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What changed in RBB Bancorp's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of RBB Bancorp's 2023 and 2024 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 2024 report.

+580 added−688 removedSource: 10-K (2025-03-17) vs 10-K (2024-03-12)

Top changes in RBB Bancorp's 2024 10-K

580 paragraphs added · 688 removed · 414 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

107 edited+46 added−149 removed119 unchanged
Biggest changeWe also offer a wide array of benefits for our associates and their families, including: ● Competitive bonus programs; ● Comprehensive medical, dental and vision benefits; ● 401(k) plan including a competitive company match; ● Flexible work schedules; ● Paid time off (PTO), holidays and bank holidays; ● Internal training and development; and ● Employee Assistance Plans (EAP) Climate-related Discussion The SEC adopted a final rule that will require companies to disclose a broad array of climate-related exposures, including, among other things, material climate-related risks; activities to mitigate or adapt to such risks; information about the registrant’s board of directors’ oversight of climate-related risks and management’s role in managing material climate-related risks; and information on any climate-related targets or goals that are material to the registrant’s business, results of operations, or financial condition.
Biggest changeWe also offer a wide array of benefits for our associates and their families, including: ● Competitive bonus programs; ● Comprehensive medical, dental and vision benefits; ● 401(k) plan including a competitive company match; ● Flexible work schedules; ● Paid time off (PTO), holidays and bank holidays; ● Internal training and development; and ● Employee Assistance Plans (EAP) Corporate Information Our principal executive offices are located at 1055 Wilshire Blvd.
Supervisory Assessments. California-chartered banks are required to pay supervisory assessments to the DFPI to fund its operations. The amount of the assessment paid by a California bank to the DFPI is calculated on the basis of the institution’s total assets, including consolidated subsidiaries, as reported to the DFPI.
California-chartered banks are required to pay supervisory assessments to the DFPI to fund its operations. The amount of the assessment paid by a California bank to the DFPI is calculated on the basis of the institution’s total assets, including consolidated subsidiaries, as reported to the DFPI.
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.
As permitted by Basel III, we 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.
In connection with our 2020 acquisition of PGB and its holding company, PGBH, the Company acquired Pacific Global Bank Trust I (“PGB Capital Trust I”), a statutory business trust that was established by PGB in 2004 under the laws of Delaware as a wholly-owned subsidiary.
In connection with our 2020 acquisition of PGB and its holding company, PGBH, we acquired Pacific Global Bank Trust I (“PGB Capital Trust I”), a statutory business trust that was established by PGB in 2004 under the laws of Delaware as a wholly-owned subsidiary.
In addition to numerous disclosure requirements, the Dodd-Frank Act imposed new standards for mortgage loan originations on all lenders, including banks and savings associations, in an effort to strongly encourage lenders to verify a borrower’s ability to repay, while also establishing a presumption of compliance for certain “qualified mortgages.” The Dodd-Frank Act generally required lenders or securitizers to retain an economic interest in the credit risk relating to loans that the lender sells, and other asset-backed securities that the securitizer issues, if the loans do not comply with the ability-to-repay standards described below.
In addition to numerous disclosure requirements, the Dodd-Frank Act imposed new standards for mortgage loan originations on all lenders, including banks and savings associations, in an effort to strongly encourage lenders to verify a borrower’s ability to repay, while also establishing a presumption of compliance for certain “qualified mortgages.” The Dodd-Frank Act generally requires lenders or securitizers to retain an economic interest in the credit risk relating to loans that the lender sells, and other asset-backed securities that the securitizer issues, if the loans do not comply with the ability-to-repay standards described below.
We principally focus our lending activities on loans that we originate from borrowers located in our market areas. We strive to expedite all requests from potential borrowers by promptly responding after we receive required financials and certain preliminary information.
We principally focus our lending activities on loans that we originate from borrowers located in our market areas. We strive to expedite all requests from potential borrowers by promptly responding after we receive the required financials and certain preliminary information.
Bancorp is also subject to the Sarbanes-Oxley Act, provisions of the Dodd-Frank Act, and other federal and state laws and regulations which address, among other issues, required executive certification of financial presentations, corporate governance requirements for board audit and compensation committees and their members, and disclosure of controls and procedures and internal control over financial reporting, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information.
The Company is also subject to the Sarbanes-Oxley Act, provisions of the Dodd-Frank Act, and other federal and state laws and regulations which address, among other issues, required executive certification of financial presentations, corporate governance requirements for board audit and compensation committees and their members, and disclosure of controls and procedures and internal control over financial reporting, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information.
NASDAQ has also adopted corporate governance rules, which are intended to allow stockholders and investors to more easily and efficiently monitor the performance of companies and their directors. Under the Sarbanes-Oxley Act, management and the Bancorp’s independent registered public accounting firm are required to assess the effectiveness of the Bancorp’s internal control over financial reporting.
NASDAQ has also adopted corporate governance rules, which are intended to allow stockholders and investors to more easily and efficiently monitor the performance of companies and their directors. Under the Sarbanes-Oxley Act, management and the Company's independent registered public accounting firm are required to assess the effectiveness of the Company’s internal control over financial reporting.
New products and services, third-party risk management and cybersecurity are critical sources of operational risk that financial institutions are expected to address in the current environment. The Bank is expected to have active board and senior management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and management information systems; and comprehensive internal controls. Branching Authority.
New products and services, third-party risk management and cybersecurity are critical sources of operational risk that financial institutions are expected to address in the current environment. The Bank is expected to have active board and senior management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and management information systems; and comprehensive internal controls.
The Bank did not have any loans to one borrower that exceeded either of these limits at December 31, 2023. 18 Table of Contents Safety and Soundness Standards /Risk Management. The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions.
The Bank did not have any loans to one borrower that exceeded either of these limits at December 31, 2024. 18 Table of Contents Safety and Soundness Standards /Risk Management The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions.
Additionally, in March 2020, the U.S. federal bank regulatory agencies issued an interim final rule that provides banking organizations an option to delay the estimated CECL impact on regulatory capital for an additional two years for a total transition period of up to five years to provide regulatory relief to banking organizations to better focus on supporting lending to creditworthy households and businesses in light of recent strains on the U.S. economy as a result of the COVID-19 pandemic.
Additionally, in March 2020, the U.S. federal bank regulatory agencies issued an interim final rule that provided banking organizations an option to delay the estimated CECL impact on regulatory capital for an additional two years for a total transition period of up to five years to provide regulatory relief to banking organizations to better focus on supporting lending to creditworthy households and businesses in light of strains on the U.S. economy as a result of the COVID-19 pandemic.
When we refer to “we”, “us”, “our”, or the “Company”, we are referring to RBB Bancorp and its consolidated subsidiaries including the Bank, collectively. When we refer to the “parent company”, “Bancorp”, or the “holding company”, we are referring to RBB Bancorp, the parent company, on a stand-along basis.
When we refer to “we”, “us”, “our”, or the “Company”, we are referring to RBB Bancorp and its consolidated subsidiaries including the Bank, collectively. When we refer to the “parent company”, “Bancorp”, or the “holding company”, we are referring to RBB Bancorp, the parent company, on a stand-alone basis.
In connection with our 2016 acquisition of TomatoBank and its holding company, TFC, the Company acquired the TFC Statutory Trust (the “TFC Trust”), a statutory business trust that was established by TFC in 2006 as a wholly-owned subsidiary. FAIC Statutory Trust.
In connection with our 2016 acquisition of TomatoBank and its holding company, TFC, we acquired the TFC Statutory Trust (the “TFC Trust”), a statutory business trust that was established by TFC in 2006 as a wholly-owned subsidiary. FAIC Statutory Trust I.
Effective January 1, 2022, the Company adopted ASU 2016-13, reflected the full effect of CECL at December 31, 2022, and did not elect the three-year or five-year CECL phase-in options on regulatory capital.
Effective January 1, 2022, we adopted ASU 2016-13, reflected the full effect of CECL at December 31, 2022, and did not elect the three-year or five-year CECL phase-in options on regulatory capital.
California banks, such as the Bank, may, under California law, establish a banking office so long as the bank’s board of directors approves the banking office and the DFPI is notified of the establishment of the banking office.
Branching Authority California banks, such as the Bank, may, under California law, establish a banking office so long as the bank’s board of directors approves the banking office and the DFPI is notified of the establishment of the banking office.
CFPB Actions The Dodd-Frank Act provided for the creation of the CFPB as an independent entity within the Federal Reserve with broad rulemaking, supervisory, and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans and credit cards.
The Consumer Financial Protection Bureau The Dodd-Frank Act provided for the creation of the CFPB as an independent entity within the Federal Reserve with broad rulemaking, supervisory, and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans and credit cards.
The CRA requires the Bank to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. Federal regulators regularly assess the Bank’s record of meeting the credit needs of its communities.
Community Reinvestment Act Requirements The CRA requires the Bank to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. Federal regulators regularly assess the Bank’s record of meeting the credit needs of its communities.
The final rule will be effective April 1, 2024, with the first collection for the special assessment reflected on the invoice for the first quarterly assessment period of 2024 with a payment date of June 28, 2024. Our deposits as of December 31, 2022 were below $5 billion and therefore the Bank is not subject to this special assessment.
The final rule became effective of April 1, 2024, with the first collection for the special assessment reflected on the invoice for the first quarterly assessment period of 2024 with a payment date of June 28, 2024. Our deposits as of December 31, 2024 were below $5 billion and therefore the Bank is not subject to this special assessment.
Restrictions are also placed on certain asset sales to and from an insider to an institution, including requirements that such sales be on market terms and, in certain circumstances, approved by the institution’s board of directors. Loans to One Borrower.
Restrictions are also placed on certain asset sales to and from an insider to an institution, including requirements that such sales be on market terms and, in certain circumstances, approved by the institution’s board of directors.
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.
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 (ASC 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 ("IDIs").
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 .
In connection with our 2018 acquisition of FAIB and its holding company, FAIC, we acquired the FAIC Statutory Trust I (the “FAIC Trust I”), a statutory business trust that was established by FAIC in 2004 under the laws of Delaware as a wholly-owned subsidiary. PGBH Trust I .
The USA Patriot Act is designed to deny terrorists and criminals the ability to obtain access to the U.S. financial system and has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money.
Anti-Money Laundering and OFAC Regulation The USA Patriot Act is designed to deny terrorists and criminals the ability to obtain access to the U.S. financial system and has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money.
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.
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.
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”).
As a result, our growth and earnings performance 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 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”).
The Dodd-Frank Act additionally requires capital requirements to be countercyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness. Under federal regulations, bank holding companies and banks must meet certain risk-based capital requirements.
The Dodd-Frank Act additionally requires capital requirements to be countercyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness. Under federal regulations, bank holding companies and banks must meet certain risk-based capital requirements. Basel III is currently applicable to Bancorp and the Bank.
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.
Our 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 small to midsized commercial enterprises operating within Asian-centric communities or that can benefit from our areas of core lending expertise; ● 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 loan needs of $1 million to $20 million (average loan size of $3 million to $7 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 asset-based lending, trade finance, working capital lines of credit, and term 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 Basel III final framework provides for a number of deductions from and adjustments to CET1. These include, for example, a limitation on the amount mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities that may be held on a Bank's balance sheet, with any excess to be deducted from CET1.
These include, for example, a limitation on the amount of mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities that may be held on a Bank's balance sheet, with any excess to be deducted from CET1.
Department of Housing and Urban Development, and agencies such as FNMA and 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 our business.
Revisions to the Volcker Rule in 2019, that become effective in 2020, simplifies and streamlines the compliance requirements for banks that do not have significant trading activities. In 2020, the OCC, Federal Reserve, FDIC, SEC and Commodity Futures Trading Commission finalized further amendments to the Volcker Rule.
Revisions to the Volcker Rule in 2019, that became effective in 2020, simplify and streamline the compliance requirements for banks that do not have significant trading activities. In 2020, the OCC, Federal Reserve, FDIC, SEC and Commodity Futures Trading Commission finalized further amendments to the Volcker Rule.
Finally, we may also establish banking offices in other states by merging with banks or by purchasing banking offices of other banks in other states, subject to certain restrictions. Community Reinvestment Act Requirements.
Finally, we may also establish banking offices in other states by merging with banks or by purchasing banking offices of other banks in other states, subject to certain restrictions.
In addition, our credit approval process is streamlined since decision-making often only requires a couple of key executive management members while any loans that exceed executive management's delegated authority is elevated to a board loan committee which meets regularly or whenever needed. We have five principal lending areas: Commercial and Industrial Loans.
In addition, our credit approval process is streamlined since decision-making often only requires a couple of key executive management members while any loans that exceed executive management's delegated authority is elevated to a board loan committee which meets at regularly scheduled meetings and whenever needed. We have five principal lending areas: Construction and Land Development Loans.
In addition, the Bank has a wholly-owned subsidiary , FAIB Capital Corp, a real estate investment trust, which was acquired in connection with the 2018 acquisition of FAIC. FAIB Capital Corp. is a New York State corporation formed on August 28, 2013.
In addition, the Bank has a wholly-owned subsidiary , FAIB Capital Corp, a real estate investment trust, which was acquired in connection with the 2018 acquisition of FAIC. FAIB Capital Corp. is a New York State corporation formed on August 28, 2013. The purpose of this real estate investment trust is to minimize New York State and local taxes.
We had outstanding subordinated debentures and subordinated notes in the aggregate principal amount of $134.1 million as of December 31, 2023.
