maturities as of December 31, 2022.
These loans are included in our C&I loans and totaled $4.2 million as of December 31, 2023 and $29.3 million as of December 31, 2022. 58 Table of Contents The loan maturities in the table below are based on contractual maturities as of December 31, 2023.
Shareholders’ equity increased $17.9 million, or 3.8%, to $484.6 million as of December 31, 2022 from $466.7 million at December 31, 2021.
Shareholders’ equity increased $26.7 million, or 5.5%, to $511.3 million as of December 31, 2023 from $484.6 million at December 31, 2022.
Total deposits were $3.0 billion at December 31, 2022, a decrease of $407.8 million, or 12.0%, compared to $3.4 billion at December 31, 2021, primarily due to a decrease of $805.0 million in non-maturity deposits, partially offset by an increase of $397.2 million of time deposits.
Total deposits were $3.17 billion at December 31, 2023, an increase of $197.1 million, or 6.6%, compared to $2.98 billion at December 31, 2022, primarily due to an increase of $438.8 million in time deposits, partially offset by a decrease of $241.7 million of non-maturity deposits.
Based on this sensitivity analysis, a positive 25% change in prepayment speed would result in a $1.2 million, or 3.0%, decrease to the ACL. A negative 25% change in prepayment speed would result in a $1.7 million, or 4.0%, increase to the ACL.
A sensitivity analysis of our ACL was performed as of December 31, 2023. Based on this sensitivity analysis, a positive 25% change in prepayment speed would result in a $968,000, or (2.31)%, decrease to the ACL. A negative 25% change in prepayment speed would result in a $1.3 million, or 3.08%, increase to the ACL.
The ACL to HFI loans outstanding was 1.23% and 1.12% as of December 31, 2022 and December 31, 2021, respectively. Shareholders’ equity increased $17.9 million, or 3.8%, to $484.6 million as of December 31, 2022 from $466.7 million at December 31, 2021.
The ACL to LHFI outstanding was 1.38% and 1.23% as of December 31, 2023 and December 31, 2022, respectively. Shareholders’ equity increased $26.7 million, or 5.5%, to $511.3 million as of December 31, 2023 from $484.6 million at December 31, 2022.
The following table reconciles shareholders’ equity (on a GAAP basis) to tangible common equity and total assets (on a GAAP basis) to tangible assets, and calculates our tangible book value per share: (dollars in thousands) December 31, 2022 December 31, 2021 Tangible common equity: Total shareholders' equity $ 484,563 $ 466,683 Adjustments Goodwill (71,498 ) (69,243 ) Core deposit intangible (3,718 ) (4,075 ) Tangible common equity $ 409,347 $ 393,365 Tangible assets: Total assets-GAAP $ 3,919,058 $ 4,228,194 Adjustments Goodwill (71,498 ) (69,243 ) Core deposit intangible (3,718 ) (4,075 ) Tangible assets: $ 3,843,842 $ 4,154,876 Common shares outstanding 18,965,776 19,455,544 Common equity to assets ratio 12.36 % 11.04 % Book value per share $ 25.55 $ 23.99 Tangible common equity to tangible assets ratio 10.65 % 9.47 % Tangible book value per share $ 21.58 $ 20.22 Return on Average Tangible Common Equity.
The following table reconciles shareholders’ equity (on a GAAP basis) to tangible common equity and total assets (on a GAAP basis) to tangible assets, and calculates our tangible book value per share: (dollars in thousands) December 31, 2023 December 31, 2022 Tangible common equity: Total shareholders' equity $ 511,260 $ 484,563 Adjustments Goodwill (71,498 ) (71,498 ) Core deposit intangible (2,795 ) (3,718 ) Tangible common equity $ 436,967 $ 409,347 Tangible assets: Total assets-GAAP $ 4,026,025 $ 3,919,058 Adjustments Goodwill (71,498 ) (71,498 ) Core deposit intangible (2,795 ) (3,718 ) Tangible assets: $ 3,951,732 $ 3,843,842 Common shares outstanding 18,609,179 18,965,776 Common equity to assets ratio 12.70 % 12.36 % Book value per share $ 27.47 $ 25.55 Tangible common equity to tangible assets ratio 11.06 % 10.65 % Tangible book value per share $ 23.48 $ 21.58 Return on Average Tangible Common Equity.
Goodwill and Other Intangible Assets Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.
Goodwill Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill resulting from whole bank acquisitions is not amortized but tested for impairment at least annually.
This increase was largely due to a $121.1 million increase in the average balance of interest-earning assets, in part due to organic loan growth, and a 78 basis point increase in the average yield of interest-earning assets, partially offset by a 37 basis point increase in the cost of interest bearing liabilities.
