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BayCom is a bank holding company headquartered in Walnut Creek, California.
−Removed: The Company’s wholly owned banking subsidiary, United Business Bank, provides a broad range of financial services primarily to businesses and business owners, as well as individuals, through its network of 34 full-service branches at December 31, 2022, with 16 locations in California, two in Washington, five in New Mexico and 11 in Colorado.
−Removed: Our principal objective is to continue to increase shareholder value and generate consistent earnings growth by expanding our commercial banking franchise through both strategic acquisitions and organic growth.
−Removed: Since 2010, we have expanded our geographic footprint through ten strategic acquisitions, which includes our most recent acquisition of PEB
−Removed: which closed in February 2022.
−Removed: We believe our strategy of selectively acquiring and integrating community banks has provided us with economies of scale and improved our overall franchise efficiency.
−Removed: We expect to continue to pursue strategic acquisitions and believe our targeted market areas present us with many and varied acquisition opportunities.
−Removed: We are also focused on organic growth, expense management and believe the markets in which we operate currently provide meaningful opportunities to expand our commercial client base and increase our current market share.
−Removed: We believe our geographic footprint, which includes the San Francisco Bay Area and the metropolitan markets of Los Angeles, California, Seattle, Washington, Denver, and Colorado and community markets including Albuquerque, New Mexico, and Custer, Delta and Grand counties, Colorado, provides us with access to low cost, stable core deposits in community markets that we can use to fund commercial loan growth.
+Added: The Company’s wholly owned banking subsidiary, United Business Bank, provides a broad range of financial services primarily to businesses and business owners, as well as individuals, through its network of 35 full-service branches at December 31, 2023, with 16 locations in California, one in Nevada, two in Washington, five in New Mexico and 11 in Colorado.
+Added: Our principal objective is to enhance shareholder value and generate consistent earnings growth by expanding our commercial banking franchise through both strategic acquisitions and organic growth.
+Added: Since 2010, we have expanded our geographic footprint through ten strategic acquisitions, which includes our most recent acquisition of PEB which closed in February 2022.
+Added: We believe our strategy of selectively acquiring and integrating community banks has yielded economies of scale and improved our overall franchise efficiency.
+Added: Looking forward, we expect to continue pursuing strategic acquisitions, believing our targeted market areas present us with many and varied acquisition opportunities.
+Added: We are also committed to organic growth, leveraging the potential within metropolitan and community markets where we currently operate.
+Added: These markets offer significant opportunities to expand our commercial client base, increase interest-earning assets, and enhance market share.
+Added: We believe our geographic footprint, which now includes the San Francisco Bay area, the metropolitan markets of Los Angeles, California, Seattle, Washington, Denver, Colorado, and Las Vegas, Nevada, and community markets including Albuquerque, New Mexico, and Custer, Delta and Grand counties, Colorado, provides us access to low cost, stable core deposits in community markets that we can use to fund commercial loan growth.
We strive to provide an enhanced banking experience for our clients by providing them with a comprehensive suite of sophisticated banking products and services tailored to meet their needs, while delivering the high-quality, relationship-based client service of a community bank.
−Removed: At December 31, 2022, the Company, on a consolidated basis, had assets of $2.5 billion, deposits of $2.1 billion and shareholders’ equity of $317.1 million.
−Removed: We continue to focus on growing our commercial loan portfolios through acquisitions as well as organic growth.
−Removed: At December 31, 2022, we had $2.0 billion in total loans.
−Removed: Of this amount $527.8 million, or 26.1%, consisted of loans we acquired (all of which were recorded to their estimated fair values at the time of acquisition), and $1.5 billion, or 73.9%, consisted of loans we originated.
−Removed: The profitability of our operations depends primarily on our net interest income after provision for loan losses, which is the difference between interest earned on interest earning assets and interest paid on interest bearing liabilities less the provision for loan losses.
−Removed: The significant increase in the targeted federal funds rate during the period ended December 31, 2022, resulted in a larger impact to our interest earning assets than to our interest-bearing liabilities, thereby increasing our net interest margin to 3.90% for the year ended December 31, 2022, as compared to 3.34% for the year ended December 31, 2021.
−Removed: The increase in net interest margin during 2022 primarily reflects higher yields on average interest earning assets and average cost of interest-bearing liabilities.
−Removed: The higher yields on average interest earning assets compared to a year earlier was largely due to the impact of the higher targeted Fed Funds Rate resulting in higher yields on new loan originations, offset by higher cost of funds.
−Removed: Loan yields in 2022 were also impacted favorably as a result of recognition of unamortized deferred fee income on PPP loans forgiven and repaid by the SBA.
+Added: At December 31, 2023, the Company, on a consolidated basis, had assets of $2.6 billion, loans receivable, net of $1.9 billion, deposits of $2.1 billion and shareholders’ equity of $312.9 million.
+Added: We continue to focus on growing our commercial loan portfolios through both acquisitions and organic growth.
+Added: At December 31, 2023, our $1.9 billion total loan portfolio included $397.0 million, or 20.6%, of acquired loans (all of which were recorded to their estimated fair values at the time of acquisition), and the remaining $1.5 billion, or 79.4%, consisted of loans we originated.
+Added: The profitability of our operations depends primarily on our net interest income after provision for credit losses, which is the difference between interest earned on interest earning assets and interest paid on interest bearing liabilities less the provision for credit losses.
Changes in market interest rates, the slope of the yield curve, and interest we earn on interest earning assets or pay on interest bearing liabilities, as well as the volume and types of interest earning assets, interest bearing and noninterest bearing liabilities and shareholders’ equity, usually have the largest impact on changes in our net interest spread, net interest margin and net interest income during a reporting period.
−Removed: Since March 2022, in response to inflationary pressures, the FOMC of the Federal Reserve Board has increased the target range for the federal funds rate 425 basis points, including 125 basis points during the fourth calendar quarter of 2022, to a range of 4.25% to 4.50% as of December 31, 2022.
−Removed: As it seeks to control inflation without creating a recession, the FOMC has indicated further increases are expected during 2023.
−Removed: If the FOMC increases the targeted federal funds rates, overall interest rates will likely rise, which will positively impact our net interest income, but may negatively impact the U.S.
−Removed: The increase in the average yield on interest-earning assets during the current year reflects the lagging benefit of variable rate interest-earnings assets beginning to reprice higher.
−Removed: We believe our balance sheet is structured to enhance our net interest margin if the FOMC continues to raise the targeted federal funds rate in an effort to curb inflation, which appears likely based on recent Federal Reserve communications and interest rate forecasts.
−Removed: The provision for loan losses is dependent on changes in our loan portfolio and management’s assessment of the collectability of our loan portfolio, as well as prevailing economic and market conditions.
−Removed: We recorded a $4.4 million provision for loan losses for the year ended December 31, 2022, primarily due to $3.2 million in net charge-offs during the year ended December 31, 2022, coupled with new loan production and, to a lesser extent, a deterioration in forecasted economic conditions and indicators utilized to estimate loan losses, compared to a $466,000 provision for loan losses recorded in 2021.
+Added: During 2023, in response to inflationary pressures, the FOMC of the Federal Reserve increased the target range for the federal funds rate 100 basis points to a range of 5.25% to 5.50% as of December 31, 2023.
+Added: The substantial increase in interest rates during 2023 had a more significant impact on our interest-earning assets than on our interest-bearing liabilities, resulting in an increase in our net interest margin to 4.05% for the year ended December 31, 2023, compared to 3.90% for the previous year.
+Added: This is primarily the result of increased yields on average interest-earning assets, which reflects variable-rate interest-earning assets beginning to reprice higher, outpacing rising costs on average interest-bearing liabilities.
+Added: We believe our balance sheet is well-positioned to improve our net interest margin if interest rates continue to rise.
+Added: Conversely, a decline in interest rates would likely negatively impact our net interest income.
+Added: The provision for credit losses is dependent on changes in our loan portfolio and management’s assessment of the collectability of our loan portfolio, as well as prevailing economic and market conditions.
+Added: We recorded a $2.0 million provision for credit losses for the year ended December 31, 2023, primarily due to a $3.3 million increase in reserves for individually evaluated loans, $550,000 of net loan charge-offs during the year and an additional reserve taken on a loan to a borrower who declared bankruptcy during the year.
+Added: The increase in specific reserves included one commercial real estate loan and one multifamily loan.
+Added: Based on updated appraisals received during the fourth quarter of 2023, the underlying collateral values of these loans experienced declines due to property specific factors and conditions .