We had outstanding subordinated debentures and subordinated notes in the aggregate principal amount of $134.7 million as of December 31, 2024.
Our ability to provide quick responses to borrowers with financial solutions, while performing appropriate underwriting if a borrower decides to move forward, is due primarily to the experiences and expertise of our professionals who understand the needs of borrowers in our target markets and the areas of commercial lending practices that the Bank is engaged in.
Our ability to provide quick responses to borrowers with financial solutions, while performing appropriate underwriting if a borrower decides to move forward, is primarily due to our experienced banking professionals who understand the needs of borrowers in our target markets and their expertise in our Bank’s commercial lending practices.
Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness, and the organization is not taking prompt and effective measures to correct the deficiencies.
Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness, and the organization is not taking prompt and effective measures to correct the deficiencies. The Dodd-Frank Act requires that the federal banking agencies issue a rule related to incentive-based compensation.
As of December 31, 2023, we had $3.17 billion of total deposits, with a weighted average spot rate of 3.51%. Other Subsidiaries In addition to the Bank and RAM, the holding Company has three statutory business trusts as follows: TFC Statutory Trust .
As of December 31, 2024, we had $3.1 billion of total deposits, with a weighted average spot rate of 3.15%. Other Subsidiaries In addition to the Bank and RAM, the holding Company has three statutory business trusts acquired through our business acquisitions as follows: TFC Statutory Trust .
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.
We guarantee 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. We are the owner of all the beneficial interests represented by the common securities of the trusts.
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.
Loans to One Borrower 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, 2024, the Bank’s regulatory limit on aggregate secured loans-to-one-borrower was $149.4 million and unsecured loans-to-one borrower was $89.6 million.
As of December 31, 2023, we had outstanding C&I loans of $130.1 million, or 4.3% of our total loan portfolio, compared to $201.2 million, or 6.0% of our total loan portfolio as of December 31, 2022. C&I loans on nonaccrual totaled $854,000 and $713,000 at December 31, 2023 and 2022. Commercial Real Estate Loans.
As of December 31, 2024, we had outstanding C&I loans of $129.6 million, or 4.2% of our total loan portfolio, compared to $130.1 million, or 4.3% of our total loan portfolio as of December 31, 2023. C&I loans on nonaccrual totaled $6.3 million and $854,000 at December 31, 2024 and 2023. SBA Loans.
A minority depository institution is eligible to receive from the FDIC and other federal regulatory agencies training, technical assistance and review, and assistance regarding the implementation of proposed new deposit taking and lending programs, as well as with respect to the adoption of applicable policies and procedures governing such programs.
A MDI is eligible to receive support from the FDIC and other federal regulatory agencies such as training, technical assistance and review of proposed new deposit taking and lending programs, and the adoption of applicable policies and procedures governing such programs.
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.
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 the stability of our deposit base. As of December 31, 2024, $2.2 billion or 72.7% of our relationships are considered core relationships.
These laws include, among others, laws regarding unfair and deceptive acts and practices and usury laws, as well as the following consumer protection statutes: Truth in Lending Act, Truth in Savings Act, Electronic Fund Transfer Act, Expedited Funds Availability Act, Equal Credit Opportunity Act, Fair and Accurate Credit Transactions Act, Fair Housing Act, Fair Credit Reporting Act, Fair Debt Collection Act, GLB Act, Home Mortgage Disclosure Act, Right to Financial Privacy Act and Real Estate Settlement Procedures Act.
These laws include, among others: Truth in Lending Act; Truth in Savings Act; Electronic Funds Transfer Act; Expedited Funds Availability Act; Equal Credit Opportunity Act; Fair and Accurate Credit Transactions Act; Fair Housing Act; Fair Credit Reporting Act; Fair Debt Collection Act; Home Mortgage Disclosure Act; Real Estate Settlement Procedures Act; laws regarding unfair and deceptive acts and practices; and usury laws.
We have significant expertise in small to middle market C&I lending. Our success is the result of our product and market expertise. We focus on delivering high-quality, customized and quick turnaround service for our clients while maintaining an appropriate balance between prudent and disciplined underwriting and flexibility and responsiveness to our clients.
Our success is the result of our products and market expertise. We focus on delivering high-quality, customized and quick turnaround service for our clients while maintaining an appropriate balance between disciplined underwriting and flexibility and responsiveness to our clients.
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.
CDFIs are certified by the CDFI Fund at the U.S. 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 to support low-to-moderate income individuals.
As a bank holding company, Bancorp is registered with, and is subject to regulation by, the Federal Reserve under the BHCA.
As a bank holding company, Bancorp is registered with, and is subject to regulation by, the Federal Reserve under the Bank Holding Company Act of 1956, as amended (“BHCA”). Under the BHCA, Bancorp is subject to periodic examination by the Federal Reserve.
Furthermore, in accordance with the Dodd-Frank Act, bank holding companies must be well-capitalized and well-managed in order to effect interstate mergers or acquisitions. For a discussion of the capital requirements, see “Regulatory Capital Requirements” above.
Furthermore, in accordance with the Dodd-Frank Act, bank holding companies must be well-capitalized and well-managed in order to effect interstate mergers or acquisitions.
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.
Of this amount, $15.2 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 $119.5 million is attributable to outstanding subordinated notes, which qualifies as Tier 2 capital.
The scope of coverage includes not only direct interactions with clients and prospects but also actions by third-party service providers. The Dodd-Frank Act does not prevent states from adopting stricter consumer protection standards. State regulation of financial products and potential enforcement actions could also adversely affect our business, financial condition or results of operations.
The scope of coverage includes not only direct interactions with clients and prospects but also actions by third-party service providers. The Dodd-Frank Act does not prevent states from adopting stricter consumer protection standards.
From time to time, we also originate SBA 504 loans. As of December 31, 2023, our SBA loan portfolio totaled $52.1 million, or 1.7% of our total loan portfolio compared to $61.4 million, or 1.8% at December 31, 2022. Our non-accrual SBA loans as of December 31, 2023 were $2.1 million, compared to $2.2 million as of December 31, 2022.
From time to time, we also originate SBA 504 loans. As of December 31, 2024, our SBA loan portfolio totaled $47.3 million, or 1.5% of our total loan portfolio compared to $52.1 million, or 1.7% at December 31, 2023.
Failure to comply with these laws and regulations could give rise to regulatory sanctions, customer rescission rights, action by state and local attorneys general and civil or criminal liability.
Many states and local jurisdictions have consumer protection laws analogous, and in addition, to those listed above. Failure to comply with these laws and regulations could give rise to regulatory sanctions, customer rescission rights, action by state and local attorneys general, and civil or criminal liability.
While the DFPI remains the Bank’s primary state regulator, the Bank’s operations in these jurisdictions are subject to examination and supervision by local bank regulators, and transactions with customers in those jurisdictions are subject to local laws, including consumer protection laws.
While the DFPI remains the Bank’s primary state regulator, the Bank’s operations in these jurisdictions are subject to examination and supervision by local bank regulators, and transactions with customers in those jurisdictions are subject to local laws, including consumer protection laws. Legislative and regulatory initiatives, which necessarily impact the regulation of the financial services industry, are introduced from time-to-time.
Additional Restrictions on Bancorp and Bank Activities Subject to prior notice or Federal Reserve approval, bank holding companies may generally engage in, or acquire shares of companies engaged in, activities determined by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
Additional Restrictions on Bancorp and Bank Activities The activities of bank holding companies are generally limited to the business of banking, managing, or controlling banks, and other activities that the Federal Reserve has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
The federal banking agencies have issued comprehensive guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.
These assessments are included in Part II—Item 9A. Controls and Procedures. 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.
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.
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.
Risk-based capital requirements determine the adequacy of capital based on the risk inherent in various classes of assets and off-balance sheet items. Under the Dodd-Frank Act, the Federal Reserve must apply consolidated capital requirements to depository institution holding companies that are no less stringent than those currently applied to depository institutions.
Under the Dodd-Frank Act, the Federal Reserve must apply consolidated capital requirements to depository institution holding companies that are no less stringent than those currently applied to depository institutions.
Banks and savings institutions with $10 billion or less in assets, like the Bank, will continue to be examined by their applicable bank regulators. Mortgage and Mortgage-Related Products. The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by 1-4 family residential real property and augmented federal law combating predatory lending practices.
Mortgage and Mortgage-Related Products The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by 1-4 family residential real property and augmented federal law combating predatory lending practices.
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.
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 Concentration risk exists when financial institutions deploy too many assets to any one industry or segment.
Bancorp is required to file with the Federal Reserve periodic reports of Bancorp’s operations and such additional information regarding Bancorp and its subsidiaries as the Federal Reserve may require. Acquisitions, Activities and Change in Control. The primary purpose of a bank holding company is to control and manage banks.
Bancorp is required to file with the Federal Reserve periodic reports of Bancorp’s operations and such additional information regarding Bancorp and its subsidiaries as the Federal Reserve may require. Bancorp is also a bank holding company within the meaning of Section 1280 of the California Financial Code.
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.
In conjunction with the Amended Restoration Plan, the FDIC adopted a final rule on October 18, 2022 that increased initial base deposit insurance assessment rates by 2 basis points, beginning with the first quarterly assessment period of 2023, to improve the likelihood that the reserve ratio would be restored to 1.35% by September 30, 2028.
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.
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.
Enforcement Powers of Federal and State Banking Agencies The federal bank regulatory agencies have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver for financial institutions.
The subsidiary may not, however, engage as principal in underwriting insurance (other than credit life insurance), issue annuities, or engage in real estate development, investment, or merchant banking. 21 Table of Contents Enforcement Powers of Federal and State Banking Agencies The federal bank regulatory agencies have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver for financial institutions.
The Company has not been audited by the Internal Revenue Service. For 2023, 2022 and 2021, the Company was subject to a maximum federal income tax rate of 21.00%, California state income tax rate of 10.84% and various state tax rates for other various state jurisdictions. 26 Table of Contents
For 2024, 2023 and 2022, we were subject to a maximum federal income tax rate of 21.00%, California state income tax rate of 10.84% and various state tax rates for other various state jurisdictions. 25 Table of Contents
Interest reserves are generally established on real estate construction loans. As of December 31, 2023, our real estate construction loan portfolio totaled $181.5 million, or 6.0% of our total loan portfolio, and was divided among the following categories: $80.3 million of residential construction; $78.1 million of commercial construction; and $23.1 million of land acquisition and development.
As of December 31, 2024, our real estate construction loan portfolio totaled $173.3 million, or 5.7% of our total loan portfolio, and was divided among the following categories: $58.3 million of residential construction; $98.0 million of commercial construction; and $17.0 million of land acquisition and development.
In February 2019, the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase-in over a three-year period the Day 1 adverse regulatory capital effects of CECL accounting standard.
In addition, the Dodd-Frank Act requires the federal banking agencies to adopt capital requirements that address the risks that the activities of an institution poses to the institution and the public and private stakeholders, including risks arising from certain enumerated activities. 14 Table of Contents In February 2019, the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase-in over a three-year period the Day 1 adverse regulatory capital effects of CECL accounting standard.
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.
We operate as a minority depository institution (“MDI”), 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 or a majority of the board of directors is minority and the community that the institution serves is predominantly minority.
SFR Loans. We originate qualified SFR mortgage loans and non-qualified, alternative documentation SFR mortgage loans through correspondent relationships and retail channels, including our branch network, to accommodate the needs of the Asian American market.
We originate qualified SFR mortgage loans and non-qualified, alternative documentation SFR mortgage loans through wholesale channels and retail channels, including our branch network, to accommodate the needs of the Asian-centric market. The qualified SFR mortgage loans are 15-year and 30-year conforming mortgages and may be sold directly to FNMA and FHLMC.
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.
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.
Our common stock is traded on the NASDAQ Global Select Market under the symbol “RBB.” 4 Table of Contents Our Strategic Plan In connection with the organization of the Company, we adopted a strategic plan that reflects the Company’s growth and recent developments.
Our common stock is traded on the NASDAQ Global Select Market under the symbol “RBB.” 4 Table of Contents Our Strategic Plan We update our strategic plan annually to reflect our growth, recent developments and describe our business objectives over a reasonable planning horizon.
With respect to the Bank, the Basel III Capital Rules also revise the Prompt Corrective Action (“PCA”) regulations pursuant to Section 38 of the Federal Deposit Insurance Act (the “FDIA”), as discussed below under “Prompt Corrective Action.” Prompt Corrective Action The FDIA requires federal banking agencies to take PCA in respect of depository institutions that do not meet minimum capital requirements.
Prompt Corrective Action The Federal Deposit Insurance Act ("FDIA") requires federal banking agencies to take “prompt corrective action” (“PCA”) in respect to depository institutions that do not meet minimum capital requirements.
The Company’s business, financial condition, results of operations or prospects may be adversely affected, perhaps materially. Federal and State Taxation Bancorp and the Bank report their income on a consolidated basis using the accrual method of accounting and are subject to federal income taxation in the same manner as other corporations with some exceptions.
Federal and State Taxation Bancorp and the Bank report their income on a consolidated basis using the accrual method of accounting and are subject to federal income taxation in the same manner as other corporations with some exceptions. We have not been audited by the Internal Revenue Service.
RBB Bancorp’s principal business is to serve as the holding company for its wholly-owned banking subsidiaries, Royal Business Bank (“Bank”) and RBB Asset Management Company (“RAM”), collectively referred to herein as “the Company.” The Bank began operations in 2008 as a California state-chartered commercial bank.