This decrease was largely due to a $455.3 million increase in the average balance of interest-bearing liabilities, in part due to higher time deposits, and a 225 basis point increase in the average cost of interest-bearing liabilities, partially offset by a 99 basis point increase in the average yield on interest-earning assets and a $55.1 million increase in the average balance of interest-earning assets.
To the extent we are unable to obtain sufficient liquidity through core deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a short- or long-term basis.
To the extent we are unable to obtain sufficient liquidity through core deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a short- or long-term basis. The Company has sufficient capital and does not anticipate any need for additional liquidity as of December 31, 2023.
Total liabilities decreased $327.0 million to $3.4 billion, or 8.7%, at December 31, 2022 from $3.8 billion at December 31, 2021, primarily due to a $407.8 million decrease in deposits, partially offset by a $70.0 million increase in short-term FHLB advances. Deposits.
Total liabilities increased $80.3 million, or 2.3%, to $3.5 billion, at December 31, 2023 from $3.4 billion at December 31, 2022, primarily due to a $197.1 million increase in deposits, partially offset by a $70.0 million decrease in short-term FHLB advances and a $54.4 million decrease in subordinated notes.
SBA loans can have any maturity up to 25 years. Typically, non-real estate secured loans mature in less than 10 years. Collateral may also include inventory, accounts receivable and equipment, and includes personal guarantees. Our unguaranteed SBA loans collateralized by real estate are monitored by collateral type and are included in our CRE Concentration Guidance.
SBA loans secured by real estate can have any maturity up to 25 years. Typically, non-real estate secured loans mature in less than 10 years. Collateral may include inventory, accounts receivable, equipment, and personal guarantees. We originate SBA loans through our branch staff, loan officers and through SBA brokers.
As of December 31, 2022, the Company’s Tier 1 leverage capital ratio was 11.67%, common equity Tier 1 ratio was 16.03%, Tier 1 risk-based capital ratio totaled 16.58%, and total risk-based capital ratio was 24.27%. 34 ANALYSIS OF THE RESULTS OF OPERATIONS Financial Performance Year Ended December 31, 2022 vs. 2021 Variance Year Ended 2021 vs. 2020 Variance 2022 2021 Increase (Decrease) % December 31, 2020 Increase (Decrease) % (Dollars in thousands, except per share data) Interest income $ 180,970 $ 147,063 $ 33,907 23.1 % $ 139,120 $ 7,943 5.7 % Interest expense 31,416 22,720 8,696 38.3 % 34,365 (11,645 ) (33.9 )% Net interest income 149,554 124,343 25,211 20.3 % 104,755 19,588 18.7 % Provision for credit losses 4,935 3,959 976 24.7 % 11,823 (7,864 ) (66.5 )% Net interest income after provision for credit losses 144,619 120,384 24,235 20.1 % 92,932 27,452 29.5 % Noninterest income 11,252 18,745 (7,493 ) (40.0 )% 14,040 4,705 33.5 % Noninterest expense 64,526 58,192 6,334 10.9 % 59,513 (1,321 ) (2.2 )% Income before income taxes 91,345 80,937 10,408 12.9 % 47,459 33,478 70.5 % Income tax expense 27,018 24,031 2,987 12.4 % 14,531 9,500 65.4 % Net income $ 64,327 $ 56,906 $ 7,421 13.0 % $ 32,928 $ 23,978 72.8 % Share Data Earnings per common share: Basic $ 3.37 $ 2.92 $ 0.45 $ 1.66 $ 1.26 Diluted (1) 3.33 2.86 0.47 1.65 1.21 Performance Ratios Return on average assets, annualized 1.62 % 1.48 % 0.14 % 1.03 % 0.45 % Return on average shareholders’ equity, annualized 13.66 % 12.71 % 0.95 % 7.88 % 4.83 % Efficiency ratio 40.13 % 40.67 % (0.54 )% 50.10 % (9.43 )% Tangible common equity to tangible assets (2) 10.65 % 9.47 % 1.18 % 10.81 % (1.34 )% Return on average tangible common equity, annualized (2) 16.26 % 15.22 % 1.04 % 9.62 % 5.60 % Tangible book value per share (2) $ 21.58 $ 20.22 $ 1.36 $ 18.10 $ 2.12 (1) Earnings per share are calculated utilizing the two-class method.