+Added: The change in the provision was partially offset by a decrease in the quantitative reserve primarily due to improvements in forecasted economic conditions, specifically, national gross domestic product and national unemployment indicators utilized to
+Added: estimate credit losses over the next four quarters, as compared to those used in estimating the allowance for credit losses on loans at adoption, and to a lesser extent a decrease in outstanding loan balances.
+Added: There was an adjustment to the determined risk level for the effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses in the portfolio qualitative factor during the year ended December 31, 2023.
Our net income is also affected by noninterest income and noninterest expenses.
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(ii) gain on sale of loans;
−Removed: and (iii) other noninterest income.
−Removed: Our noninterest income decreased $595,000 during the year ended December 31, 2022, as compared to 2021, primarily
−Removed: attributable to a $2.0 million decrease in gain on sale of loans.
+Added: and (iii) gain (loss) on equity securities and (iv) other noninterest income.
+Added: Our noninterest income increased $877,000 during the year ended December 31, 2023, as compared to 2022, primarily attributable to a decrease in loss on equity securities of $3.4 million, partially offset by a decrease in gain on sale of loans of $2.2 million.
Noninterest expense includes, among other things:
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and (vii) other general and administrative expenses.
−Removed: Our noninterest expenses increased $10.8 million during the year ended December 31, 2022, as compared to 2021.
−Removed: The increase was primarily attributable to a $6.7 million increase in salaries and employee benefits as a result of an increase in the number of full-time equivalent employees, reflecting our acquisition of PEB in February 2022, coupled with retention incentives and salary adjustments due to upward market pressure on wages in 2022.
+Added: Our noninterest expenses decreased $1.3 million during the year ended December 31, 2023, as compared to 2022.
+Added: The decrease was primarily attributable to a $1.2 million decrease in other expense as a result of an decrease in professional fees and core deposit premium amortization.
Noninterest income and noninterest expenses are impacted by the growth of our banking operations and growth in the number of loan and deposit accounts.
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We seek to realize operating efficiencies from our recently completed acquisitions by utilizing technology to streamline our operations.
−Removed: We continue to centralize the back-office functions of our acquired banks, as well as realize cost savings through the use of third-party vendors and technology, in order to take advantage of economies of scale as we continue to grow.
−Removed: We intend to focus on initiatives that we believe will provide opportunities to enhance earnings, including the continued rationalization of our retail banking footprint through the evaluation of possible branch consolidations or opportunities to sell branches.
+Added: We continue to centralize the back-office functions of our acquired banks as well as realize cost savings using third-party vendors and technology to take advantage of economies of scale as we continue to grow.
+Added: We intend to focus on initiatives that we believe will provide opportunities to enhance earnings, including the continued rationalization of our
+Added: retail banking footprint through the evaluation of possible branch consolidations or opportunities to sell branches.
● Focus on Lending Growth in Our Metropolitan Markets While Increasing Deposits in Our Community Markets.
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We believe that our presence in smaller communities gives us a relatively stable source of low-cost core deposits, while our more metropolitan markets represent strong long term growth opportunities to expand our commercial client base and increase our current market share through organic growth.
−Removed: United Business Bank, FSB in 2017, we acquired a large deposit base from the local and regional unionized labor community.
+Added: In acquiring United Business Bank, FSB in 2017, we acquired a large deposit base from the local and regional unionized labor community.
As of December 31, 2023, our top ten depositors, which included nine labor unions accounted for roughly 11.5% of our total deposits.
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We believe our credit culture supports accountability amongst our bankers, who maintain an ability to expand our client base as well as make sound decisions for our Company.
−Removed: As of December 31, 2022, our ratio of nonperforming assets to total assets was 0.61% and our ratio of nonperforming loans to total loans was 0.75%.
−Removed: In the 18 years since our inception, which timeframe includes the recent recession in the U.S.
−Removed: and a global pandemic, we have cumulative net charge-offs of $10.3 million.
+Added: At December 31, 2023, our ratio of nonperforming assets to total assets was 0.51% and our ratio of nonperforming loans to total loans was 0.67%.
+Added: Over the 19 years since our inception, which timeframe includes a U.S.
+Added: recession and a global pandemic, we have cumulative net charge-offs of $10.9 million.
We believe our success in managing asset quality is illustrated by our aggregate net charge-off history.
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We have reviewed our critical accounting estimates with the audit committee of our Board of Directors.
−Removed: The JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies.
−Removed: We have elected to take advantage of this extended transition period, which means that the financial statements included in this annual report on Form 10-K, as well as any financial statements that we file in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act.
+Added: On January 1, 2023, the Company adopted ASU 2016-03 Financial Instruments — Credit Losses (ASC 326):
+Added: Measurement of Credit Losses on Financial Instruments , which replaces the incurred loss methodology with the CECL methodology.
+Added: The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized costs, including loan receivables.
+Added: It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in certain leases.
+Added: In addition, ASC 326 made changes to the accounting for available-for-sale debt securities.
+Added: One such change is to require increases or decreases in credit losses be presented as an allowance rather than as a write-
+Added: down on available for sale debt securities, based on management's intent to sell the security or likelihood the Company will be required to sell the security, before recovery of the amortized cost basis.
See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our financial statements.
−Removed: Allowance for loan losses.
−Removed: The allowance for loan losses is evaluated on a regular basis by management.
−Removed: Periodically, we charge current earnings with provisions for estimated probable losses of loans receivable.
−Removed: The provision or adjustment takes into consideration the adequacy of the total allowance for loan losses giving due consideration to specifically identified problem loans, the financial condition of the borrowers, fair value of the underlying collateral, recourse provisions, prevailing economic conditions, and other factors.
−Removed: Additional consideration is given to our historical
−Removed: loan loss experience relative to our loan portfolio concentrations related to industry, collateral and geography.
−Removed: Our evaluation of the allowance for loan losses is inherently subjective and requires estimates that are susceptible to significant change as additional or new information becomes available.
−Removed: In addition, regulatory examiners may require additional allowances based on their judgments of the information regarding problem loans and credit risk available to them at the time of their examinations.
−Removed: Generally, the allowance for loan losses consists of various components including a component for specifically identified weaknesses as a result of individual loans being impaired, a component for general non- specific weakness related to historical experience, economic conditions and other factors that indicate probable loss in the loan portfolio.
−Removed: Loans determined to be impaired are individually evaluated by management for specific risk of loss.
−Removed: In situations where, for economic or legal reasons related to a borrower’s financial difficulties, we grant a concession to the borrower that we would not otherwise consider, the related loan is classified as a troubled debt restructuring, or TDR.
−Removed: We measure any loss on the TDR in accordance with the guidance concerning impaired loans set forth above.
−Removed: Additionally, TDRs are generally placed on nonaccrual status at the time of restructuring and included in impaired loans.
−Removed: These loans are returned to accrual status after the borrower demonstrates performance with the modified terms for a sustained period of time (generally six months) and has the capacity to continue to perform in accordance with the modified terms of the restructured debt.
−Removed: Estimated expected cash flows related to purchased credit impaired loans (“PCI”).
−Removed: Loans purchased with evidence of credit deterioration since origination for which it is probable that all contractually required payments will not be collected are accounted for under Accounting Standards Codification (“ASC”) 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality.
−Removed: In situations where such PCI loans have similar risk characteristics, loans may be aggregated into pools to estimate cash flows.
−Removed: A pool is accounted for as a single asset with a single interest rate, cumulative loss rate and cash flow expectation.
−Removed: The cash flows expected over the life of the PCI loan or pool are estimated using an internal cash flow model that projects cash flows and calculates the carrying values of the pools, book yields, effective interest income and impairment, if any, based on pool level events.
−Removed: Assumptions as to default rates, loss severity and prepayment speeds are utilized to calculate the expected cash flows.
−Removed: Expected cash flows at the acquisition date in excess of the fair value of loans are considered to be accretable yield, which is recognized as interest income over the life of the loan or pool using a level yield method if the timing and amounts of the future cash flows of the pool are reasonably estimable.
−Removed: Subsequent to the acquisition date, any increase in cash flow over those expected at purchase date in excess of fair value is recorded as interest income prospectively.
−Removed: Any subsequent decreases in cash flow over those expected at purchase date are recognized by recording an allowance for loan losses.
−Removed: Any disposals of loans, including sales of loans, payments in full or foreclosures result in the removal of the loan from the loan pool at the carrying amount.
−Removed: Business combinations.
−Removed: We apply the acquisition method of accounting for business combinations.
−Removed: Under the acquisition method, the acquiring entity in a business combination recognizes all of the identifiable assets acquired and liabilities assumed at their acquisition date fair values.