RBB Bancorp’s principal business is to serve as the holding company for its wholly-owned banking subsidiaries, Royal Business Bank (“Bank”) and RBB Asset Management Company (“RAM”), collectively referred to herein as "the Company." RBB Bancorp was formed in January 2011 as a bank holding company and RAM was formed in 2012 to hold and manage problem assets acquired in business combinations.
Pursuant to the FDIA and the California Financial Code, California state chartered commercial banks may generally engage in any activity permissible for national banks. Therefore, the Bank may form subsidiaries to engage in the many so-called “closely related to banking” or “nonbanking” activities commonly conducted by national banks in operating subsidiaries or subsidiaries of bank holding companies.
Because California permits commercial banks chartered by the state to engage in any activity permissible for national banks, the Bank can form subsidiaries to engage in activates “closely related to banking” or “nonbanking” activities and expanded financial activities.
As an Asian-American business bank that focuses on successful businesses and their owners, many of our depositors choose to leave large deposits with us.
Time deposits include deposits acquired through both retail and wholesale channels. Wholesale channels include brokered deposits, collateralized deposits from the State of California, and deposits acquired through internet listing services. As an Asian-centric business bank that focuses on successful businesses and their owners, many of our depositors choose to leave large deposits with us.
Beginning January 1, 2016, financial institutions were required to maintain a minimum capital conservation buffer to avoid restrictions on capital distributions such as dividends and equity repurchases and other payments such as discretionary bonuses to executive officers.
Basel III requires financial institutions to maintain a minimum “capital conservation buffer” on top of each of the minimum-risk based capital ratios to avoid restrictions on capital distributions such as dividends and equity repurchases and other payments such as discretionary bonuses to executive officers.
As of December 31, 2022, the C&D loans were comprised of $166.6 million of residential construction, $77.2 million of commercial construction, and $33.1 million of land acquisition and development. There were no non-accrual C&D loans as of December 31, 2023 compared to $141,000 as of December 31, 2022. SBA Loans.
As of December 31, 2023, the C&D loans totaled $181.5 million and were comprised of $80.3 million of residential construction, $78.1 million of commercial construction, and $23.1 million of land acquisition and development. There were $44.6 million non-accrual C&D loans as of December 31, 2024 compared to zero as of December 31, 2023. Commercial Real Estate Loans.
We intend to maintain our minority depository institution designation, as it is expected that at least 51% of our issued and outstanding shares of capital shall remain owned by minority individuals.
We intend to maintain our MDI designation, as it is expected that at least 51% of our issued and outstanding shares of capital shall remain owned by minority individuals. The MDI designation has been historically beneficial to us, and we continue to use the program for technical assistance. In addition, we have been designated a community development financial institution (“CDFI”).
Loans held for sale consist primarily of first trust deed mortgages on SFR properties located in California, New York and New Jersey. SFR mortgage loans held for sale are generally sold with the servicing rights retained. 7 Table of Contents Deposits The quality of our deposit franchise and access to stable funding are key components to our success.
SFR mortgage loans held for sale ("HFS") consist primarily of first trust deed mortgages on SFR properties located in California, New York and New Jersey. SFR mortgage loans HFS are generally sold with the servicing rights retained. Commercial and Industrial Loans. We have significant expertise in small to middle market C&I lending.
We value accountability because it is essential to our success, and we accept our responsibility to hold ourselves and others accountable for meeting shareholder commitments and achieving exceptional standards of performance. Staffing Model. The majority of our staff are regular full-time employees. We also employ regular part-time associates and some seasonal/temporary associates.
We value accountability because it is essential to our success, and we accept our responsibility to hold ourselves and others accountable for meeting shareholder commitments and achieving exceptional standards of performance. We are committed to fostering an inclusive environment that empowers our employees to make more meaningful contributions within our Company and the communities we serve. Staffing Model.
The multi-family residential loan portfolio totaled $573.4 million as of December 31, 2023 compared to $643.2 million as of December 31, 2022. Non-accrual CRE loans totaled $10.6 million and $13.2 million at December 31, 2023 and 2022. Construction and Land Development Loans. Our C&D loans are comprised of residential construction, commercial construction and land acquisition and development construction.
The multi-family residential loan portfolio totaled $605.5 million as of December 31, 2024 compared to $573.4 million as of December 31, 2023. Non-accrual CRE loans totaled $17.1 million and $10.6 million at December 31, 2024 and 2023. 6 Table of Contents SFR Loans.
Additionally, a rebuttable presumption of control arises when any person (including a company) seeks to acquire, directly or indirectly, 10% or more of any class of the Bank’s outstanding voting securities. Capital Requirements. Bank holding companies are required to maintain capital in accordance with Federal Reserve capital adequacy requirements, as affected by the Dodd-Frank Act and Basel III.
Additionally, a rebuttable presumption of control arises when any person (including a company) seeks to acquire, directly or indirectly, 10% or more of any class of the Bank’s outstanding voting securities.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe may also experience greater than anticipated customer losses even if the integration process is successful. ● To finance an acquisition, we may borrow funds or pursue other forms of financing, such as issuing voting and/or non-voting common stock or convertible preferred stock, which may have high dividend rights or may be highly dilutive to holders of our common stock, thereby increasing our leverage and diminishing our liquidity, or issuing capital stock, which could dilute the interests of our existing shareholders. ● We may be unsuccessful in realizing the anticipated benefits from acquisitions.
Biggest changeTo finance an acquisition, we may borrow funds, thereby increasing our leverage and diminishing our liquidity, or raise additional capital, which could dilute the interests of our existing stockholders.
The loss of any combination of these depositors, or a significant decline in the deposit balances due to ordinary course fluctuations related to these customers’ businesses, would adversely affect our liquidity and require us to raise deposit rates to attract new deposits, purchase federal funds or borrow funds on a short-term basis to replace such deposits.
The loss of any combination of these depositors, or a significant decline in the deposit balances due to ordinary course fluctuations related to these customers’ businesses, would adversely affect our liquidity and require us to raise deposit rates to attract new deposits, or otherwise purchase federal funds or borrow funds on a short-term basis to replace such deposits.
We are generally not restricted from issuing additional shares of our common stock, up to the 100 million shares of common stock and 100 million shares of preferred stock authorized in our articles of incorporation, which in each case could be increased by a vote of a majority of our shares.
We are also generally not restricted from issuing additional shares of our common stock, up to the 100 million shares of common stock and 100 million shares of preferred stock authorized in our articles of incorporation, which in each case could be increased by a vote of a majority of our shares.
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.
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. 27 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.
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.
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 credit losses, which would cause our net income, return on equity and capital to decrease.
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.
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. 36 Table of Contents Item 1B.
Such mishandling or misuse could include, for example, if such information were erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or if such information were to be intercepted or otherwise inappropriately taken by third parties, or if our own employees abused their access to financial systems to commit fraud against our clients and the Company.
Such mishandling or misuse could include, for example, if such information were erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or if such information were to be intercepted or otherwise inappropriately taken by third parties, or if our own employees abused their access to financial systems to commit fraud against our clients and us.
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.
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 in expanding our sales market for our non-qualified mortgage loans. These loans also present a 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. 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.
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. 34 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.
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.
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 our operations and/or stock price.
As the funding and sale of the guaranteed portion of SBA 7(a) loans is a major portion of our business and a significant portion of our noninterest income, any significant changes to the funding for the SBA 7(a) loan program may have an unfavorable impact on our prospects, future performance and results of operations.
As the funding and sale of the guaranteed portion of SBA 7(a) loans is a portion of our business and a part of our noninterest income, any significant changes to the funding for the SBA 7(a) loan program may have an unfavorable impact on our prospects, future performance and results of operations.
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.
As of January 1, 2022, we adopted ASU 2016-13 (ASC 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.
Because the CECL methodology is more dependent on future economic forecasts, assumptions, and models than the previous accounting standards, it may result in increases and add volatility to our ACL and future provisions for loan losses.
Because the CECL methodology is more dependent on future economic forecasts, assumptions, and models than the previous accounting standards, it may result in increases and add volatility to our ACL and future provisions for credit losses.
Cybersecurity, and the continued development and enhancement of controls, processes, and practices designed to protect client information, systems, computers, software, data, and networks from attack, damage, or unauthorized access remain a priority for the Company.
Cybersecurity, and the continued development and enhancement of controls, processes, and practices designed to protect client information, systems, computers, software, data, and networks from attack, damage, or unauthorized access remain a priority for us.
Because of the Company’s large transaction volume and its necessary dependence upon automated systems to record and process these transactions, there is a risk that technical flaws, tampering, or manipulation of those automated systems, arising from events wholly or partially beyond its control, may give rise to disruption of service to customers and to financial loss or liability.
Because of our large transaction volume and its necessary dependence upon automated systems to record and process these transactions, there is a risk that technical flaws, tampering, or manipulation of those automated systems, arising from events wholly or partially beyond its control, may give rise to disruption of service to customers and to financial loss or liability.
If the devices of the Company’s clients or vendors become the target of a cyber-attack, or information security breach, it could result in unauthorized access to, misuse of, or loss of confidential client, employee, monetary, or business information.
If the devices of our clients or vendors become the target of a cyber-attack, or information security breach, it could result in unauthorized access to, misuse of, or loss of confidential client, employee, monetary, or business information.
Risks Related to Our Business A decline in general business and economic conditions and any regulatory responses to such conditions could have a material adverse effect on our business, financial position, results of operations and growth prospects.
Risks Related to Our Business Changes in general business and economic conditions and any regulatory responses to such conditions could have a material adverse effect on our business, financial position, results of operations and growth prospects.
Climate change presents multi-faceted risks, including: operational risk from the physical effects of climate events on the Company and its clients’ facilities and other assets; credit risk from borrowers with significant exposure to climate risk; transition risks associated with the transition to a less carbon- dependent economy; and reputational risk from stakeholder concerns about our practices related to climate change, the Company’s carbon footprint, and the Company’s business relationships with clients who operate in carbon-intensive industries.
Climate change presents multi-faceted risks, including: operational risk from the physical effects of climate events on us and our clients’ facilities and other assets; credit risk from borrowers with significant exposure to climate risk; transition risks associated with the transition to a less carbon-dependent economy; and reputational risk from stakeholder concerns about our practices related to climate change, our carbon footprint, and our business relationships with clients who operate in carbon-intensive industries.
Therefore, if these changes occur, the volume of loans to small business, industrial and agricultural borrowers of the types that now qualify for government guaranteed loans could decline.
Therefore, if these changes occur, the volume of loans to small businesses, industrial and agricultural borrowers of the types that now qualify for government guaranteed loans could decline.
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.
As a commercial bank, we provide services to a number of clients whose deposit levels vary considerably and have a significant amount of seasonality. 165 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 at December 31, 2024.
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.
These events have in the past caused, and could in the future cause, us to implement measures to combat such health crises, including restrictions impacting individuals, including our current and potential investors and customers, and the manner in which business continues to operate.
The non-qualified single-family residential mortgage loans that we originate are designed to assist Asian-Americans who have recently immigrated to the United States and as such are willing to provide higher down payment amounts and pay higher interest rates and fees in return for reduced documentation requirements.
The non-qualified SFR mortgage loans that we originate are designed to assist Asian-Americans who have recently immigrated to the United States and as such are willing to provide higher down payment amounts and pay higher interest rates and fees in return for reduced documentation requirements.
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.
However, when interest rates decrease, the rate of interest we receive on our assets, such as loans, may decline 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.
Climate change could have a material negative impact on the Company and clients. The Company’s business, as well as the operations and activities of our clients, could be negatively impacted by climate change. Climate change presents both immediate and long-term risks to the Company and its clients, and these risks are expected to increase over time.
Climate change could have a material negative impact on us and clients. Our business, as well as the operations and activities of our clients, could be negatively impacted by climate change. Climate change presents both immediate and long-term risks to us and our clients, and these risks are expected to increase over time.
We increase or decrease shareholders’ equity by the amount of change from the unrealized gain or loss (the difference between the estimated fair value and the amortized cost) of our available-for-sale securities portfolio, net of the related tax, under the category of accumulated other comprehensive income (loss).
We increase or decrease shareholders’ equity by the amount of change from the unrealized gain or loss (the difference between the estimated fair value and the amortized cost) of our AFS securities portfolio, net of the related tax, under the category of accumulated other comprehensive income (loss).
Future equity issuances could result in dilution, which could cause our common stock price to decline.
Future sales or equity issuances could result in dilution, which could cause our common stock price to decline.
When we take collateral in foreclosure and similar proceedings, we are required to mark the collateral to its then-fair market value, which may result in a loss. These nonperforming loans and other real estate owned also increase our risk profile and the level of capital our regulators believe is appropriate for us to maintain in light of such risks.
When we take collateral in foreclosure and similar proceedings, we are required to mark the collateral to its then-fair market value, which may result in a loss. These nonperforming assets also increase our risk profile and the level of capital our regulators believe is appropriate for us to maintain in light of such risks.
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.
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, 2024, the fair value of our securities portfolio was approximately $425.1 million.
Threat actors using improperly obtained personal or financial information of consumers can attempt to obtain loans, lines of credit, or other financial products from the Company, or attempt to fraudulently persuade the Company’s employees, clients, or other users of the Company’s systems to disclose confidential information in order to gain improper access to the Company’s information and information systems.
Threat actors using improperly obtained personal or financial information of consumers can attempt to obtain loans, lines of credit, or other financial products from us, or attempt to fraudulently persuade our employees, clients, or other users of our systems to disclose confidential information in order to gain improper access to our information and information systems.