As of December 31, 2022, Bancorp’s Tier 1 leverage capital ratio was 11.67%, common equity Tier 1 ratio was 16.03%, Tier 1 risk-based capital ratio totaled 16.58%, and total risk-based capital ratio was 24.27%. 43 Table of Contents ANALYSIS OF THE RESULTS OF OPERATIONS Financial Performance Year Ended December 31, 2023 2022 2021 (dollars in thousands, except per share data) Interest income $ 221,148 $ 180,970 $ 147,063 Interest expense 101,862 31,416 22,720 Net interest income 119,286 149,554 124,343 Provision for credit losses 3,362 4,935 3,959 Net interest income after provision for credit losses 115,924 144,619 120,384 Noninterest income 15,018 11,252 18,745 Noninterest expense 70,696 64,526 58,192 Income before income taxes 60,246 91,345 80,937 Income tax expense 17,781 27,018 24,031 Net income $ 42,465 $ 64,327 $ 56,906 Share Data Earnings per common share (1): Basic $ 2.24 $ 3.37 $ 2.92 Diluted 2.24 3.33 2.86 Performance Ratios Return on average assets 1.06 % 1.62 % 1.48 % Return on average shareholders’ equity 8.48 % 13.66 % 12.71 % Efficiency ratio 52.64 % 40.13 % 40.67 % Tangible common equity to tangible assets (2) 11.06 % 10.65 % 9.47 % Return on average tangible common equity (2) 9.97 % 16.26 % 15.22 % Tangible book value per share (2) $ 23.48 $ 21.58 $ 20.22 (1) Earnings per share are calculated utilizing the two-class method.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+7 added−5 removed4 unchanged
Biggest changeNet Interest Income Sensitivity Immediate Change in Rates (dollars in thousands) -200 -100 +100 +200 December 31, 2022 Dollar change $ 5,538 $ 3,462 $ 5,745 $ 11,545 Percent change 4.06 % 2.54 % 4.21 % 8.46 % December 31, 2021 Dollar change $ (685 ) $ 135 $ 13,590 $ 27,947 Percent change (0.53 %) 0.10 % 10.44 % 21.46 % We report NII at Risk to isolate the change in income related solely to interest-earning assets and interest-bearing liabilities.
Biggest changeNet Interest Income Sensitivity Immediate Change in Rates (dollars in thousands) -300 -200 -100 +100 +200 +300 December 31, 2023 Dollar change $ 11,086 $ 6,553 $ 2,545 $ 470 $ 50 $ (455 ) Percent change 10.48 % 6.20 % 2.41 % 0.44 % 0.05 % (0.43 )% December 31, 2022 Dollar change $ 3,267 $ 5,538 $ 3,462 $ 5,745 $ 11,545 $ 17,212 Percent change 2.39 % 4.06 % 2.54 % 4.21 % 8.46 % 12.61 % At December 31, 2023, our NII at Risk profile is liability sensitive in the down rate scenarios and this is directionally consistent with our December 31, 2022 profile.
Interest rate risk measurement is calculated and reported to the board and ALCO at least quarterly. The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.
Interest rate risk measurement is calculated and reported to the board and the ALCO at least quarterly. The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.
We have identified three primary sources of market risk: interest rate risk price risk and basis risk. Interest Rate Risk Overview. Interest rate risk is the risk to earnings and value arising from changes in market interest rates.
We have identified three primary sources of market risk: interest rate risk, price risk and basis risk. Interest Rate Risk . Interest rate risk is the risk to earnings and value arising from changes in market interest rates.
Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on our interest-bearing liabilities would reprice upward more quickly than rates earned on our interest-earning assets, thus compressing our net interest margin. Income Simulation and Economic Value Analysis.
Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on interest-bearing liabilities would reprice upward more quickly than rates earned on interest-earning assets, thus compressing the net interest margin. Income Simulation and Economic Value Analysis.
An asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on our interest-earning assets would reprice upward more quickly than rates paid on our interest-bearing liabilities, thus expanding our net interest margin.
An asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on interest-earning assets would reprice upward more quickly than rates paid on interest-bearing liabilities, thus expanding the net interest margin.
Our ALCO meets monthly to monitor the level of interest rate risk sensitivity to ensure compliance with the board of directors’ approved risk limits. Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities.
The ALCO meets monthly to monitor the level of interest rate risk sensitivity to ensure compliance with the board of directors’ approved risk limits and to oversee management's balance sheet risk management strategies. Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities.
The opposite is true when interest rates fall. Price Risk. Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and subject to fair value accounting. We have price risk from the available for sale SFR mortgage loans and fixed-rate available for sale securities. Basis Risk.
Treasuries and SOFR (basis risk). Price Risk. Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and subject to fair value accounting. We have price risk from the available for sale SFR mortgage loans and fixed-rate available for sale securities. Basis Risk.
Treasuries and SOFR (basis risk). 67 Our ALCO establishes broad policy limits with respect to interest rate risk. ALCO establishes specific operating guidelines within the parameters of the board of directors’ policies. In general, we seek to minimize the impact of changing interest rates on net interest income and the economic values of assets and liabilities.
The ALCO establishes specific operating guidelines within the parameters of the board of directors’ policies. In general, we seek to minimize the impact of changing interest rates on net interest income and the economic values of assets and liabilities.