−Removed: Management utilizes prevailing valuation techniques appropriate for the asset or liability being measured in determining these fair values.
−Removed: Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed is recorded as goodwill.
−Removed: Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized.
−Removed: Acquisition related costs are expensed as incurred unless they are directly attributable to the issuance of the Company’s common stock in a business combination.
−Removed: Loan sales and servicing of financial assets.
−Removed: Periodically, we sell loans and retain the servicing rights.
−Removed: The gain or loss on sale of loans depends in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value at the date of transfer.
−Removed: All servicing assets and liabilities are initially measured at fair value.
−Removed: In addition, we amortize servicing rights in proportion to and over the period of the estimated net servicing income or loss and assess the rights for impairment.
−Removed: Income taxes.
−Removed: Deferred income taxes are computed using the asset and liability method, which recognizes a liability or asset representing the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events that have been recognized in the financial statements.
−Removed: A valuation allowance is established to reduce the deferred tax asset to the level at which it is “more likely than not” that the tax asset or benefits will be realized.
−Removed: Realization of tax benefits of deductible temporary differences and operating loss carry forwards depends on having sufficient taxable income of an appropriate character within the carry forward periods.
−Removed: We recognize that the tax effects from an uncertain tax position can be recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities.
−Removed: Interest and penalties related to uncertain tax positions are recorded as part of income tax expense.
−Removed: Goodwill, which has resulted from a number of our acquisitions, is reviewed for impairment annually, or between annual assessments if a triggering event occurs or circumstances change that would more likely than not result in the fair value of a reporting unit below its carrying amount.
−Removed: We make a qualitative assessment whether it is more likely than not that the fair value of a reporting unit where goodwill is assigned is less than its carrying amount.
−Removed: Such indicators may include, among others:
−Removed: a significant adverse change in legal factors or in the general business climate;
−Removed: significant decline in the Company’s stock price and market capitalization;
−Removed: unanticipated competition;
−Removed: and an adverse action or assessment by a regulator.
−Removed: Any adverse changes in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our financial condition and results of operations.
−Removed: BayCom’s Response to COVID-19
−Removed: The Company maintains its commitment to supporting its community and clients during the COVID-19 pandemic and remains focused on keeping its employees safe and the Bank running effectively to serve its clients.
−Removed: As of December 31, 2022, all Bank branches were open with normal hours and substantially all employees had returned to their normal working environments.
−Removed: The Bank will continue to monitor branch access and occupancy levels in relation to cases and close contact scenarios and follow governmental restrictions and public health authority guidelines.
+Added: Allowance for credit losses for loans.
+Added: The allowance for credit losses represents management’s estimate of current expected credit losses over the life of a financial asset carried at amortized cost at an appropriate level based upon management’s evaluation of the adequacy of collectively and individually evaluated loss reserves.
+Added: The Company’s method for assessing the appropriateness of the allowance for credit losses includes specific allowances for individually analyzed loans, pooled loans component which includes both quantitative and qualitative factors, and reserve for unfunded loan commitments.
+Added: Under the CECL methodology, expected credit losses reflect expected losses over the remaining contractual life of an asset, considering the effect of prepayments and available information about the collectability of cash flows, including information about relevant historical experience, current conditions, and reasonable and supportable forecasts of future events and circumstances.
+Added: Thus, the CECL methodology incorporates a broad range of information in developing credit loss estimates.
+Added: The CECL methodology could result in significant changes to both the timing and amounts of provision for credit losses and the allowance as compared to historical periods.
+Added: Loans that are deemed to be uncollectable are charged off and deducted from the allowance.
+Added: The provision for credit losses and recoveries on loans previously charged off are added to the allowance.
+Added: Regardless of the determination that a charge-off is appropriate for financial accounting purposes, the Company manages its loan portfolio by continually monitoring, where possible, a borrower's ability to pay through the collection of financial information, delinquency status, borrower discussion and the encouragement to repay in accordance with the original contract or modified terms, if appropriate.
+Added: All loans with an outstanding balance of $100,000 or more greater are individually evaluated for expected credit loss when it is probable that we will be unable to collect all amounts due according to the original contractual terms of the loan agreement.
+Added: We select loans for individual assessment on an ongoing basis using certain criteria such as payment performance, borrower reported and forecasted financial results, and other external factors when appropriate.
+Added: Loans that do not share the same risk characteristics as pooled loans are evaluated individually for credit loss and generally include all nonaccrual loans, collateral dependent loans, and certain modified loans to borrowers experiencing financial difficulties.
+Added: We measure the current expected credit loss of an individually evaluated loan based upon the fair value of the underlying collateral, adjusted for costs to sell when applicable, or if the loan is not collateral-dependent we utilize the present value of expected future cash flows, discounted at the effective interest rate.
+Added: A loan for which the terms have been modified resulting in a concession, and where the borrower is experiencing financial difficulties, is considered a modified loan to a borrower experiencing financial difficulty.
+Added: The allowance for credit losses on modified loans to borrowers experiencing financial difficulty is measured using the same method as individually evaluated loans.
+Added: When the value of a concession is measured using the discounted cash flow method, the allowance for credit losses is determined by discounting the expected future cash flows at the original interest rate of the loan.
+Added: To the extent a loan balance exceeds the estimated collectable value, a reserve or charge-off is recorded depending upon either the certainty of the estimate of loss or the fair value of the loan’s collateral if the loan is collateral-dependent.
+Added: By definition, any loan that management has placed on non-accrual is required to be individually evaluated, however, not all individually evaluated loans need to be placed on non-accrual.
+Added: Our CECL methodology for the pooled loans component includes both quantitative and qualitative loss factors which are applied to our population of loans and assessed at a pool level.
+Added: The quantitative CECL model estimates credit losses by applying pool-specific probability of default ("PD") and loss given default ("LGD") rates to the expected exposure at default ("EAD") over the contractual life of loans.
+Added: The qualitative component considers internal and external risk factors that may not be adequately assessed in the quantitative model.
+Added: Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments and curtailments, when appropriate.
+Added: The pooled loans' contractual loan terms exclude extensions, renewals, and modifications.
+Added: To estimate future prepayments by loan pool, we use our actual historical loan prepayment experience over a trailing time period, adjusted for forecasted economic conditions, to estimate future prepayments by loan pool.
+Added: To estimate curtailment by loan pool we use our actual historical loan curtailment experience over a trailing time period, adjusted for forecasted economic conditions.
+Added: observations in either case may be insufficient, the global rate, which is simply the aggregate performance of all loan segments of the Bank, is used.
+Added: The CECL model utilizes a discounted cash flow ("DCF") method to measure the expected credit losses on loans collectively evaluated that are sub-segmented by loan pools with similar credit risk characteristics, which generally correspond to federal regulatory reporting codes (i.e, Call Report codes), with PCD assets pooled separately by similar loan pools to evaluate and measure the allowance for credit losses:
+Added: ● Loans secured by real estate:
+Added: o 1-4 family residential construction loans and other construction loans and all land development and other land loans
+Added: o Secured by farmland and finance agricultural production and other loans to farmers
+Added: o Revolving, open-end loans secured by 1-4 family residential properties extended under lines of credit and closed-end loans secured by 1-4 family residential properties, secured by junior liens
+Added: o Closed-end loans secured by 1-4 family residential properties, secured by first liens
+Added: o Commercial real estate loans secured by owner-occupied non-farm nonresidential properties
+Added: o Commercial real estate loans secured by other non-farm nonresidential properties and
+Added: o Secured by multifamily (5 or more units) residential properties
+Added: ● Commercial and industrial loans
+Added: ● Loans to individuals for household, family and other personal expenditures (i.e., consumer loans)
+Added: In determining the PD for each pooled segment, the Bank utilized regression analyses to identify certain economic drivers that were considered highly correlated to historical Bank or peer loan default experience.
+Added: The regression models developed correlate macroeconomic variables to historical credit performance based on call report data over a 64 quarter (16-year) period which captures a full economic cycle from 2004 to 2019.
+Added: We elected to exclude historical data from 2020 - 2021 to assess the quantitative expected credit losses because we believe that period is an outlier and did not represent normal economic behavior considering the COVID-19 pandemic lockdown with changes in macroeconomic variables and the significant levels of government relief programs in place during that period.
+Added: For all segments, the Company's actual loss history was not statistically relevant, thus the loss history of peers, defined as commercial financial institutions with asset size of one to five billion, domiciled in California, with similar concentrations of lending were utilized to determine loss rates.
+Added: The peers utilized in the allowance for credit losses are segment specific.
+Added: Additionally, management chose the national unemployment rate and U.S.