The occurrence of any of these risks could result in a diminished ability for us to operate our business, additional costs to correct defects, potential liability to clients, reputational intervention, any of which could adversely affect our business, financial condition and results of operations. Liabilities from environmental regulations could materially and adversely affect our business and financial condition.
The occurrence of any of these risks could result in a diminished ability for us to operate our business, additional costs to correct defects, potential liability to clients, reputational intervention, any of which could adversely affect our business, financial condition and results of operations.
The trading price of the shares of our common stock and the value of our other securities will depend on many factors, which may change from time to time, including, without limitation, our financial condition, performance, creditworthiness and prospects, future sales of our equity or equity related securities, and other factors identified above in “Forward-Looking Statements,” and in this Item 1A — “Risk Factors.” The capital and credit markets can experience volatility and disruption.
The trading price of the shares of our common stock and the value of our other securities will depend on many factors, which may change from time to time, including, without limitation, our financial condition, performance, creditworthiness and prospects, future sales of our equity or equity related securities, and other factors identified above in “Forward-Looking Statements,” and in this Item 1A.
As of December 31, 2023, 3.3% of our total SFR mortgage loan portfolio were loans originated to foreign nationals.
As of December 31, 2024, 3.0% of our total SFR mortgage loan portfolio were loans originated to foreign nationals.
Our actions to maintain effective controls and remedy any weakness or deficiency may not be sufficient to result in an effective internal control environment and any future failure to maintain effective internal control over financial reporting could impair the reliability of our financial statements, which in turn could harm our business, impair investor confidence in the accuracy and completeness of our financial reports, impair our access to the capital markets, cause the price of our common stock to decline and subject us to increased regulatory scrutiny and/or penalties, and higher risk of shareholder litigation.
Our actions to maintain effective controls and remedy any weakness or deficiency may not be sufficient to result in an effective internal control environment and any future failure to maintain effective internal control over financial reporting could impair the reliability of our financial statements, which in turn could harm our business, impair investor confidence in the accuracy and completeness of our financial reports, impair our access to the capital markets, cause the price of our common stock to decline and subject us to increased regulatory scrutiny and/or penalties, and higher risk of shareholder litigation. 32 Table of Contents 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.
We are 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.
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.
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, 2024, our non-qualified SFR mortgage loans had an average loan-to-value of 55.9% and an average FICO score of 763.
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.
We are based in California and at December 31, 2024, approximately 59.2% of the aggregate outstanding principal of our total loan portfolio was secured by real estate located in California or businesses in California. In addition, the computer systems that operate our Internet websites and some of their back-up systems are located in California.
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 have outstanding options to purchase 174,500 shares of our common stock as of December 31, 2024 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 1,004,658 shares of common stock pursuant to our 2017 Omnibus Stock Incentive Plan.
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%.
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. 30 Table of Contents As of December 31, 2024, our ACL as a percentage of total loans HFI was 1.59% and as a percentage of total nonperforming loans HFI was 69.4%.
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.
Mortgage production, including refinancing activity, historically declines in rising interest rate environments, which we have experienced in recent years. 28 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.
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.
There was no other real estate owned ("OREO") at December 31, 2024. Our nonperforming assets 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.
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.
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.
The sale of any of such shares could cause the market price of our stock to decline, and concerns that those sales may occur could cause the trading price of our common stock to decrease or to be lower than it might otherwise be. Our business and financial results could be impacted materially by adverse results in legal proceedings.
The sale of any of such shares could cause the market price of our stock to decline, and concerns that those sales may occur could cause the trading price of our common stock to decrease or to be lower than it might otherwise be.
In addition, the Company’s clients and vendors rely on technology and systems unmanaged by the Company, such as networking devices, server infrastructure, personal computers, smartphones, tablets, and other mobile devices, to contact and conduct business with the Company.
In addition, our clients and vendors rely on technology and systems not managed directly by us, such as networking devices, server infrastructure, personal computers, smartphones, tablets, and other mobile devices, to contact and conduct business with us.
Rising inflation can also increase input and inventory costs for our customers, forcing them to raise their prices or lower their profitability. Supply chain disruption, also leading to inflation, can delay our customers’ shipping ability, or timing on receiving inputs for their production or inventory. Inflation can lead to higher wages for our business customers, increasing costs.
Supply chain disruption, also leading to inflation, can delay our customers’ shipping ability, or timing on receiving inputs for their production or inventory. Inflation can lead to higher wages for our business customers, increasing costs.
Other Risks Related to Our Business If we fail to maintain effective internal control over financial reporting, or if we fail to remediate material weaknesses previously identified, we may not be able to report our financial results accurately and timely.
Expansion of our business beyond California could have a material adverse effect on our operations and financial results. Other Risks Related to Our Business If we fail to maintain effective internal control over financial reporting, or if we fail to remediate material weaknesses previously identified, we may not be able to report our financial results accurately and timely.
Our bank regulatory agencies will periodically review our ACL and the value attributed to nonaccrual loans or to real estate acquired through foreclosure and may require us to adjust our determination of the value for these items. These adjustments may adversely affect our business, financial condition and results of operations.
Our bank regulatory agencies will periodically review our ACL and the value attributed to nonaccrual loans or to OREO and may require us to adjust our determination of the value for these items. These adjustments may adversely affect our business, financial condition and results of operations. Risks Related to our Growth Strategy Acquisitions may disrupt our business.
In the course of our business, we may foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties.
Potential environmental liabilities associated with commercial lending could materially and adversely affect our business and financial condition. In the course of our business, we may foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties.
Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit, and reputational risks and costs. With the increased importance and focus on climate change, we are making efforts to enhance our governance of climate change-related risks and integrate climate considerations into our risk governance framework.
Ongoing legislative or regulatory developments and changing climate risk management and related practices may result in higher regulatory, compliance and credit risks and costs. We are making efforts to enhance our governance of climate change-related risks and integrate climate considerations into our risk governance framework.
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.
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. 35 Table of Contents Our business and financial results could be impacted materially by adverse results in legal proceedings.
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.
Consequently, as of December 31, 2024, we held $47.3 million of SBA loans on our balance sheet, of which $45.3 million or 95.9% consisted of the non-guaranteed portion of SBA loans and $2.0 million or 4.1% consisted of the guaranteed portion of SBA loans.
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.
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.
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 .
Other factors, for example a cybersecurity breach that is specific to us, could also impair our ability to acquire or retain deposits. The inability to maintain adequate liquidity could materially and adversely affect our business, results of operations or financial condition. Our business depends on our ability to attract and retain Asian-American immigrants as clients .
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.
This amounted to $1.1 billion, or approximately 34%, of the Bank’s total deposits as of December 31, 2024. In addition, our ten largest depositor relationships accounted for approximately 11% of our deposits at December 31, 2024. Our largest depositor relationship accounted for approximately 2.2% of our deposits at December 31, 2024. These deposits can and do fluctuate substantially.
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 paid total dividends of $0.56 per share in 2022, and $0.64 per share in 2023 and 2024. We have no obligation to pay dividends and we may change our dividend policy at any time without notice to our shareholders.
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 originated $31.2 million of SBA loans for the year ended December 31, 2024. We sold $13.8 million of the guaranteed portion of our SBA loans for the year ended December 31, 2024.
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.
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.
Although management believes that the ACL is adequate to absorb losses on any existing loans that may become uncollectible, we may be required to take additional provisions for credit losses in the future to further supplement the ACL, either due to management’s decision to do so or because our banking regulators require us to do so.
Although management believes that the ACL is adequate to absorb losses on any existing loans that may become uncollectible, we may be required to take additional provisions for credit losses in the future to further supplement the ACL, due to a variety of factors.
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.
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. Real estate construction loans, including land development loans, comprised approximately 5.7% of our total loan portfolio as of December 31, 2024.
Nonperforming assets take significant time to resolve and adversely affect our results of operations and financial condition, and could result in further losses in the future.
Nonperforming assets take significant time to resolve and adversely affect our results of operations and financial condition, and could result in further losses in the future. As of December 31, 2024, our nonperforming assets totaled $81.0 million, or 2.03%, of total assets.
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.
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 credit losses.
Depending on the interest rate environment and competitive factors, low cost deposits may need to be replaced with higher cost funding, resulting in a decrease in net interest income and net income.
Depending on the interest rate environment and competitive factors, low cost deposits may need to be replaced with higher cost funding, resulting in a decrease in net interest income and net income. Consequently, the occurrence of these events could have a material adverse impact to our operations and financial results.
In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it. The risks inherent in construction lending may affect adversely our results of operations.
In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it. If any of these events occur, our financial condition, results of operations and cash flows could be materially and adversely affected.
Nevertheless, the FDIC could become concerned about our CRE loan concentrations, and they could limit our ability to grow by restricting their approvals for the establishment or acquisition of branches, or approvals of mergers or other acquisition opportunities. Our SFR loan product consists primarily of non-qualified SFR mortgage loans, which may be considered less liquid and more risky.
Nevertheless, the FDIC or the DFPI could become concerned about our CRE loan concentrations, and they could limit our ability to grow by restricting their approvals for the establishment or acquisition of branches, or approvals of mergers or other acquisition opportunities.
Uncertainties also have arisen regarding the potential for a reversal or renegotiation of international trade agreements, as the current U.S. administration has with China, the European Union and the United Kingdom.
Uncertainties also have arisen regarding the potential for a reversal or renegotiation of international trade agreements with China, the European Union and the United Kingdom, and the impact such actions may have on economic and market conditions.
A significant deterioration of economic conditions in Asia could expose us to, among other things, economic and transfer risk, and we could experience an outflow of deposits by those of our customers with connections to Asia. Transfer risk may result when an entity is unable to obtain the foreign exchange needed to meet its obligations or to provide liquidity.
For example, a significant deterioration of economic conditions in Asia could expose us to, among other things, economic and transfer risk, and we could experience an outflow of deposits by those of our customers with connections to Asia.
Ultimately, we may not be able to compete successfully against current and future competitors. If we are unable to attract and retain banking and mortgage loan customers and expand our sales market for such loans, we may be unable to continue to grow our business, and our financial condition and results of operations may be adversely affected.
If we are unable to attract and retain banking and mortgage loan customers and expand our sales market for such loans, we may be unable to continue to grow our business, which could have a material negative impact on our business, results of operations and financial condition.
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.
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. 29 Table of Contents 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.
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.
As of that dat e, 97.0% 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.
The impact on earnings is more adverse when the slope of the yield curve flattens, that is, when short-term interest rates increase more than long-term interest rates or when long-term interest rates decrease more than short-term interest rates. Interest rate increases often result in larger payment requirements for our borrowers, which increases the potential for default.
The impact on earnings is more adverse when the slope of the yield curve flattens or becomes inverted, that is, when short-term interest rates remain constant or increase more than long-term interest rates or when long-term interest rates decrease more than short-term interest rates.
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.
Nonperforming loans totaled $81.0 million, and consisted of $11.2 million of nonaccrual loans HFS, and $69.8 million of nonaccrual loans HFI. Nonaccrual loans HFI were 2.29% of our loan HFI portfolio. In addition, we had $22.1 million in accruing loans that were 30-89 days delinquent as of December 31, 2024.
The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the area in which the real estate is located.
At December 31, 2024, approximately 94.0% of our loan portfolio was comprised of loans with real estate as a primary or secondary component of collateral. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the area in which the real estate is located.
Such declines and losses would have a material adverse impact on our business, results of operations and growth prospects. In addition, if hazardous or toxic substances are found on properties pledged as collateral, the value of the real estate could be impaired.
If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity, and results of operations could be materially and adversely affected. In addition, if hazardous or toxic substances are found on properties pledged as collateral, the value of the real estate could be impaired.
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.
Commercial loans are often larger and involve greater risks than other types of lending.
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.
At December 31, 2024, we had $1.5 billion of commercial loans, consisting of $1.2 billion of CRE loans, $129.6 million of C&I loans for which real estate is not the primary source of collateral and $173.3 million of C&D loans. C&I loans represented 4.2% of our total loan portfolio at December 31, 2024.
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.
At December 31, 2024, $420.2 million of our securities were classified as AFS with an aggregate pre-tax net unrealized loss of $29.2 million.
Such volatility and disruption can reach unprecedented levels, resulting in downward pressure on stock prices and credit availability for certain issuers without regard to their underlying financial strength. A significant decline in our stock price could result in substantial losses for individual stockholders and could lead to costly and disruptive securities litigation. Our dividend policy may change.
Risk Factors. The capital and credit markets can experience volatility and disruption. Such volatility and disruption can reach unprecedented levels, resulting in downward pressure on stock prices and credit availability for certain issuers without regard to their underlying financial strength.
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.
If the national, regional and local economies experience a decline in economic conditions, including high levels of unemployment, our growth and profitability could be constrained.
If we foreclose on and take title to such properties, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property.
If we foreclose on and take title to such properties, we may be liable for remediation costs, as well as for personal injury and property damage.
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.
In a declining interest rate environment, there may be an increase in prepayments on loans as borrowers refinance their mortgages and other indebtedness at lower rates. At December 31, 2024, total loans held for investment ("HFI") were 81.7% of our earning assets and exhibited a positive 4% sensitivity to rising interest rates in a 100 basis point parallel shock.
Pursuant to the CRE Concentration Guidelines, loans secured by owner occupied commercial real estate are not included for purposes of CRE Concentration calculation. We believe that the CRE Concentration Guidance is applicable to us.