Basis risk represents the risk of loss arising from asset and liability pricing movements not changing in the same direction. We have basis risk in the SFR mortgage loan portfolio, the multifamily loan portfolio and our securities portfolio. 69
Basis risk represents the risk of loss arising from asset and liability pricing movements not changing in the same direction. We have basis risk in the SFR mortgage loan portfolio, the multifamily loan portfolio and our securities portfolio. 71 Table of Contents Our ALCO establishes broad policy limits with respect to interest rate risk.
We use two approaches to model interest rate risk: Net Interest Income at Risk (NII at Risk), and Economic Value of Equity (EVE). Under NII at Risk, net interest income is modeled utilizing various assumptions for assets, liabilities, and derivatives.
We use two approaches to model interest rate risk: Net Interest Income at Risk (NII at Risk), and Economic Value of Equity (“EVE”).
The EVE reported at December 31, 2022 projects that as interest rates increase immediately, the EVE position will be expected to increase, and if interest rates were to decrease immediately, the EVE position will be expected to decrease. When interest rates rise, fixed rate assets generally lose economic value; the longer the duration, the greater the value lost.
When interest rates rise, fixed rate assets generally lose economic value as these assets are discounted at a higher rate demonstrating that the longer duration causes greater value to be lost.
Removed
The NII at Risk results included in the table above reflect the analysis used quarterly by management.
Added
Under NII at Risk, net interest income is modeled utilizing various assumptions for assets, liabilities, and derivatives over a 12 month and 24 month time horizon assuming a flat balance sheet and an instantaneous and parallel shift in market interest rates of -300, -200, -100, +100, +200 and +300.
Removed
It models gradual −200, −100, +100 and +200 basis point parallel shifts in market interest rates, implied by the forward yield curve over the next one-year period. 68 The NII at Risk reported at December 31, 2022, projects that our earnings are expected to be asset sensitive to changes in interest rates over the next year.
Added
We report NII at Risk to isolate the change in income related solely to interest-earning assets and interest-bearing liabilities. The model results do not take into consideration any steps management might take to respond to the changes in interest rates.
Removed
In recent periods, the amount of floating rate assets increased resulting in a position shift from neutral to asset sensitive.
Added
For the up rate scenarios, at December 31, 2023, our NII at Risk profile is “neutral” compared to “asset sensitive” at December 31, 2022. The NII at Risk results are within board policy limits.
Removed
Economic Value of Equity Sensitivity (Shock) Immediate Change in Rates (dollars in thousands) -200 -100 +100 +200 December 31, 2022 Dollar change (30,544 ) (3,801 ) (22,540 ) (47,643 ) Percent change (4.75 )% (0.59 )% (3.51 )% (7.41 )% December 31, 2021 Dollar change (140,235 ) (97,523 ) 31,226 56,888 Percent change (24.61 %) (17.12 %) 5.48 % 9.98 % The EVE results included in the table above reflect the analysis used quarterly by management.
Added
This shift is primarily due to the change in the mix of assets and funding sources during 2023 due to deleveraging the balance sheet and increasing our on balance sheet liquidity.
Removed
It models immediate −200, −100, +100 and +200 basis point parallel shifts in market interest rates. We are within board policy limits for all rate scenarios.
Added
Actual results could vary materially from those calculated by our model, due to a variety of factors or assumptions such as the uncertainty of the magnitude, timing and direction of future interest rate movement or the shape of the yield curve. 72 Table of Contents Economic Value of Equity Sensitivity (Shock) Immediate Change in Rates (dollars in thousands) -300 -200 -100 +100 +200 +300 December 31, 2023 Dollar change (26,488 ) (7,430 ) 4,856 (28,251 ) (69,646 ) (111,281 ) Percent change (4.79 )% (1.34 )% 0.88 % (5.11 )% (12.60 )% (20.14 )% December 31, 2022 Dollar change (83,032 ) (30,544 ) (3,801 ) (22,540 ) (47,643 ) (74,319 ) Percent change (12.92 %) (4.75 )% (0.59 )% (3.51 )% (7.41 )% (11.56 )% The EVE reported at December 31, 2023 indicates that if interest rates increased immediately, the EVE position is expected to decrease and if interest rates were to decrease immediately, the EVE position is expected to increase in the down 100 basis points scenario and then decrease for the down 200 basis points and down 300 basis points scenarios.
Added
When interest rates fall, the opposite is true, however these positives are being offset by a decrease in the value of floating rate assets as well as the value of noninterest-bearing deposits. Noninterest-bearing have a lower value in lower interest rate environments.
Added
Actual results could vary materially from those calculated by our model, due to a variety of factors or assumptions such as the uncertainty of the magnitude, timing and direction of future interest rate movement or the shape of the yield curve. The EVE results are within board policy limits. 73 Table of Contents

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