+Added: gross domestic product as the primary economic forecast drivers for all segments.
+Added: A third party provides LGD estimates for each segment based on a banking industry Frye-Jacobs Risk Index approach.
+Added: In its loss forecasting framework, the Company incorporates forward-looking information using macroeconomic scenarios applied over the forecasted life of the assets.
+Added: The quantitative CECL model applies the projected rates based on the economic forecasts for the four quarter (one-year) reasonable and supportable forecast horizon to EAD to estimate defaulted loans.
+Added: The economic data is updated quarterly, which is based on Federal Reserve Economic Data (“FRED”) forecasts.
+Added: Historical LGD rates are applied to estimated defaulted loans to determine estimated credit losses.
+Added: For periods beyond the forecast horizon, the economic factors revert to historical averages on a straight-line basis over an eight-quarter (two-year) period.
+Added: Subsequent to the reversion period for the remaining contractual life of loans and leases, the PD, LGD, and prepayment rates are based on historical experience during a full economic cycle.
+Added: Management considers whether adjustments to the quantitative portion of the allowance for credit losses are needed for differences in segment-specific risk characteristics or to reflect the extent to which it expects current conditions and reasonable and supportable forecasts of economic conditions to differ from the conditions that existed during the historical period included in the development of PD and LGD.
+Added: Qualitative internal and external risk factors include, but are not limited to, the following:
+Added: ● Changes in the nature and volume of the loan portfolio.
+Added: ● Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans.
+Added: ● Changes in lending policies and procedures, including changes in underwriting standards and collection.
+Added: ● Changes in economic and business conditions, and developments that affect the collectability of the portfolio.
+Added: ● Changes in the experience, ability, and depth of credit management and lending staff.
+Added: ● Changes in the quality of our systematic loan review processes.
+Added: ● Changes in the value of underlying collateral, where applicable.
+Added: ● Changes in concentration of credit.
+Added: ● The effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses in the portfolio.
+Added: The estimated credit losses associated with unfunded loan commitments are calculated using the same models and methodologies noted above and incorporate utilization assumptions at the estimated time of default.
+Added: While the provision for credit losses associated with unfunded loan commitments is included in "provision for credit losses" on the consolidated statement of income, the allowance for credit losses for unfunded loan commitments is maintained on the consolidated balance sheet in "Interest payable and other liabilities" .
Comparison of Financial Condition at December 31, 2023 and 2022
1 unchanged sentence
Total assets increased $38.6 million, or 1.5%, to $2.6 billion at December 31, 2023 from $2.5 billion at December 31, 2022.
−Removed: The increase was primarily due to loans receivable, net, increasing $355.0 million, or 21.6%, as a result of the PEB Merger and new loan originations, partially offset by loan repayments and sales during the year.
−Removed: In addition, other assets increased $15.7 million or 52.5% and right-of-use assets (“ROU”) increased $4.4 million or 36.6%, partially offset by decreases in cash and cash equivalent of $202.9 million or 53.4% and investment securities available-for-sale of $6.7 million or 3.8%.
+Added: The increase was primarily due to cash and cash equivalents increasing $130.7 million, or 73.9%, and investment securities available-for-sale increasing $9.1 million, or 5.9%, partially offset by a decrease in loans receivable, net of $96.4 million or 4.8%.
Cash and cash equivalents.
−Removed: Cash and cash equivalents decreased $202.9 million, or 53.4%, to $176.8 million at December 31, 2022 from $379.7 million at December 31, 2021.
−Removed: The decrease primarily was due to $208.7 million decrease in federal funds sold and interest-bearing balances in banks, which was used to fund new loan originations and the managed run-off of higher cost time deposits.
−Removed: Investment securities, all of which are classified as available-for-sale, decreased $6.7 million, or 3.8%, to $167.8 million at December 31, 2022 from $174.4 million at December 31, 2021.
−Removed: The decrease primarily was due to a $23.8 million fair value adjustment related to unrealized losses on investment securities available-for-sale and $11.0 million in routine amortization and repayment of investment principal balances and securities called and matured, partially offset by the purchase of $28.9 million of investment securities during the year ended December 31, 2022.
+Added: Cash and cash equivalents increased $130.7 million, or 73.9%, to $307.5 million at December 31, 2023 from $176.8 million at December 31, 2022.
+Added: The increase primarily was due to $139.8 million increase in federal funds sold and interest-bearing balances in banks, due to net change in loans and the managed run-off of higher cost time deposits.
+Added: Investment securities.
+Added: Investment securities, all of which are classified as available-for-sale, increased $9.1 million, or 5.9%, to $163.2 million at December 31, 2023 from $154.0 million at December 31, 2022.
+Added: The increase primarily was due to purchase of $25.3 million of investment securities during the year ended December 31, 2023, partially offset by $11.6 million in routine amortization and repayment of investment principal balances and securities called and matured, and a $4.3 million fair value adjustment related to unrealized losses on investment securities available-for-sale.
The following table sets forth certain information regarding contractual maturities and the weighted average yields of our available for sale investment securities as of December 31, 2023.
5 unchanged sentences
(Dollars in thousands)
−Removed: Government Agencies
−Removed: Preferred equity securities
Municipal securities
5 unchanged sentences
Financial Statements and Supplementary Data” of this Form 10-K for additional information on our investment securities.
+Added: Equity securities.
+Added: Equity securities decreased $1.2 million, or 8.5% to $12.6 million at December 31, 2023 from $13.8 million at December 31, 2022.
+Added: The decrease was primarily due to a $1.1 million loss on equity securities resulting from an adjustment to the fair value of equity securities during the year ended December 31, 2023.
We originate a wide variety of loans with a focus on commercial real estate (“CRE”) loans and commercial and industrial loans.
−Removed: Loans receivable, net of allowance for loan losses, increased $355.0 million, or 21.6%, to $2.0 billion at December 31, 2022, from $1.7 billion at December 31, 2021.
−Removed: The increase was primarily due to $412.9 million of net loans acquired in the PEB Merger and $442.8 million of new loan originations and purchases, partially offset by $469.6 million of loan repayments, including $155.1 million in PPP loans, and $34.0 million in loan sales.
+Added: Loans receivable, net of allowance for credit losses, decreased $96.4 million, or 4.8%, to $1.9 billion at December 31, 2023, from $2.0 billion at December 31, 2022.
+Added: The decrease was primarily due to $196.7 million of loan repayments, including $7.3 million in PPP loans, and $7.2 million in loan sales, partially offset by $110.6 million of new loan originations and purchases.
Loan originations in 2023 were concentrated in California markets, primarily Los Angeles, Irvine/Southern California, San Francisco Bay Area and Sacramento/Northern California with commercial and multifamily real estate secured loans accounting for the majority of the originations.
−Removed: The following table provides information about our loan portfolio by type of loan, with PCI loans presented as a separate balance, at the dates presented.
+Added: The following table provides information about our loan portfolio by type of loan, with PCD loans presented as a separate balance, at the dates presented.
As of December 31,
7 unchanged sentences
Net deferred loan fees
−Removed: Allowance for loan losses
+Added: Allowance for credit losses (2)
(1) Includes $3.8 million and $11.1 million of PPP loans as of December 31, 2023 and 2022, respectively .
−Removed: The following table shows at December 31, 2022, the geographic distribution of our loan portfolio in dollar amounts and percentages.
+Added: (2) Allowance for credit losses at December 31, 2023 is estimated under CECL whereas at December 31, 2022 the allowance for loan losses is estimated under the incurred loss methodology.
+Added: The following table presents at December 31, 2023, the geographic distribution of our loan portfolio in dollar amounts and percentages.
San Francisco Bay
13 unchanged sentences
At December 31, 2023, loans in Colorado, New Mexico and Washington totaled $87.1 million, $43.9 million and $103.8 million, respectively.
−Removed: The following table provides information about our loan portfolio segregated by legacy and acquired loans, net of their discounts at the dates presented.
+Added: The following table provides information about our loan portfolio segregated by legacy and acquired loans with a remaining discount, net of their discounts at the dates presented.
As of December 31,
7 unchanged sentences
Deferred loan fees and costs, net
−Removed: Allowance for loan losses
−Removed: The following table schedules illustrate the contractual maturity and repricing information for our loan portfolio at December 31, 2022.
+Added: Allowance for credit losses
+Added: The following table sets forth contractual maturity and repricing information for our loan portfolio at December 31, 2023.
Loans which have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due.
−Removed: Purchased credit impaired loans are reported at their contractual interest rate.
+Added: PCD loans are reported at their contractual interest rate.
The schedule does not reflect the effects of possible prepayments or enforcement of due on sale clauses.