Pursuant to the CRE Concentration Guidelines, loans secured by owner occupied commercial real estate are not included for purposes of CRE Concentration calculation. As of December 31, 2024, our CRE loans represented 207% of our Bank total risk-based capital, as compared to 183% as of December 31, 2023.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe CISO is responsible for the Bank’s Information Security and Cybersecurity Program, which is designed to prevent, detect and respond to cybersecurity threats and incidents in order to help safeguard the confidentiality, integrity and availability of the Bank's information systems and information.
Biggest changeReporting to the Chief Risk Officer (“CRO”) and Chief Information Officer (“CIO”), the ISO and his team are responsible for identifying, assessing and managing information security and cybersecurity risks, and for implementing and maintaining controls to prevent, detect and respond to cybersecurity threats and incidents, safeguarding the confidentiality, integrity and availability of the Bank's information systems and data.
The Bank’s security efforts and implemented controls are designed to protect against, among other things, cybersecurity attacks that can result in unauthorized access to confidential information, the destruction of data, disruptions to or degradations of service, the sabotaging of systems or other damage.
The Bank’s security efforts and implemented controls are designed to protect against, among other things, cybersecurity attacks that can result in unauthorized access of confidential information, the destruction of data, disruptions to or degradations of service, the sabotaging of systems or other damage.
As part of the Information Security and Cybersecurity Program, the Bank conducts periodic employee training to educate employees on information and cybersecurity risks and to reinforce security management practices and compliance with the Bank's security policies and standards. The training is mandatory for all employees and is supplemented by testing initiatives, including periodic phishing tests.
As part of the Information Security and Cybersecurity Program, the Bank conducts periodic employee training to educate employees on information and cybersecurity risks and to reinforce security management practices and compliance with the Bank's security policies and standards. Training is mandatory for all employees and is supplemented by testing initiatives, including periodic phishing tests.
Notwithstanding our efforts at cybersecurity, the Bank cannot guarantee that those efforts will successfully prevent or mitigate a cybersecurity incident that could have a material adverse effect on it. To our knowledge, cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected the Bank, including its business strategy, results of operations or financial condition.
Notwithstanding the Bank's efforts at cybersecurity, the Bank cannot guarantee that those efforts will successfully prevent or mitigate a cybersecurity incident that could have a material adverse effect on it. To our knowledge, cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected the Bank, including its business strategy, results of operations or financial condition.
The Bank’s strategy for assessing, identifying, and managing cybersecurity risks and for evaluating the effectiveness of its cybersecurity program includes periodic risk assessments and testing of our systems, processes and procedures through audits, penetration testing, vulnerability scans, tabletop exercises, and other related exercises.
The Bank’s strategy for assessing, identifying, and managing cybersecurity risks and for evaluating the effectiveness of its cybersecurity program includes periodic risk assessments and testing of its systems, processes and procedures through audits, penetration testing, vulnerability scans, tabletop exercises, and other related exercises.
Third parties with which the Bank does business, that facilitate the Bank’s business activities, e.g., vendors, supply chain, exchanges, clearing houses, central depositories, and financial intermediaries are sources of cybersecurity risk to the Bank.
Third parties with which the Bank does business, which facilitate the Bank’s business activities, e.g., vendors, supply chain, exchanges, clearing houses, central depositories, and financial intermediaries are sources of cybersecurity risk to the Bank.
Both the IT and Audit Committees are comprised of professionals with risk management and information technology expertise to manage any material risk from a cybersecurity threat standpoint. The membership of the IT Committee includes members of the executive management team as well as directors of the Bank. The CIO and CISO actively participate in all IT Committee meetings.
Both the IT and Audit Committees are comprised of professionals with risk management and information technology expertise to manage any material risk from a cybersecurity threat standpoint. The membership of the IT Committee includes members of the executive management team as well as directors of the Bank. The CIO and ISO actively participate in all IT Committee meetings.
Both CIO and CISO have extensive experience and qualifications in various technology and information security disciplines, including relevant experience at the Bank. Additionally, the Audit Committee has oversight of the management of cybersecurity risk via validation and review of IT and cybersecurity risk assessments and audits.
Both CIO and ISO have extensive experience and qualifications in various technology and information security disciplines, including relevant experience at the Bank. Additionally, the Audit Committee has oversight of the management of cybersecurity risk via validation and review of IT and cybersecurity risk assessments and audits.
Governance The IT Committee and Audit Committee are the principal board committees that oversees the Bank’s assessment and management of cybersecurity risk, including oversight of the implementation and maintenance of appropriate controls in support of the Bank’s Information Security and Cybersecurity Program.
Governance The IT Committee and Audit Committee are the principal board committees that oversee the Bank’s assessment and management of cybersecurity risk, including oversight of the implementation and maintenance of appropriate controls in support of the Bank’s Information Security and Cybersecurity Program.
The information security and cybersecurity program is designed to assess, identify, and manage risks from cybersecurity threats and leverages controls, best practices recommendations, and standards from the Federal Financial Institutions Examination Council (“FFIEC”) and the National institute of Standards and Technology (“NIST”) Cybersecurity Framework, and standards set by relevant legal and regulatory authorities.
The information security and cybersecurity program is designed to manage risks relating to cybersecurity threats and leverages controls, best practices recommendations, and standards from the Federal Financial Institutions Examination Council (“FFIEC”) and the National institute of Standards and Technology (“NIST”) Cybersecurity Framework, and standards set by relevant legal and regulatory authorities.
The CIO has over 20 years of work experience in the development, operation and management of Information Technology at financial institutions. The CISO has over 10 years of work experience in building and overseeing cybersecurity programs at financial institutions.
The CIO has over 20 years of work experience in the development, operation and management of Information Technology at financial institutions. The ISO has over 10 years of work experience in building and overseeing cybersecurity programs at financial institutions.
The CISO provides reporting metrics on cybersecurity risks to the IT Committee, which meets eight times a year. The IT and Audit Committees assist the Board of Directors in its oversight.
The ISO provides reporting metrics on cybersecurity risks to the IT Committee, which meets at least four times a year. The IT and Audit Committees assist the Board of Directors in its oversight.
The Bank maintains a process to evaluate and manage risks associated with third-party service providers. We conduct a full vendor due diligence review before engagement, review specific security measures in our contracts, and maintain continued monitoring during the engagement including yearly due diligence reviews.
We conduct a full vendor due diligence review before engagement, review specific security measures in our contracts, and maintain continued monitoring during the engagement including yearly due diligence reviews.
The Bank engages third parties on a regular basis to assess, test, audit or assist with the implementation of our risk management strategies, policies, and procedures to enhance our detection and management of cybersecurity risks, including, but not limited to: consultants who assist with assessing risks, assess of our systems alignment with NIST Cybersecurity Framework, FFIEC, penetration testing, tabletop exercises and other regulatory agency requirements.
The Bank engages third parties on a regular basis to assess, test, audit or assist with the implementation of risk management strategies, policies, and procedures to enhance the detection and management of cybersecurity risks.
Extensive technical controls are in place for identifying and managing cybersecurity risks and safeguarding our information systems and information. The Bank uses sophisticated industry-recognized monitoring and threat detection technologies that continuously monitor our information systems and provide threat detection alerts.
The Bank uses sophisticated industry-recognized monitoring and threat detection technologies that continuously monitor its information systems and provide threat detection alerts.
Our policies and procedures concerning cybersecurity matters include processes to safeguard our information systems, monitor these systems, protect the confidentiality and integrity of our data, detect intrusions into our systems, and respond to cybersecurity incidents. The Chief Information Security Officer (“CISO”) reports to the Chief Information Officer (“CIO”) and Chief Risk Officer (“CRO”).
The Bank's policies and procedures concerning cybersecurity matters include processes to safeguard its information systems, monitor these systems, protect the confidentiality and integrity of its data, detect intrusions into its systems, and respond to cybersecurity incidents. Extensive technical controls are in place for identifying and managing cybersecurity risks and safeguarding Bank information systems and information.
Removed
The CISO leads the Information Security team, which is responsible for identifying and assessing information security and cybersecurity risks, and for implementing and maintaining controls to manage information security and cybersecurity threats.
Added
The Information Security Officer (“ISO”) oversees the Bank's Information Security and Cybersecurity Program and leads the Information Security team.
Added
Cybersecurity risk management strategies include, but are not limited to: consultants who assist with assessing risks, assessing systems alignment with NIST Cybersecurity Framework, and FFIEC, penetration testing, tabletop exercises and other regulatory agency requirements. The Bank maintains a process to evaluate and manage risks associated with third-party service providers.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur 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.
Biggest changeOur 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. 37 Table of Contents Our headquarters office is located at 1055 Wilshire Blvd. Suite 1200, Los Angeles, California 90017.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. In the normal course of business, we are named or threatened to be named as a defendant in various lawsuits. Management, following consultation with legal counsel, does not expect the ultimate disposition of any or a combination of these matters to have a material adverse effect on our business.
Biggest changeItem 3. Legal Proceedings. In the normal course of business, we are named or threatened to be named as a defendant in various lawsuits. Management does not expect the ultimate disposition of any or a combination of these matters to have a material adverse effect on our business.
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." 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.
We accrue 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
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+3 added−2 removed6 unchanged
Biggest changeThe 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.
Biggest changeThe 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 Item 1.
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.
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, 2024.
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.
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.
As a bank holding company, our ability to pay dividends is affected by the policies and enforcement powers of the Federal Reserve.
As a bank holding company, our ability to pay dividends is affected by the policies and enforcement powers of the Federal Reserve. Information on regulatory restrictions on our ability to pay dividends is set forth in Item 1. Business— Supervision and Regulation – The Company – Dividend Payments .
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.
There is no assurance that our common stock performance will continue in the future with the same or similar results as shown in the graph.
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.
Shareholders As of March 12, 2025, we had approximately 2,813 common stock shareholders of record, and the closing price of our common stock was $16.93 per share.
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.
The graph assumes an investment of $100.00 in our common stock and each index on December 31, 2019 and reinvestment of all quarterly dividends. Measurement points are December 31, 2019 and the last trading day of each year-end through December 31, 2024.
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.
Period Ending Index 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 RBB Bancorp 100.00 74.30 129.57 105.60 100.94 112.07 Russell 2000 Index 100.00 119.96 137.74 109.59 128.14 142.93 KBW Nasdaq Regional Banking Index 100.00 91.29 124.74 116.10 115.64 130.90 Source: S&P Global Market Intelligence © 2025 Unregistered Sales and Issuer Purchases of Equity Securities On February 29, 2024, the Board of Directors approved a stock repurchase program to buy back up to an aggregate of 1,000,000 shares of Company common stock.
Removed
We 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.
Added
Business— Supervision and Regulation—The Bank—Dividend Payments. 39 Table of Contents Stock Performance Graph The following graph compares the cumulative total shareholder return on our common stock from December 31, 2019 through December 31, 2024. The graph compares our common stock with the Russell 2000 Index and the SNL Bank $1B-$5B Index.
Removed
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.]
Added
On June 14, 2022, March 16, 2022 and April 22, 2021 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.
Added
We repurchased zero shares of common stock during the fourth quarter of 2024 and we repurchased 1,036,750 shares of common stock during the first three quarters of 2024 completing our authorized repurchase programs. 40 Table of Contents Item 6. [Reserved.]

Item 7. Management's Discussion & Analysis

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

186 edited+80 added−70 removed37 unchanged
Biggest change(dollars in thousands) Amortized Unrealized Unrealized Fair December 31, 2023 Cost Gains Losses Value Available for sale Government agency securities $ 8,705 $ — $ (544 ) $ 8,161 SBA agency securities 13,289 144 (216 ) 13,217 Mortgage-backed securities: residential 40,507 — (5,855 ) 34,652 Collateralized mortgage obligations: residential 94,071 454 (12,198 ) 82,327 Collateralized mortgage obligations: commercial 69,941 22 (2,664 ) 67,299 Commercial paper 73,121 — (16 ) 73,105 Corporate debt securities 34,800 — (4,109 ) 30,691 Municipal securities 12,636 — (3,127 ) 9,509 $ 347,070 $ 620 $ (28,729 ) $ 318,961 Held to maturity Municipal taxable securities $ 501 $ 3 $ — $ 504 Municipal securities 4,708 — (115 ) 4,593 $ 5,209 $ 3 $ (115 ) $ 5,097 December 31, 2022 Available for sale Government agency securities $ 5,012 $ — $ (517 ) $ 4,495 SBA securities 2,634 — (223 ) 2,411 Mortgage-backed securities: residential 44,809 — (6,752 ) 38,057 Mortgage-backed securities: commercial 4,887 — (16 ) 4,871 Collateralized mortgage obligations: residential 82,759 — (12,856 ) 69,903 Collateralized mortgage obligations: commercial 44,591 — (2,901 ) 41,690 Commercial paper 49,551 2 (16 ) 49,537 Corporate debt securities 41,176 1 (4,165 ) 37,012 Municipal securities 12,669 — (3,815 ) 8,854 $ 288,088 $ 3 $ (31,261 ) $ 256,830 Held to maturity Municipal taxable securities $ 1,003 $ 7 $ (3 ) $ 1,007 Municipal securities 4,726 — (170 ) 4,556 $ 5,729 $ 7 $ (173 ) $ 5,563 The weighted-average yield on the total investment portfolio at December 31, 2023 was 4.00% with a weighted-average life of 5.1 years.
Biggest changeDecember 31, 2024 December 31, 2023 December 31, 2022 Amount % of Total Amount % of Total Amount % of Total Securities, available for sale, at fair value (dollars in thousands) Government agency securities $ 21,042 4.9 % $ 8,161 2.5 % $ 4,495 1.7 % SBA agency securities 26,764 6.3 % 13,217 4.1 % 2,411 0.9 % Mortgage-backed securities: residential 55,677 13.1 % 34,652 10.7 % 38,057 14.4 % Mortgage-backed securities: commercial — 0.0 % — 0.0 % 4,871 1.9 % Collateralized mortgage obligations: residential 105,476 24.8 % 82,327 25.3 % 69,903 26.6 % Collateralized mortgage obligations: commercial 91,656 21.5 % 67,299 20.8 % 41,690 15.9 % Commercial paper 78,685 18.5 % 73,105 22.6 % 49,537 18.9 % Corporate debt securities (1) 31,815 7.5 % 30,691 9.5 % 37,012 14.1 % Municipal tax-exempt securities 9,075 2.2 % 9,509 2.8 % 8,854 3.4 % Total securities, available for sale, at fair value $ 420,190 98.8 % $ 318,961 98.3 % $ 256,830 97.8 % Securities, held to maturity, at amortized cost Taxable municipal securities $ 500 0.1 % $ 501 0.2 % $ 1,003 0.4 % Tax-exempt municipal securities 4,691 1.1 % 4,708 1.5 % 4,726 1.8 % Total securities, held to maturity, at amortized cost 5,191 1.2 % 5,209 1.7 % 5,729 2.2 % Total securities $ 425,381 100.0 % $ 324,170 100.0 % $ 262,559 100.0 % (1) Comprised of corporate debt securities and individual financial institution subordinated debentures 51 Table of Contents The tables below set forth investment debt securities AFS and HTM as of the dates indicated: Amortized Unrealized Unrealized Fair December 31, 2024 Cost Gains Losses Value Available for sale (dollars in thousands) Government agency securities $ 21,592 $ — $ (550 ) $ 21,042 SBA agency securities 27,231 — (467 ) 26,764 Mortgage-backed securities: residential 62,351 — (6,674 ) 55,677 Collateralized mortgage obligations: residential 117,936 178 (12,638 ) 105,476 Collateralized mortgage obligations: commercial 94,284 175 (2,803 ) 91,656 Commercial paper 78,687 1 (3 ) 78,685 Corporate debt securities 34,733 43 (2,961 ) 31,815 Municipal tax-exempt securities 12,602 — (3,527 ) 9,075 $ 449,416 $ 397 $ (29,623 ) $ 420,190 Held to maturity Municipal taxable securities $ 500 $ 1 $ — $ 501 Municipal tax-exempt securities 4,691 — (244 ) 4,447 $ 5,191 $ 1 $ (244 ) $ 4,948 December 31, 2023 Available for sale (dollars in thousands) Government agency securities $ 8,705 $ — $ (544 ) $ 8,161 SBA securities 13,289 144 (216 ) 13,217 Mortgage-backed securities: residential 40,507 — (5,855 ) 34,652 Collateralized mortgage obligations: residential 94,071 454 (12,198 ) 82,327 Collateralized mortgage obligations: commercial 69,941 22 (2,664 ) 67,299 Commercial paper 73,121 — (16 ) 73,105 Corporate debt securities 34,800 — (4,109 ) 30,691 Municipal securities 12,636 — (3,127 ) 9,509 $ 347,070 $ 620 $ (28,729 ) $ 318,961 Held to maturity Municipal taxable securities $ 501 $ 3 $ — $ 504 Municipal securities 4,708 — (115 ) 4,593 $ 5,209 $ 3 $ (115 ) $ 5,097 The weighted-average life on the total investment portfolio at December 31, 2024 was 5.0 years compared to a weighted-average life of 5.1 years at December 31, 2023.
C&I loans include lines of credit with a maturity of one year or less, C&I term loans with maturities of five years or less, shared national credits with maturities of five years or less, mortgage warehouse lines with a maturity of one year or less, bank subordinated debentures with a maturity of 10 years and international trade discounts with a maturity of three months or less.
C&I loans include lines of credit with a maturity of one year or less, term loans with maturities of five years or less, shared national credits with maturities of five years or less, mortgage warehouse lines with a maturity of one year or less, bank subordinated debentures with a maturity of 10 years and international trade discounts with a maturity of three months or less.
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.
CRE loans include owner-occupied and non-occupied commercial real estate, multi-family residential and SFR loans originated for a business purpose.
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.
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. 67 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.
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 FAIC Trust I 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.
PGBH Trust issued 5,000 units of fixed-to-floating rate capital securities with an aggregate liquidation amount of $5.0 million and all of its common securities with an aggregate liquidation amount of $155,000.
PGBH Trust I issued 5,000 units of fixed-to-floating rate capital securities with an aggregate liquidation amount of $5.0 million and all of its common securities with an aggregate liquidation amount of $155,000.
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.
Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable. 60 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.
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.
As is customary in the banking industry, loans that meet our underwriting criteria may 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.
In addition, we did not have the current intent to sell securities with a fair value below amortized cost at December 31, 2023, and it is more likely than not that we will not be required to sell such securities prior to the recovery of their amortized cost basis.
In addition, we did not have the current intent to sell securities with a fair value below amortized cost at December 31, 2024, and it is more likely than not that we will not be required to sell such securities prior to the recovery of their amortized cost basis.
As a result, the data shown below should not be viewed as an indication of future cash flows.
Also, as a result, the data shown below should not be viewed as an indication of future cash flows.
Liquid assets include cash, interest-earning deposits in banks, federal funds sold, available for sale securities, term federal funds, purchased receivables and maturing or prepaying balances in our securities and loan portfolios. Liquid liabilities include core deposits, federal funds purchased, securities sold under repurchase agreements and other borrowings.
Liquid assets include cash, interest-earning deposits in banks, federal funds sold, available for sale securities, term federal funds, purchased receivables and maturing or prepaying balances in our securities and loan portfolios. Liquid liabilities include retail deposits, federal funds purchased, securities sold under repurchase agreements and other borrowings.
The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of discount accretion and net deferred loan origination costs accounted for as yield adjustments.
The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of premium amortization, discount accretion and amortization of net deferred loan origination costs accounted for as yield adjustments.
The Company's policy is to evaluate the deferred tax assets on a quarterly basis and record a valuation allowance for the Company's deferred tax assets if there is not sufficient positive evidence available to demonstrate utilization of the Company's deferred tax assets.
Our policy is to evaluate the deferred tax assets on a quarterly basis and record a valuation allowance for the deferred tax assets if there is not sufficient positive evidence available to demonstrate utilization of the deferred tax assets.
Management measures return on average tangible common equity (“ROATCE”) to assess the Company’s capital strength and business performance. Tangible equity excludes goodwill and other intangible assets (excluding mortgage servicing rights), and is reviewed by banking and financial institution regulators when assessing a financial institution’s capital adequacy.
Management measures return on average tangible common equity (“ROATCE”) to assess our capital strength and business performance. Tangible equity excludes goodwill and other intangible assets (excluding mortgage servicing rights), and is reviewed by banking and financial institution regulators when assessing a financial institution’s capital adequacy.
At the close of this acquisition, a $1.9 million valuation reserve was recorded to arrive at its fair market value, which is treated as a yield adjustment and amortized over the life of the security. The unamortized valuation reserve was $1.2 million at December 31, 2023 and $1.3 million at December 31, 2022.
At the close of this acquisition, a $1.9 million valuation reserve was recorded to arrive at its fair market value, which is treated as a yield adjustment and amortized over the life of the security. The unamortized valuation reserve was $1.1 million at December 31, 2024 and $1.2 million at December 31, 2023.
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.
An initial setup or an increase to the 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 2024 audited financial statements included in Item 8.
The increase in the participation in these programs is attributed to the general banking landscape and premium placed on liquidity in the marketplace. 65 Table of Contents FHLB Borrowings.
The increase in the participation in these programs is attributed to the general banking landscape and premium placed on liquidity in the marketplace. 63 Table of Contents FHLB Borrowings.
The Company evaluates goodwill for impairment annually, or more frequently if events and circumstances lead management to believe the value of goodwill may be impaired. In accordance with ASC 350-20, “Goodwill,” impairment of goodwill is the condition that exists when the carrying amount of a reporting unit that includes goodwill exceeds its fair value.
We evaluate goodwill for impairment annually, or more frequently if events and circumstances lead management to believe the value of goodwill may be impaired. In accordance with ASC 350-20, “Goodwill,” impairment of goodwill is the condition that exists when the carrying amount of a reporting unit that includes goodwill exceeds its fair value.
Such unfunded commitments totaled $3.3 million and $3.5 million as of December 31, 2023 and 2022. Non-GAAP Financial Measures Some of the financial measures included in this Annual Report are not measures of financial performance recognized by GAAP.
Such unfunded commitments totaled $5.7 million and $3.3 million as of December 31, 2024 and 2023. Non-GAAP Financial Measures Some of the financial measures included in this Annual Report are not measures of financial performance recognized by GAAP.
At the close of this acquisition, a $1.2 million valuation reserve was recorded to arrive at it fair market value, which is treated as a yield adjustment and amortized over the life of the security. The unamortized valuation reserve was $842,000 at December 31, 2023 and $918,000 at December 31, 2022.
At the close of this acquisition, a $1.2 million valuation reserve was recorded to arrive at it fair market value, which is treated as a yield adjustment and amortized over the life of the security. The unamortized valuation reserve was $765,000 at December 31, 2024 and $842,000 at December 31, 2023.
At the close of this acquisition, a $763,000 valuation reserve was recorded to arrive at its fair market value, which is treated as a yield adjustment and amortized over the life of the security. The unamortized valuation reserve was $559,000 at December 31, 2023 and $610,000 at December 31, 2022.
At the close of this acquisition, a $763,000 valuation reserve was recorded to arrive at its fair market value, which is treated as a yield adjustment and amortized over the life of the security. The unamortized valuation reserve was $507,000 at December 31, 2024 and $559,000 at December 31, 2023.
We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in the growth and maturity of earning assets.
We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in the growth and maturity of earning assets. See Item 7.
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.
Approximately 24.3% of the securities in the total investment portfolio at December 31, 2024, 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.
Bancorp’s main source of funding is dividends received from the Bank and RAM. There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to Bancorp. Management believes that these limitations will not impact our ability to meet our ongoing short-term cash obligations.
Bancorp's main source of funding is dividends declared and paid to Bancorp by the Bank and RAM. There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to Bancorp. Management believes that these limitations will not impact our ability to meet our ongoing short-term cash obligations.
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.
In March 2021, we 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 then floats at three month Secured Overnight Financing Rate (“SOFR”) plus 329 basis points thereafter.
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.
The ACL includes the ALL and the reserve for unfunded commitments and 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.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. CRITICAL ACCOUNTING POLICIES The discussion and analysis of the Company’s audited consolidated financial statements are based upon its audited consolidated financial statements, which have been prepared in accordance with GAAP.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. CRITICAL ACCOUNTING POLICIES The discussion and analysis of our audited consolidated financial statements are based upon its audited consolidated financial statements, which have been prepared in accordance with Generally Accepted Accounting Principles ("GAAP").
Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest earning assets minus the cost of average interest-bearing liabilities.
Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact on net interest income and net interest margin.
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.
Allowance for Credit Losses (“ ACL”) - Loans Held for Investment We account for credit losses on loans in accordance with ASC 326, which requires us to record an estimate of expected lifetime credit losses for loans at the time of origination.
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.
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 $200 million in FHLB advances at December 31, 2024 and $150 million at December 31, 2023.
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 2031 Subordinated Notes were assigned an investment grade rating of BBB by the KBRA. Under the terms of our 2031 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.
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.
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 $1.6 million in 2024, compared to $374,000 in 2023.
In addition, the Company has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years.
In addition, we have the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years.
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.
Other sources of liquidity include the sale of loans, the ability to acquire additional wholesale funding, 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.
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.
For SFR mortgage loans sold to FNMA, FHLMC and to other third parties such as investment funds or other banks, 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.
The table below summarizes the minimum capital requirements applicable to us and the Bank pursuant to Basel III regulations as of the dates reflected and assuming the capital conservation buffer has been fully phased-in. The minimum capital requirements are only regulatory minimums and banking regulators can impose higher requirements on individual institutions.
The table below summarizes the minimum capital requirements applicable to us and the Bank pursuant to Basel III regulations including the capital conservation buffer as of the dates reflected. The minimum capital requirements are only regulatory minimums and banking regulators can impose higher requirements on individual institutions.
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.
Our discounted cash flow 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.
The subordinated debentures have a variable rate of interest equal to three - month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, which was 7.30% as of December 31, 2023, and three-month LIBOR plus 1.65%, which was 6.42% at December 31, 2022. In October 2018, the Company, through the acquisition of FAIC, acquired the FAIC Trust.
The subordinated debentures have a variable rate of interest equal to three - month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, which was 6.27% as of December 31, 2024, and 7.30% as of December 31, 2023. In October 2018, we, through the acquisition of FAIC, acquired the FAIC Trust I.
OREO is carried at the lower of the Company's carrying value of the property or its fair value, less estimated carrying costs and costs of disposition. Fair value is based on current appraisals less estimated selling costs. Any subsequent write-downs are charged against operating expenses and recognized as a valuation allowance.
After an OREO value is established, it is then carried at the lower of our carrying value of the property or its fair value. Fair value is based on current appraisals less estimated selling costs. Any subsequent write-downs are charged against operating expenses and recognized as a valuation allowance.