34 unchanged sentences
Transfer to real estate owned
−Removed: Increase in allowance for loan losses and other items, net
+Added: Increase in allowance for credit losses and other items, net
Net increase in loans receivable and loans held for sale
+Added: Acquired loans.
+Added: Acquired PCD loans are loans acquired from a business combination with evidence of more than insignificant credit deterioration and are accounted for under ASC Topic 326.
+Added: Acquired non-PCD loans represent loans acquired from a business combination without more than insignificant evidence of credit deterioration and are accounted for under ASC Topic 310-20.
+Added: As of December 31, 2023 acquired non-PCD loans totaled $187.7 million with a remaining net premium of $2.1 million, compared to $228.7 million with a remaining net premium of $2.3 million as of December 31, 2022.
+Added: The net premium for acquired non-PCD loans includes both a credit discount based on estimated losses in the acquired loans partially offset by any premium, based on market interest rates on the date of acquisition.
+Added: As of December 31, 2023 acquired PCD loans totaled $27.5 million with a remaining net non-credit discount of $1.8 million, compared to $31.1 million with a remaining net non-credit discount of $2.0 million as of December 31, 2022.
Nonperforming assets and nonaccrual loans.
−Removed: Nonperforming assets consist of nonaccrual loans, accruing loans more than 90 days delinquent and other real estate owned (“OREO”).
−Removed: Nonperforming assets increased $8.3 million to $15.2 million, or 0.75% of total loans, at December 31, 2022 compared to $6.9 million, or 0.41% of total loans, at December 31, 2021, due to a $7.4 million increase in nonaccrual loans and a $934,000 increase in accruing loans 90 days and more past due.
−Removed: The increase in nonperforming loans was primarily due to a $5.1 million multi-family real estate loan which was placed on nonaccrual status during the third quarter of 2022 and $934,000 in accruing SBA guaranteed PPP loans which were 90 days or more past due and in the process of forgiveness at December 31, 2022.
+Added: Nonperforming assets generally consist of nonaccrual loans, accruing loans more than 90 days delinquent and other real estate owned (“OREO”).
+Added: Nonperforming assets decreased $2.3 million to $13.0 million, or 0.67% of total loans, at December 31, 2023 compared to $15.2 million, or 0.75% of total loans, at December 31, 202.
+Added: The decrease in nonperforming assets was primarily due to the renewal of one accruing loan 90 days or more past due and in the process of collection totaling $934,000 at December 31, 2022.
+Added: Additionally, during the year ended December 31 2023, we charged-off seven nonaccrual loans totaling $484,000 and received pay-offs of one $774,000 performing (accruing) modified loan to a borrower experiencing financial difficulty and three nonaccrual loans, consisting of two loans to one borrower totaling $1.2 million and a third loan totaling $247,000.
+Added: These decreases were partially offset by 12 previously performing loans totaling $2.2 million being placed on nonaccrual status during the year, consisting of three real estate loans totaling $530,000, one commercial loan totaling $1.0 million discussed below, and eight commercial
+Added: loans totaling $640,000.
At December 31, 2023 and 2022, $740,000 and $839,000 of the Company’s nonperforming loans were guaranteed by governmental agencies, respectively.
−Removed: Other real estate owned totaled $21,000 at both December 31, 2022, and December 31, 2021.
+Added: There was no OREO at December 31, 2023, compared to $21,000 of OREO at December 31, 2022.
+Added: During the quarter ended September 30, 2023, the Company determined that a certificate of deposit-secured line of credit loan made to a revocable living trust (the “Trust” or the “Borrower”) with an outstanding balance of approximately $1.0 million as of December 31, 2023 was placed on nonaccrual as a result of the sole trustee and beneficiary of the Trust filing for personal bankruptcy in July 2023.
+Added: At June 30, 2023, the loan had an outstanding balance of $5.0 million and was secured by a $4.0 million certificate of deposit held at the Bank.
+Added: An additional $1.0 million in cash collateral securing the loan had previously been released by the Bank into a third-party escrow account at the request of the Borrower to be used as a refundable retainer in connection with a separate transaction by the Borrower.
+Added: The loan matured on July 16, 2023, and the Bank received notification that the sole trustee and beneficiary of the Trust filed for personal bankruptcy on July 18, 2023.
+Added: After receiving this notification, the Bank used the $4.0 million certificate of deposit held at the Bank to offset amounts owed on the loan and contacted the third-party escrow agent for the return of the additional $1.0 million of collateral.
+Added: The Bank was advised by the escrow agent that the previously escrowed funds had been released by the escrow agent, which was done without the Bank’s consent and contrary to the written escrow instructions.
+Added: The Bank has initiated legal action against the Borrower, the Borrower’s related parties and the escrow agent to recover the previously escrowed collateral.
+Added: The results of the legal action and the Bank’s ability to recover the previously escrowed collateral are currently uncertain.
+Added: The loan was fully reserved for at December 31, 2023.
Accruing loans past due 30 to 89 days totaled $4.8 million at December 31, 2023, compared to $3.9 million at December 31, 2022.
−Removed: The decrease in past due 30 to 89 days at December 31, 2022 primarily related loans which have since been brought current.
−Removed: At December 31, 2022 and December 31, 2021, nonaccrual loans included $2.5 million and $113,000 of loans 30-89 days past due and $4.0 million and $2.5 million of loans less than 30 days past due, respectively.
+Added: At December 31, 2023 and December 31, 2022, nonaccrual loans included $927,000 and $2.5 million of loans 30-89 days past due, and $2.1 million and $4.0 million of loans less than 30 days past due, respectively.
At December 31, 2023, the $2.1 million of loans less than 30 days past due was comprised of 16 loans all of which were placed on nonaccrual due to concerns over the financial condition of the borrowers.
2 unchanged sentences
When the ability to fully collect nonaccrual loan principal is in doubt, cash payments received are applied against the principal balance of the loan until such time as full collection of the remaining recorded balance is expected.
−Removed: Generally, loans with temporarily impaired values and loans to borrowers experiencing financial difficulties are placed on nonaccrual status even though the borrowers continue to repay the loans as scheduled.
−Removed: Such loans are categorized as performing nonaccrual loans and are reflected in nonperforming assets.
Interest received on such loans is recognized as interest income when received.
−Removed: nonaccrual loan is restored to an accrual basis when principal and interest payments are paid current, and full payment of principal and interest is probable.
+Added: A nonaccrual loan is restored to an accrual basis when principal and interest payments are paid current, and full payment of principal and interest is probable.
Loans that are well secured and in the process of collection will remain on accrual status.
−Removed: Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date, without a carryover of the related allowance for loan and lease losses.
−Removed: These acquired loans are segregated into three types:
−Removed: pass rated loans with no discount attributable to credit quality, non-impaired loans with a discount attributable at least in part to credit quality, and impaired loans with evidence of significant credit deterioration.
−Removed: ● Pass rated loans (typically performing loans) are accounted for in accordance with ASC Topic 310-20 “Nonrefundable Fees and Other Costs” as these loans do not have evidence of credit deterioration since origination.
−Removed: ● Non-impaired loans (typically performing substandard loans) are accounted for in accordance with ASC Topic 310-30, if they display at least some level of credit deterioration since origination.
−Removed: ● Impaired loans (typically substandard loans on nonaccrual status) are accounted for in accordance with ASC Topic 310-30, as they display significant credit deterioration since origination.
−Removed: For pass rated loans (non-purchased credit impaired loans), the difference between the estimated fair value of the loans and the principal outstanding is accreted over the remaining life of the loans.
−Removed: In accordance with ASC Topic 310-30, for both purchased non-impaired loans (performing substandard loans) and purchased credit-impaired loans, the loans are pooled by loan type and the difference between contractually required payments at acquisition and the cash flows expected to be collected is referred to as the non-accretable difference.
−Removed: Further, any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan pools when there is a reasonable expectation about the amount and timing of such cash flows.
−Removed: Troubled debt restructured loans.
−Removed: Troubled debt restructurings, or TDRs, which are accounted for under ASC Topic 310-40, are loans which have renegotiated loan terms to assist borrowers who are unable to meet the original terms of their loans.
−Removed: Such modifications to loan terms may include a below market interest rate, a reduction in principal, or a longer term to maturity.
−Removed: TDR loans at December 31, 2022 totaled $6.3 million, of which $759,000 were accruing and performing according to their restructured terms compared to $2.4 million, of which $805,000 were accruing and performing according to their restructured terms at December 31, 2021.
−Removed: The accruing TDR loans are not considered nonperforming assets as they continue to accrue interest despite being considered impaired due to the restructured status.