At December 31, 2023, Bancorp had $47.1 million in cash, all of which was on deposit at the Bank. Regulatory Capital Requirements We are subject to various regulatory capital requirements administered by the federal and state banking regulators.
At December 31, 2024, Bancorp had $32.1 million in cash, $30.8 million of which was on deposit at the Bank. Regulatory Capital Requirements We are subject to various regulatory capital requirements administered by the federal and state banking regulators.
We acquired wholesale deposits from the internet listing service and other outside deposits originators as needed to supplement liquidity. The total amount of such deposits as of December 31, 2023 was $52.0 million and $7.1 million as of December 31, 2022. Brokered time deposits were $254.9 million at December 31, 2023 and $255.0 million at December 31, 2022.
We acquired wholesale deposits from the internet listing service and other outside deposits originators as needed to supplement liquidity. The total amount of such deposits as of December 31, 2024 was $31.8 million and $52.0 million as of December 31, 2023. Brokered time deposits were $93.2 million at December 31, 2024 and $254.9 million at December 31, 2023.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. The Company evaluates each client’s credit worthiness on a case-by-case basis.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements.
Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at fair value at the date of foreclosure, establishing a new cost basis by a charge to the allowance for credit losses, if necessary.
Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at fair value at the date of foreclosure, establishing a new cost basis by a charge to the allowance for credit losses, if necessary or a gain recognized through noninterest income, as appropriate.
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.
The measurement of the ACL for loans is performed by collectively evaluating loans with similar risk characteristics. We have elected to utilize a discounted cash flow approach for all segments except consumer loans and warehouse mortgage loans, for these a remaining life approach was elected.
The use of reasonable and supportable forecasts requires significant judgment, such as utilizing the Federal Open Market Committee's projected unemployment rate as part of the economic forecast and related scenario-weighting based on Management's direct control/influence over specific qualitative factors and internal understanding of level of exposure, as well as determining the appropriate length of the forecast horizon.
The use of reasonable and supportable forecasts requires significant judgment, such as utilizing the Federal Open Market Committee's projected unemployment rate as part of the economic forecast, determining the appropriate length of the forecast horizon and determining the appropriate weighting and degree of risk assigned to each of the qualitative factors based on management's direct control or influence over specific qualitative factors and internal understanding of such levels of exposure.
Subordinated debentures consist of subordinated debentures issued in connection with three separate trust preferred securities and totaled $14.9 million and $14.7 million as of December 31, 2023 and 2022, respectively.
Subordinated debentures consist of subordinated debentures issued in connection with three separate trust preferred securities and totaled $15.2 million and $14.9 million as of December 31, 2024 and 2023.
As of December 31, 2023, all of our investment securities in an unrealized loss position received an investment grade credit rating. The overall net decreases in fair value during the period were attributable to a combination of changes in interest rates and market conditions. Loans The loan portfolio is the largest category of our earning assets.
As of December 31, 2024, all of our investment securities in an unrealized loss position received an investment grade credit rating. The overall net decreases in fair value during the period were attributable to a combination of changes in interest rates and market conditions.
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.
Our comprehensive methodology to monitor these credit quality standards includes 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. 57 Table of Contents Analysis of the Allowance for Loan Losses.
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 .
The following table presents information on our total FHLB advances during the years indicated: Year Ended December 31, 2024 2023 2022 (dollars in thousands) Outstanding at period-end $ 200,000 $ 150,000 $ 220,000 Average amount outstanding 162,705 172,219 192,438 Maximum amount outstanding at any month-end 200,000 220,000 270,000 Weighted average interest rate: During period 1.36 % 1.67 % 1.49 % End of period 1.74 % 1.18 % 2.28 % Long-Term Debt .
In the Moderate Stress scenario, the status of all nine risk factors were set at “Moderate Risk.” In the Major Stress scenario, the status of all nine risk factors across all pooled loan segments were set at “Major Risk.” Under the Moderate Stress scenario, ACL increased by $3.9 million, or 9.2%, as of December 31, 2023.
In the Moderate Stress scenario, the status of all nine risk factors across all pooled loan segments were set at “Moderate Risk.” In the Major Stress scenario, the status of all nine risk factors across all pooled loan segments were set at “Major Risk.” Under the Moderate Stress scenario, ACL increased by $8.7 million, or 18.0%, as of December 31, 2024.
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.
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.
These subordinated debentures consist of the following and are described in detail after the table below: Issue Principal Unamortized Recorded Stated Rate December 31, 2023 Stated (dollars in thousands) Date Amount Valuation Reserve Value Description Effective Rate Maturity Subordinated debentures TFC Trust December 22, 2006 $ 5,155 $ 1,189 $ 3,966 Three-month CME Term SOFR plus 0.26% (a) plus 1.65%, 7.30 % March 15, 2037 FAIC Trust December 15, 2004 7,217 842 6,375 Three-month CME Term SOFR 0.26% (a) plus 2.25% 7.90 % December 15, 2034 PGBH Trust December 15, 2004 5,155 558 4,597 Three-month CME Term SOFR 0.26% (a) plus 2.10% 7.75 % December 15, 2034 Total $ 17,527 $ 2,589 $ 14,938 (a) Represents applicable tenor spread adjustment when the original Libor index was discontinued on June 30, 2023 In 2016, the Company, through the acquisition of TomatoBank, acquired the TFC Trust.
These subordinated debentures consist of the following and are described in detail after the table below: Issue Date Principal Amount Unamortized Valuation Reserve Recorded Value Stated Rate Description December 31, 2024 Effective Rate Stated Maturity Subordinated debentures (dollars in thousands) TFC Trust December 22, 2006 $ 5,155 $ 1,099 $ 4,056 Three-month CME Term SOFR plus 0.26% (a) plus 1.65%, 6.27 % March 15, 2037 FAIC Trust I December 15, 2004 7,217 765 6,452 Three-month CME Term SOFR 0.26% (a) plus 2.25% 6.87 % December 15, 2034 PGBH Trust I December 15, 2004 5,155 507 4,648 Three-month CME Term SOFR 0.26% (a) plus 2.10% 6.72 % December 15, 2034 Total $ 17,527 $ 2,371 $ 15,156 (a) Represents applicable tenor spread adjustment when the original Libor index was discontinued on June 30, 2023 In 2016, we, through the acquisition of TomatoBank, acquired the TFC Trust.
Time deposits held through the CDARS program were $135.7 million at December 31, 2023 and $17.7 million at December 31, 2022 and ICS funds totaled $109.2 million at December 31, 2023 and $13.6 million at December 31, 2022.
Time deposits held through the CDARS program were $130.6 million at December 31, 2024 and $135.7 million at December 31, 2023 and ICS funds totaled $146.1 million at December 31, 2024 and $109.2 million at December 31, 2023.
The subordinated debentures have a variable rate of interest equal to three - month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, which was 7.90% as of December 31, 2023, and three-month LIBOR plus 2.25%, which was 7.02% at December 31, 2022. 66 Table of Contents In January 2020, the Company, through the acquisition of PGBH, acquired PGBH Trust.
The subordinated debentures have a variable rate of interest equal to three - month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, which was 6.87% as of December 31, 2024, and 7.90% as of December 31, 2023. 64 Table of Contents In January 2020, we, through the acquisition of PGBH, acquired PGBH Trust I.
The loans are typically made to small- and medium-sized manufacturing, wholesale, retail and service businesses for working capital needs, business expansions and for international trade financing.
We originate both variable rate and fixed rate C&I loans. The loans are typically made to small- and medium-sized manufacturing, wholesale, retail and service businesses for working capital needs, business expansions and for international trade financing.
Potential problem loans include loans with a risk grade of 6, which are “special mention,” loans with a risk grade of 7, which are “substandard” loans that are generally not considered to be impaired and loans with a risk grade of 8, which are “doubtful” loans generally considered to be impaired.
Potential problem loans include loans with a risk grade of 6, which are “special mention,” loans with a risk grade of 7, which are “substandard” loans and loans with a risk grade of 8, which are “doubtful” loans.
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.
We can redeem the 2031 Subordinated Notes beginning April 1, 2026 and are considered Tier 2 capital. We used the net proceeds from these subordinated notes for general corporate purposes, including providing capital to the Bank and maintaining adequate liquidity at Bancorp.
Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal pay downs.
The weighted-average life is the average number of years that each dollar of unpaid principal due remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal pay-downs.
The following table reconciles return on average tangible common equity to its most comparable GAAP measure: For the year (dollars in thousands) 2023 2022 2021 Net income available to common shareholders $ 42,465 $ 64,327 $ 56,906 Average shareholders' equity 500,540 470,781 447,714 Adjustments: Average goodwill (71,498 ) (70,948 ) (69,243 ) Average core deposit intangible (3,282 ) (4,131 ) (4,657 ) Adjusted average tangible common equity $ 425,760 $ 395,702 $ 373,814 Return on average tangible common equity 9.97 % 16.26 % 15.22 % 70 Table of Contents
The following table reconciles ROATCE to its most comparable GAAP measure: For the year 2024 2023 2022 (dollars in thousands) Net income available to common shareholders $ 26,665 $ 42,465 $ 64,327 Average shareholders' equity 511,470 500,540 470,781 Adjustments: Average goodwill (71,498 ) (71,498 ) (70,948 ) Average core deposit intangible (2,425 ) (3,282 ) (4,131 ) Adjusted average tangible common equity $ 437,547 $ 425,760 $ 395,702 Return on average tangible common equity 6.09 % 9.97 % 16.26 % 68 Table of Contents
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.
Results of Operations—Comparison of Results of Operations for the Years Ended December 31, 2024 to December 31, 2023 Net Interest Income/Average Balance Sheet In 2024, we generated fully-taxable equivalent net interest income of $99.5 million, a decrease of $19.9 million, or 16.7%, from $119.4 million in 2023.
The provision for credit losses on loans of $3.9 million was due to a higher level of specific reserves and net charge-offs, offset by the impact of lower total loans held for investment at the end of 2023. 61 Table of Contents The following table provides a summary of components of the ACL, provision for credit losses and net charge-offs for the years 2019 to 2023: Year Ended December 31, (dollars in thousands) 2023 2022 2021 (1) 2020(1) 2019(1) Balance, beginning of period $ 41,076 $ 32,912 $ 29,337 $ 18,816 $ 17,577 ASU 2016-13 transition adjustment — 2,135 — — — Adjusted beginning balance $ 41,076 $ 35,047 $ 29,337 $ 18,816 $ 17,577 Charge-offs: Construction & land development (140 ) — — — — Commercial real estate (2,537 ) — (67 ) (85 ) (166 ) Single-family residential mortgages (93 ) — — — — Commercial and industrial — (5 ) (500 ) (200 ) — SBA (62 ) (14 ) (1 ) (973 ) (1,093 ) Other (362 ) (237 ) (59 ) (45 ) — Total charge-offs (3,194 ) (256 ) (627 ) (1,303 ) (1,259 ) Recoveries: Commercial real estate 80 — 61 — — Commercial and industrial 2 2 1 — — SBA 1 227 95 1 108 Other 60 29 86 — — Total recoveries 143 258 243 1 108 Net (charge-offs)/recoveries (3,051 ) 2 (384 ) (1,302 ) (1,151 ) Provision for credit losses - loans 3,878 6,027 3,959 11,823 2,390 Balance, end of period $ 41,903 $ 41,076 $ 32,912 $ 29,337 $ 18,816 Reserve for off-balance sheet credit commitments Balance at beginning of year $ 1,156 $ 1,203 $ 1,383 $ 826 $ 688 ASU 2016-13 transition adjustment — 1,045 — — — Adjusted beginning balance $ 1,156 $ 2,248 $ 1,383 $ 826 $ 688 (Reversal of) reserve for unfunded commitments (516 ) (1,092 ) (180 ) 557 138 Balance at the end of period $ 640 $ 1,156 $ 1,203 $ 1,383 $ 826 Total allowance for credit losses (ACL) $ 42,543 $ 42,232 $ 34,115 $ 30,720 $ 19,642 Total LHFI at end of period $ 3,031,861 $ 3,336,449 $ 2,931,350 $ 2,706,766 $ 2,196,934 Average LHFI $ 3,205,625 $ 3,096,786 $ 2,745,492 $ 2,544,413 $ 2,112,933 Net charge-offs to average LHFI 0.10 % 0.00 % 0.01 % 0.05 % 0.05 % Allowance for loan losses to total LHFI 1.38 % 1.23 % 1.12 % 1.08 % 0.86 % (1) Reserve was under the Allowance for Loan Loss (“ALL”) method in accordance with ASC 450 and ASC 310 Problem Loans.
Specific reserves totaled $6.9 million, or 0.23% of total loans HFI, at December 31, 2024, compared to $816,000, or 0.03% of total loans HFI, at December 31, 2023. 59 Table of Contents The following table provides an analysis of the ACL, provision for credit losses and net charge-offs for the periods indicated: Year Ended December 31, 2024 2023 2022 2021 (1) 2020 (1) (dollars in thousands) Balance, beginning of period $ 41,903 $ 41,076 $ 32,912 $ 29,337 $ 18,816 ASU 2016-13 transition adjustment — — 2,135 — — Adjusted beginning balance $ 41,903 $ 41,076 $ 35,047 $ 29,337 $ 18,816 Charge-offs: Construction & land development (1,148 ) (140 ) — — — Commercial real estate (2,645 ) (2,537 ) — (67 ) (85 ) Single-family residential mortgages — (93 ) — — — Commercial and industrial (11 ) — (5 ) (500 ) (200 ) SBA (78 ) (62 ) (14 ) (1 ) (973 ) Other (201 ) (362 ) (237 ) (59 ) (45 ) Total charge-offs (4,083 ) (3,194 ) (256 ) (627 ) (1,303 ) Recoveries: Commercial real estate 61 80 — 61 — Commercial and industrial 2 2 2 1 — SBA 1 1 227 95 1 Other 77 60 29 86 — Total recoveries 141 143 258 243 1 Net (charge-offs)/recoveries (3,942 ) (3,051 ) 2 (384 ) (1,302 ) Provision for loan losses 9,768 3,878 6,027 3,959 11,823 Balance, end of period $ 47,729 $ 41,903 $ 41,076 $ 32,912 $ 29,337 Reserve for off-balance sheet credit commitments Balance at beginning of year $ 640 $ 1,156 $ 1,203 $ 1,383 $ 826 ASU 2016-13 transition adjustment — — 1,045 — — Adjusted beginning balance $ 640 $ 1,156 $ 2,248 $ 1,383 $ 826 Reserve for (reversal of) unfunded commitments 89 (516 ) (1,092 ) (180 ) 557 Balance at the end of period $ 729 $ 640 $ 1,156 $ 1,203 $ 1,383 Total allowance for credit losses (ACL) $ 48,458 $ 42,543 $ 42,232 $ 34,115 $ 30,720 Total LHFI at end of period $ 3,053,230 $ 3,031,861 $ 3,336,449 $ 2,931,350 $ 2,706,766 Average LHFI $ 3,039,718 $ 3,205,625 $ 3,096,786 $ 2,745,492 $ 2,544,413 Net charge-offs to average LHFI 0.13 % 0.10 % 0.00 % 0.01 % 0.05 % Allowance for loan losses to total LHFI 1.56 % 1.38 % 1.23 % 1.12 % 1.08 % Allowance for credit losses to total LHFI 1.59 % 1.40 % 1.27 % 1.16 % 1.13 % (1) Reserve was under the allowance for loan loss method in accordance with ASC 450 and ASC 310 Problem Loans.
The decrease in noninterest-bearing deposits and consequently the overall mix of deposits was due to a combination of factors including the higher rate environment where customers shifted funds to a higher level of interest-bearing deposits, management’s decision to decrease certain deposit concentration risks and a higher level of wholesale funding to maintain a higher level of liquidity related to the Company’s loan portfolio.
The increase in noninterest-bearing deposits and consequently the overall mix of deposits was due to a combination of factors including market rate decreases, management’s decision to decrease certain deposit concentration risks and a lower level of wholesale funding to maintain a lower level of liquidity related to our loan portfolio.
The increase in tax equivalent interest income on securities was primarily due to a 240 basis point increase in the average tax equivalent yield of securities due to increases in market interest rates, partially offset by the impact of a $7.4 million, or 2.2%, decrease in the average balance of securities.
The increase was primarily due to an 18 basis point increase in the tax equivalent yield due to increases in market interest rates, partially offset by the impact of a $7.0 million, or 2.1%, decrease in the average balance of securities. Interest income on our cash and cash equivalents increased $4.7 million, or 40.2%, to $16.4 million in 2024.
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.
As of December 31, 2023, Bancorp’s Tier 1 leverage capital ratio was 11.99%, common equity Tier 1 ratio was 19.07%, Tier 1 risk-based capital ratio totaled 19.69%, and total risk-based capital ratio was 25.92%. 42 Table of Contents ANALYSIS OF THE RESULTS OF OPERATIONS Financial Performance Year Ended December 31, 2024 2023 2022 (dollars in thousands, except per share data) Interest income $ 216,661 $ 221,148 $ 180,970 Interest expense 117,297 101,862 31,416 Net interest income 99,364 119,286 149,554 Provision for credit losses 9,857 3,362 4,935 Net interest income after provision for credit losses 89,507 115,924 144,619 Noninterest income 15,335 15,018 11,252 Noninterest expense 69,163 70,696 64,526 Income before income taxes 35,679 60,246 91,345 Income tax expense 9,014 17,781 27,018 Net income $ 26,665 $ 42,465 $ 64,327 Share Data Earnings per common share (1) : Basic $ 1.47 $ 2.24 $ 3.37 Diluted 1.47 2.24 3.33 Performance Ratios Return on average assets 0.68 % 1.06 % 1.62 % Return on average shareholders’ equity 5.21 % 8.48 % 13.66 % Efficiency ratio (2) 60.30 % 52.64 % 40.13 % Tangible common equity to tangible assets (3) 11.08 % 11.06 % 10.65 % Return on average tangible common equity (3) 6.09 % 9.97 % 16.26 % Tangible book value per share (3) $ 24.51 $ 23.48 $ 21.58 (1) Earnings per share are calculated utilizing the two-class method.
For further discussion of financial results for the years ended December 31, 2022 and 2021 please refer to Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on April 7, 2023.
For further discussion of financial results for the years ended December 31, 2023 and 2022 please refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 12, 2024.
Additionally, a one percentage point increase in the unemployment rate would result in a $738,000, or 1.76%, increase to the ACL and a one percentage point decrease in the unemployment rate would result in a $678,000, or (1.62)%, decrease to the ACL.
Additionally, a one percentage point increase in the unemployment rate would result in a $966,000, or 2.0%, increase to the ACL and a one percentage point decrease in the unemployment rate would result in a $1.1 million, or 2.2%, decrease to the ACL.
In addition, we offer deposit products through the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweeps (“ICS”) programs where customers are able to achieve FDIC insurance for balances on deposit in excess of the $250,000 FDIC limit.
In addition, we offer deposit products through the CDARS and ICS programs where customers are able to achieve FDIC insurance for balances on deposit in excess of the $250,000 FDIC limit.
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.
The table below presents the capital requirements applicable to Bancorp and the Bank in order to be considered “well-capitalized” from a regulatory perspective, and the capital ratios for the consolidated Company and Bank as of December 31, 2024 and December 31, 2023.
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.
As of December 31, 2024, total deposits were comprised of 18.3% noninterest-bearing demand accounts, 21.5% interest-bearing non-maturity deposit accounts and 60.2% of time deposits compared to 17.0% noninterest-bearing demand accounts, 19.9% interest-bearing non-maturity deposit accounts and 63.1% of time deposits as of December 31, 2023.
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.
Financial Statements and Supplementary Data - 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 ended December 31, 2024, we reported net earnings of $26.7 million, compared with $42.5 million for the year ended December 31, 2023.
As a result, book value per share increased 7.5% to $27.47 from $25.55 and tangible book value per share increased 8.8% to $23.48 from $21.58. Our capital ratios under the Basel III capital framework regulatory standards remain well capitalized.
As a result, book value per share increased 4.3% to $28.66 from $ 27.47 and tangible book value per share increased 4.4% to $24.51 from $23.48. Our capital ratios under the Basel III capital framework regulatory standards remain well capitalized.
Management estimates the allowance balance required using past loan loss experience from peers with similar portfolio sizes and geographic locations to the Company, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.
Management estimates the allowance balance required using past loan loss experience, peer loss history, loan prepayment speeds, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.
Our trade finance has a correspondent relationship with many of the largest banks in China, Taiwan, Vietnam, Hong Kong and Singapore. All of our international letters of credit, SWIFT, export advice and trade finance discounts are denominated in U.S. currency, and all foreign exchange is issued through a major bank that is also denominated in U.S. currency.
All of our international letters of credit, SWIFT, export advice and trade finance discounts are denominated in U.S. currency, and all foreign exchange is issued through a major bank that is also denominated in U.S. currency.
At December 31, 2023, AFS investment securities totaled $319.0 million inclusive of a pre-tax net unrealized loss of $28.1 million, compared to $256.8 million inclusive of a pre-tax net unrealized loss of $31.3 million at December 31, 2022. At December 31, 2023, held to maturity (“HTM”) investment securities totaled $5.2 million, compared to $5.7 million as of December 31, 2022.
At December 31, 2024, available for sale ("AFS") investment securities totaled $420.2 million inclusive of a pre-tax net unrealized loss of $29.2 million, compared to $319.0 million inclusive of a pre-tax net unrealized loss of $28.1 million at December 31, 2023. At December 31, 2024, held to maturity (“HTM”) investment securities totaled $5.2 million, unchanged from December 31, 2023.
Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
The fair value of the investment securities portfolio are shown by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
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.
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.
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 consider a relationship to be a core deposit relationship if it meets any three or more of the following: (i) direct relationships with us; (ii) deposits within our market area; (iii) additional services including loans; (iv) electronic banking services; (v) active demand deposit accounts; (vi) deposits at market interest rates; and (vii) longevity of the relationship with us.
The subordinated debentures have a variable rate of interest equal to three - month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, which was 7.75% as of December 31, 2023, and three-month LIBOR plus 2.10%, which was 6.87% at December 31, 2022.
The subordinated debentures have a variable rate of interest equal to three - month CME Term SOFR plus applicable tenor spread adjustment of 0.26% plus 1.65%, which was 6.72% as of December 31, 2024, and 7.75% as of December 31, 2023. At December 31, 2024, we were in compliance with all covenants under our subordinated debenture agreements.
The following table shows the total loans being serviced for others as of the dates indicated: As of December 31, 2023 vs. 2022 Increase (Decrease) 2022 vs. 2021 Increase (Decrease) (dollars in thousands) 2023 2022 2021 $ % $ % Loans serviced Single-family residential loans serviced $ 1,014,017 $ 1,127,668 $ 1,308,672 $ (113,651 ) (10.1 )% $ (181,004 ) (13.8 )% SBA loans serviced 100,336 119,893 138,173 (19,557 ) (16.3 )% (18,280 ) (13.2 )% Commercial real estate loans serviced 3,813 3,991 4,070 (178 ) (4.5 )% (79 ) (1.9 )% Construction loans 4,710 3,677 — 1,033 28.1 % 3,677 100 % Total $ 1,122,876 $ 1,255,229 $ 1,450,915 $ (133,386 ) (10.6 )% $ (199,363 ) (13.7 )% Gain on sale of loans .
The following table presents the total loans being serviced for others as of the dates indicated: As of December 31, 2024 vs. 2023 Increase (Decrease) 2023 vs. 2022 Increase (Decrease) 2024 2023 2022 $ % $ % Loans serviced (dollars in thousands) Single-family residential mortgage loans $ 922,183 $ 1,014,017 $ 1,127,668 $ (91,834 ) (9.1 )% $ (113,651 ) (10.1 )% SBA loans 92,678 100,336 119,893 (7,658 ) (7.6 )% (19,557 ) (16.3 )% Commercial real estate loans 3,761 3,813 3,991 (52 ) (1.4 )% (178 ) (4.5 )% Construction loans 7,315 4,710 3,677 2,605 55.3 % 1,033 28.1 % Total $ 1,025,937 $ 1,122,876 $ 1,255,229 $ (99,544 ) (8.9 )% $ (133,386 ) (10.6 )% Gain on sale of loans .
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.
As of December 31, 2024, no U.S. government agency bonds are callable. 52 Table of Contents The table below shows our investment securities’ fair value and weighted average yields by maturity in the following maturity groupings as of December 31, 2024. Weighted-average yields are calculations representing income within each maturity range based on the amortized cost of securities.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeActual 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.
Biggest changeThe NII at Risk results are within board policy limits. 70 Table of Contents Economic Value of Equity Sensitivity (Shock) Immediate Change in Rates -300 -200 -100 +100 +200 +300 December 31, 2024 (dollars in thousands) Dollar change (25,835 ) 3,288 11,486 (19,175 ) (46,186 ) (80,285 ) Percent change (3.84 )% 0.49 % 1.71 % (2.85 )% (6.86 )% (11.93 )% 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 )% At December 31, 2024, the EVE position is projected to decrease in the up rate scenarios.
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
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. 71 Table of Contents
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.
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 Table of Contents Our ALCO establishes broad policy limits with respect to interest rate risk.
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 ALCO meets at least quarterly 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.
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.
Under NII at Risk, net interest income is modeled utilizing various assumptions for assets, liabilities, and derivatives over a 12 month horizon assuming a flat balance sheet and an instantaneous and parallel shift in market interest rates in 100 basis point increments.
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.
When interest rates rise, fixed rate assets generally lose economic value as these instruments are discounted at a higher rate demonstrating the relative longer asset duration as compared to the overall liability duration.
Net 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.
Net Interest Income Sensitivity Immediate Change in Rates -300 -200 -100 +100 +200 +300 December 31, 2024 (dollars in thousands) Dollar change $ 12,278 $ 6,776 $ 2,810 $ (960 ) $ (2,321 ) $ (3,612 ) Percent change 10.73 % 5.92 % 2.46 % (0.84 %) (2.03 %) (3.16 %) 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 )% At December 31, 2024, our NII at Risk profile is liability sensitive in the down and up rate scenarios.
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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.
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This is directionally consistent with our profile at December 31, 2023 for the down rate and a change from neutral in the up rate scenario. For the up rate scenarios, we are more liability sensitive due to fixed rate debt approaching its maturity date in the first quarter of 2025.
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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.
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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.
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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.
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In the down rate scenario, the EVE position is projected to initially increase as assets gain in value at a faster rate than the decrease in the value of noninterest-bearing deposits.
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However, as the down rate shocks become more severe, the pace of the increase in the value of loans slows a loan prepayments increase and discount rates reach their floors, resulting in a lower EVE position in the down 300 scenario.

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