−Removed: There was a related allowance for loan losses on the TDR loans totaled $393,000 and zero at December 31, 2022 and 2021, respectively.
−Removed: The following table sets forth the nonperforming loans, nonperforming assets and troubled debt restructured loans as of the dates indicated:
+Added: Loans may be acquired at a premium or discount to par value, in which case the premium is amortized (subtracted from) or accreted (added to) interest income over the remaining life of the loan.
+Added: Generally, as time goes on, the effects of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off early.
+Added: Upon the early pay off-of a loan, any remaining (unaccreted) discount or (unamortized) premium is immediately taken into interest income;
+Added: as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income.
+Added: Modified loans to borrowers experiencing financial difficulty.
+Added: Occasionally, the Company offers modifications of loans to borrowers experiencing financial difficulty by providing principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions or any combination of these.
+Added: When principal forgiveness is provided, the amount of the forgiveness is charged-off against the allowance for credit losses for loans.
+Added: Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off.
+Added: Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses for loans is adjusted by the same amount.
+Added: Loan modifications to borrowers experiencing financial difficulty as of December 31, 2023 totaled $4.3 million, of which none were accruing, compared to $6.3 million, of which $759,000 were accruing and performing according to their modified terms, at December 31, 2022.
+Added: Modified loans that are accruing and performing according to their modified
+Added: terms are not considered nonperforming loans.
+Added: The related allowance for credit losses on individually evaluated modified loans totaled $1.3 million and $393,000 at December 31, 2023 and December 31, 2022, respectively.
+Added: The following table sets forth the nonperforming loans, nonperforming assets and modified loans to borrowers experiencing financial difficulty as of the dates indicated:
(Dollars in thousands)
11 unchanged sentences
Total nonperforming assets (1)
−Removed: Troubled debt restructurings – performing
+Added: Modified loans to borrowers experiencing financial difficulty – performing
Nonperforming assets to total assets (1)
Nonperforming loans to total loans (1)
−Removed: (1) Performing TDRs are neither included in nonperforming loans above nor are they included in the numerators used to calculate these ratios.
−Removed: Loans under ASC Topic 310-30 are considered performing and are not included in nonperforming assets in the table above.
−Removed: At December 31, 2022 and December 31, 2021, we had no credit impaired loans under ASC Topic 310-30 that were 90 days past due and still accruing.
−Removed: Allowance for loan losses.
−Removed: The allowance for loan losses is maintained to cover losses that are estimated in accordance with GAAP.
−Removed: It is our estimate of loan losses inherent in our loan portfolio at each balance sheet date.
−Removed: Our methodology for analyzing the allowance for loan losses consists of general and specific components.
−Removed: For the general component, we stratify the loan portfolio into homogeneous groups of loans that possess similar loss potential characteristics and apply a loss ratio to these groups of loans to estimate the credit losses in the loan portfolio.
−Removed: We use both historical loss ratios and qualitative loss factors assigned to major loan collateral types to establish general component loss allocations.
−Removed: Qualitative loss factors are based on management’s judgment of company, market, industry or business specific data and external economic indicators, which may not yet be reflected in the historical loss ratios, and that could impact our specific loan portfolios.
−Removed: Management and the Board of Directors sets and adjusts qualitative loss factors by regularly reviewing changes in underlying loan composition and the seasonality of specific portfolios.
−Removed: Management and the Board of Directors also considers credit quality and trends relating to delinquency, nonperforming and classified loans within our loan portfolio when evaluating qualitative loss factors.
−Removed: Additionally, management and the Board of Directors adjusts qualitative factors to account for the potential impact of external economic factors, including the unemployment rate, vacancy, capitalization rates, commodity prices and other pertinent economic data specific to our primary market area and lending portfolios.
−Removed: For the specific component, the allowance for loan losses is established for impaired loans.
−Removed: Management evaluates current information and events regarding a borrower’s ability to repay its obligations and considers a loan to be impaired when the ultimate collectability of amounts due, according to the contractual terms of the loan agreement, is in doubt.
−Removed: If an impaired loan is collateral-dependent, the fair value of the collateral, less the estimated cost to sell, is used to determine the amount of impairment.
−Removed: If an impaired loan is not collateral-dependent, the impairment amount is determined using the
−Removed: negative difference, if any, between the estimated discounted cash flows and the loan amount due.
−Removed: For impaired loans, the amount of the impairment can be adjusted, based on current data, until such time as the actual basis is established by acquisition of the collateral or until the basis is collected.
−Removed: Impairment losses are reflected in the allowance for loan losses through a charge to the provision for credit losses.
−Removed: Subsequent recoveries are credited to the allowance for loan losses.
−Removed: Cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement.
−Removed: Cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to principal.
−Removed: The calculation of the allowance for loan losses at both December 31, 2022 and December 31, 2021 excludes the balance of PPP loans held in portfolio as of those dates as PPP loans are fully guaranteed by the SBA.
−Removed: In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net discount to the loans contractual amounts.
−Removed: Credit discounts are included in the determination of fair value and as a result, no allowance for loan losses is recorded for acquired loans at the acquisition date.
−Removed: However, the allowance for loan loss includes an estimate for credit deterioration of acquired loans that occurs after the date of acquisition, which is included in the loan loss provision in the period that the deterioration occurred.
−Removed: The discount recorded on the acquired loans is not reflected in the allowance for loan losses or related allowance coverage ratios.
−Removed: As of December 31, 2022, acquired loans net of their discount totaled $257.4 million with a remaining net discount on these loans of $522,000, and $51.3 million of acquired loans with a remaining net discount on these loans of $2.1 million at December 31, 2021.
−Removed: The net discount includes a credit discount based on estimated losses in the acquired loans partially offset a premium, if any, based market interest rates on the date of acquisition.
−Removed: The decrease in the net discount on acquired loans at December 31, 2022, compared to December 31, 2021, was due to a net premium on the PEB loans given the higher yielding portfolio compared to current market interest rates.
+Added: (1) Performing modified loans to borrowers experiencing financial difficulty are neither included in nonperforming loans above nor are they included in the numerators used to calculate these ratios.
+Added: PCD loans are considered performing and are not included in nonperforming assets in the table above.
+Added: At December 31, 2023 and December 31, 2022, we had no PCD loans that were 90 days past due and still accruing.
+Added: Allowance for credit losses.
+Added: The allowance for credit losses is determined by us on a quarterly basis, although we are engaged in monitoring the appropriate level of the allowance on a more frequent basis.
+Added: We assess the allowance for credit losses based on three categories:
+Added: (i) originated loans, (ii) acquired non-credit-deteriorated loans, and (iii) acquired or purchased credit deteriorated loans.
+Added: The allowance for credit losses reflects management’s estimate of current expected credit losses inherent in the loan portfolios.
+Added: The computation includes elements of judgment and high levels of subjectivity.
+Added: Based on the current conditions of the loan portfolio, management believes that the $22.0 million allowance for credit losses at December 31, 2023 is adequate to absorb probable losses inherent in the Company’s loan portfolio.
+Added: No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio.
+Added: The Company adopted the CECL standard on January 1, 2023, which resulted in a one-time adjustment to the allowance for credit losses for loans of $1.5 million (which included the reclassification of the net credit discount on acquired PCD loans totaling $845,000) and an allowance for unfunded loan commitments of $45,000, as well as an after-tax decrease to opening retained earnings of $491,000 on January 1, 2023.
+Added: At December 31, 2023, the Company’s allowance for credit losses for loans was $22.0 million under the CECL framework, or 1.14% of total loans, compared to an allowance for loan losses of $18.9 million under the allowance for loan losses incurred loss framework, or 0.94% of total loans, at December 31, 2022.
+Added: In addition to the CECL adjustment
+Added: on January 1, 2023, a $2.2 million provision for credit losses for loans was recorded for the year ended December 31, 2023, compared to a $4.4 million provision for loan losses for the year ended December 31, 2022.
+Added: The provision for credit losses for the year ended December 31, 2023 was primarily due to a $3.3 million increase in reserves for individually evaluated loans, $550,000 of net loan charge-offs during the year, and an additional reserve taken on a loan to a Trust, a discussed above.
+Added: The increase in specific reserves included one commercial real estate loan and one multifamily loan.
+Added: Based on updated appraisals received during the fourth quarter of 2023, the underlying collateral values of these loans experienced declines due to property specific factors and conditions.
+Added: The change in the provision was partially offset by a decrease in the quantitative reserve primarily due to improvements in forecasted economic conditions, specifically, national gross domestic product and national unemployment indicators utilized to estimate credit losses over the next four quarters, as compared to those used in estimating the allowance for credit losses on loans at adoption, and to a lesser extent a decrease in outstanding loan balances.
+Added: There was an adjustment to the determined risk level for the effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses in the portfolio qualitative factor during the year ended December 31, 2023.
+Added: We recorded net charge-offs of $550,000 for the year ended December 31, 2023 compared to $3.2 million for the year ended December 31, 2022.
+Added: The calculation of the allowance for credit losses for loans at December 31, 2023 and the allowance for loan losses at December 31, 2022, excludes the balance of PPP loans held in portfolio as of those dates as PPP loans are fully guaranteed by the SBA.
The following table shows certain credit ratios at and for the periods indicated and each component of the ratio’s calculations.
+Added: The following table shows certain credit ratios at and for the periods indicated and each component of the ratio’s calculations.
Year ended December 31,
(Dollars in thousands)
−Removed: Allowance for loan losses as a percentage of total loans outstanding at period end
−Removed: Allowance for loan losses
+Added: Allowance for credit losses on loans as a percentage of total loans outstanding at period end
+Added: Allowance for credit losses on loans
Total loans outstanding
2 unchanged sentences
Total loans outstanding
−Removed: Allowance for loan losses as a percentage of nonaccrual loans at period end
−Removed: Allowance for loan losses
+Added: Allowance for credit losses on loans as a percentage of nonaccrual loans at period end
+Added: Allowance for credit losses on loans
Total nonaccrual loans
4 unchanged sentences
Construction and land:
−Removed: Net (recoveries)/charge-offs
+Added: Net recoveries
Average loans outstanding
Commercial estate:
−Removed: Net charge-offs/(recoveries)
+Added: Net (recoveries)/charge-offs
Average loans outstanding
5 unchanged sentences
Total average loans outstanding
−Removed: The following table shows the allocation of the allowance for loan losses at the indicated dates.
+Added: The following table shows the allocation of the allowance for credit losses at the indicated dates.
As of December 31,
6 unchanged sentences
Total real estate
−Removed: The allowance for loan losses increased $1.2 million, or 6.8%, to $18.9 million, or 0.94% of total loans at December 31, 2022, compared $17.7 million, or 1.06% of total loans, at December 31, 2021.
−Removed: The decrease in the allowance for loan losses as a percentage of total loans outstanding at December 31, 2022, as compared to December 31, 2021, was due to the Company’s acquisition of PEB and related acquisition accounting as acquired loans were recorded at their estimate fair value at acquisition and no allowance for loan losses was recorded.
−Removed: We recorded net charge-offs of $3.2 million for the year ended December 31, 2022, compared to net charge-offs of $266,000 for the year ended December 31, 2021.
−Removed: The increase in net charge-offs was primarily due to one $4.5 million participation interest in a national shared credit, with total cumulative net charge-offs of $3.1 million during the year.
−Removed: Included in the carrying value of loans are net discounts on acquired loans which may reduce the need for an allowance for loan losses on these loans because they are carried at their estimated fair value on the date on which they were acquired.
−Removed: As of December 31, 2022, we identified $15.0 million in impaired loans, inclusive of $14.3 million of nonperforming loans and $759,000 of performing (accruing) TDR loans.
−Removed: Of these impaired loans, only $1.3 million had a specific allowance of $1.2 million recorded as of December 31, 2022.
−Removed: As of December 31, 2021, we identified $7.7 million in impaired loans, inclusive of $6.9 million of nonperforming loans and $765,000 of performing (accruing) TDR loans.
−Removed: Of these impaired loans, only $ 1.1 million had a specific allowance of $931,000 recorded as of December 31, 2021.
−Removed: Management considers the allowance for loan losses at December 31, 2022 to be adequate to cover losses inherent in the loan portfolio based on the assessment of the above-mentioned factors affecting the loan portfolio.
−Removed: While management believes the estimates and assumptions used in its determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future losses will not exceed the amount of the established allowance for loan losses or that any increased allowance for loan losses that may be required will not adversely impact our financial condition and results of operations.
−Removed: A further decline in national and local economic conditions as a result the effects of inflation, a potential recession or slowed economic growth, and any governmental or societal responses to the COVID- 19 pandemic, among other factors, could result in a material increase in the allowance for loan losses and may adversely affect the Company’s financial condition and results of operations.
−Removed: In addition, the determination of the amount of our allowance for loan losses is subject to review by bank regulators, as part of the routine examination process, which may result in additions to our provision for loan losses based upon their judgment of information available to them at the time of their examination.
+Added: As of December 31, 2023, the Company individually evaluated $13.0 million of loans, all of which were on nonaccrual status.
+Added: Of these individually evaluated loans, $9.7 million had a specific allowance of $4.4 million as of
+Added: December 31, 2023.
+Added: As of December 31, 2022, the Company individually evaluated $15.0 million in loans, inclusive of $14.3 million of nonaccrual loans and $759,000 of performing (accruing) modified loans to borrowers experiencing financial difficulty.
+Added: Of these individually evaluated loans, $1.4 million had a specific allowance of $1.2 million as of December 31, 2022.
+Added: Management considers the allowance for credit losses for loans at December 31, 2023 to be adequate to cover future expected losses inherent in the loan portfolio based on the assessment of the above-mentioned factors affecting the loan portfolio.
+Added: While management believes the estimates and assumptions used in its determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future losses will not exceed the amount of the established allowance for credit losses for loans or that any increased allowance for credit losses for loans that may be required will not adversely impact our financial condition and results of operations.
+Added: A further decline in national and local economic conditions as a result of unemployment levels, labor shortages and the effects of inflation, a potential recession, or slowed economic growth caused by increasing political instability from acts of war, as well as supply chain disruptions, among other factors, could result in a material increase in the allowance for credit losses for loans and may adversely affect the Company’s financial condition and results of operations.
+Added: In addition, the determination of the amount of our allowance for credit losses for loans is subject to review by bank regulators as part of the routine examination process, which may result in additions to our allowance for credit losses based upon their judgment of information available to them at the time of their examination
Right-of-use assets and lease liabilities.
The Company recognizes operating leases on the Consolidated Balance Sheet as ROU assets and lease liabilities based on the value of the discounted future lease payments.
−Removed: ROU assets increased $4.4 million, or 36.6%, to $16.6 million at December 31, 2022 from $12.1 million at December 31, 2021.
−Removed: Lease liabilities increased $4.5 million, or 35.4%, to $17.1 million at December 31, 2022 from $12.7 million at December 31, 2021.
−Removed: increase in right-of-use assets and lease liabilities was due to leases acquired in the PEB Merger and modifications to existing leases during the year.
+Added: ROU assets decreased $2.6 million, or 15.9%, to $13.9 million at December 31, 2023 from $16.6 million at December 31, 2022.
+Added: Lease liabilities decreased $2.4 million, or 13.9%, to $14.8 million at December 31, 2023 from $17.2 million at December 31, 2022.
+Added: The decrease in right-of-use assets and lease liabilities was due to normal amortization and depreciation expenses associated with these assets.
Premises and Equipment.
−Removed: Premises and equipment decreased $1.1 million, or 7.6%, to $13.3 million at December 31, 2022 from $14.4 million at December 31, 2021.
−Removed: This decrease in premises and equipment was driven by normal amortization and depreciation expenses associated with these assets.
+Added: Premises and equipment increased $456,000, or 3.4%, to $13.7 million at December 31, 2023 from $13.3 million at December 31, 2022.
+Added: This increase in premises and equipment was driven by purchases of equipment during the year, partially offset by normal amortization and depreciation expenses associated with these assets.
Deposits are our primary source of funding and consists of core deposits from the communities served by our branch and office locations.
3 unchanged sentences
Competitive products, competitive pricing and high touch client service are important to attracting and retaining these deposits.
−Removed: Total deposits increased $100.2 million, or 5.0%, to $2.1 billion at December 31, 2022 from $2.0 billion at December 31, 2021, primarily due to the $376.7 million of deposits acquired in the PEB Merger, partially offset by the managed run- off of higher cost time deposits and competitive pricing.
+Added: Total deposits increased $47.3 million, or 2.3%, to $2.1 billion at December 31, 2023 compared to the year ended December 31, 2022.
Noninterest bearing deposits totaled $646.3 million, or 30.3% of total deposits, at December 31, 2023 compared to $773.3 million, or 37.1% of total deposits, at December 31, 2022.
+Added: During the year ended December 31, 2023, there was a shift in interest rate sensitive clients moving a portion of their non-operating deposit balances from lower costing deposits, including noninterest-bearing deposits, into higher costing money market and time deposits.
The following table sets forth the dollar amount of deposits in the various types of deposit programs offered at the dates indicated.
1 unchanged sentence
Demand deposits
−Removed: NOW accounts and savings
Time deposits
+Added: The following table shows a summary of our average deposit amounts and average rates paid during the years indicated:
+Added: (Dollars in thousands)
+Added: Time deposits
+Added: Total interest bearing deposits
+Added: Noninterest bearing deposits
+Added: Total deposits
The following table shows time deposits by maturity and rate as of December 31, 2023.
−Removed: Years Through
+Added: Time deposits
(Dollars in thousands)
−Removed: 3.00% and above
−Removed: As of December 31, 2022 and 2021, approximately $1.1 billion and $1.0 billion, respectively, of our total deposit portfolio was uninsured.
+Added: Due in three months or less
+Added: Due in over three months through six months
+Added: Due in over six months through 12 months
+Added: Total due within 12 months
+Added: Due in over 12 months through 24 months
+Added: Due in over 24 months
+Added: Total due over 12 months
+Added: As of December 31, 2023 and 2022, approximately $1.0 billion, or 45.4% of total deposits and $1.1 billion, or 53.3% of total deposits respectively, were uninsured.
The uninsured amounts are estimates based on the methodologies and assumptions used for United Business Bank’s regulatory reporting requirements.
The following table sets forth the portion of our time deposits that are in excess of the FDIC insurance limit, by remaining time until maturity, as of December 31, 2023.
−Removed: (In thousands)
+Added: (Dollars in thousands)
Less than 3 months
11 unchanged sentences
At both December 31, 2023 and 2022, there were no FHLB advances outstanding.
−Removed: In addition to the availability of liquidity from the FHLB, the Bank maintained a short-term borrowing line of credit with the FRB of San Francisco based on PPP loans pledged as collateral.
+Added: In addition, the Bank maintained a short-term borrowing line of credit with the FRB of San Francisco based on PPP loans pledged as collateral.
This line was closed during 2023, with no FRB borrowings outstanding at December 31, 2023.
+Added: The Bank did not participate in the FRB of San Francisco Bank Term Funding Program.
The Bank also has uncommitted Federal Funds lines with four corresponding banks.
9 unchanged sentences
We are required to provide collateral for certain local agency deposits.
−Removed: At December 31, 2022 and December 31, 2021, the FHLB of San Francisco had issued a letter of credits on behalf of the Bank totaling $40.6 million and $42.0 million, respectively as collateral for local agency deposits.
+Added: At both December 31, 2023 and December 31, 2022, the FHLB of San Francisco had issued a letter of credits on behalf of the Bank totaling $40.6 million as collateral for local agency deposits.
Shareholders’ equit y.
−Removed: Shareholders’ equity increased $54.5 million, or 20.8%, to $317.1 million at December 31, 2022 from $262.6 million at December 31, 2021.
−Removed: The increase in shareholders’ equity was primarily due to the issuance of $64.1 million in Company common stock in PEB Merger and $27.0 million of net income, partially offset by the repurchase of $18.0 million of our common stock during 2022 and cash dividends of $2.7 million.
−Removed: In addition, shareholder’s equity was adversely impacted by increased unrealized losses on available for sale securities reflecting the increase in market interest rates during the year, resulting in $17.0 million accumulated other comprehensive loss, net of tax for the year ended December 31, 2022.
+Added: Shareholders’ equity decreased $4.3 million, or 1.3%, to $312.9 million at December 31, 2023 from $317.1 million at December 31, 2022.
+Added: The decrease in shareholders’ equity was primarily due to the repurchase of $24.1 million of our common stock during 2023 and cash dividends of $4.8 million, partially offset by $27.4 million of net income.
+Added: In addition, shareholder’s equity was adversely impacted by increased unrealized losses on available for sale securities reflecting the increase in market interest rates during the year, resulting in a $3.0 million increase in accumulated other comprehensive loss, net of tax for the year ended December 31, 2023.
During the year ended December 31, 2023, the Company repurchased a total of 1,329,040 shares of its common stock at a total cost of $18.14 per share.
5 unchanged sentences
We reported net income of $27.4 million for the year ended December 31, 2023, compared to $23.7 million for the year ended December 31, 2022, an increase of $3.7 million, or 15.6%.
−Removed: Net income for the year ended December 31, 2022 reflects a $23.9 million increase in net interest income, offset by a $4.0 million increase in provision for loan losses, a $595,000 decrease in noninterest income, a $10.8 million increase in noninterest expense and a $2.2 million increase in provision for income taxes.
+Added: Net income for the year ended December 31, 2023 reflects a $1.2 million increase in net interest income, a $2.4 million decrease in provision for credit losses, an $876,000 increase in noninterest income and a $1.3 million decrease in noninterest expenses, partially offset by a $2.0 million increase in provision for income taxes.
Diluted earnings per share were $2.27 for the year ended December 31, 2023, an increase of $0.46 from diluted earnings per share of $1.81 for the year ended December 31, 2022.
−Removed: Our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income before provision for loan losses plus noninterest income, was 61.40% for the year ended December 31, 2022, compared to 65.57% for the year ended December 31, 2021.
−Removed: The improvement in the efficiency ratio during the year ended December 31, 2022 was primarily due the increase net interest income during 2022, partially offset by higher noninterest expense.
+Added: Our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income before provision for credit losses and noninterest income, was 61.69% for the year ended December 31, 2023, compared to 64.13% for the year ended December 31, 2022.
+Added: The improvement in the efficiency ratio during the year ended December 31, 2023 was primarily due to higher revenues, coupled with a slight decrease in total noninterest expenses.
Interest income.
Interest income for the year ended December 31, 2023 was $126.3 million, compared to $107.1 million for the year ended December 31, 2022, an increase of $19.3 million or 18.0%.
−Removed: The increase in interest income primarily was due to an increase in both the average balance of and yield on interest earning assets, principally loans, partially offset by a decrease in the recognition of deferred loan fee income from SBA loan forgiveness related to PPP loans.
−Removed: Interest income on loans increased $19.6 million as a result of a $355.4 million increase in the average balance of loans outstanding and a 15 basis point increase in the average loan yield during the year ended December 31, 2022 as compared to the year ended December 31, 2021 .
+Added: The increase in interest income between periods reflects increases in interest income in all interest-earning asset categories, with the largest increases from loans, and fed funds sold and interest bearing balances in banks.
+Added: Increased yields earned on interest-earning assets, along with an increase in the average balance of fed funds sold and interest bearing balances in banks, were the primary drivers for the increase in interest income.
+Added: Interest income on loans, including fees increased $10.6 million , or 14.6%, to $106.3 million for the year ended December 31, 2023, compared to $95.7 million for the year ended December 31, 2022.
+Added: The increase was primarily due to a 48 basis point increase in the average loan yield and, to a lesser extent, a $20.7 million increase in the average balance of loans.
The average yield earned on loans, including the accretion of the net discount and deferred PPP loan fees recognized for the year ended December 31, 2023 was 5.32%, compared to 4.84% for the year ended December 31, 2022.
−Removed: Interest income included $2.0 million in fees earned related to PPP loans during the year ended December 31, 2022, compared to $5.4 million in same period a year ago.
−Removed: As of December 31, 2022, total unrecognized fees on PPP loans were $94,000.
−Removed: Interest income on loans for the year ended December 31, 2022 and 2021, included $1.3 million and $1.2 million respectively, in fees related to prepayment penalties.
−Removed: Interest income on loans for the year ended December 31, 2022 and December 31, 2021 included $2.3 million and $2.7 million respectively, in accretion of purchase accounting fair value adjustments and revenue from purchase credit impaired loans in excess of discounts.
−Removed: The remaining net discount on these acquired loans was $522,000 and $2.1 million at December 31, 2022 and 2021, respectively.
−Removed: Interest income on investment securities increased $2.2 million, or 56.3%, to $6.1 million for the year ended December 31, 2022 from $3.9 million for the year ended December 31, 2021.
−Removed: The increase was primarily due to a $58.3 million increase in the average balance of investment securities and a 23 basis point increase in the yield on investment securities available-for-sale to 3.25% for the year ended December 31, 2022 from 3.02% for the year ended December 31, 2021.
−Removed: Interest income on fed funds sold and interest-bearing balances in banks increased $3.4 million, or 505.3% to $4.0 million for the year ended December 31, 2022 from $665,000 for the year ended December 31, 2021.
−Removed: The increase was primarily due to a 119 basis point increase in the yield on fed funds sold and interest-bearing balance in banks to 1.35% for the year ended December 31, 2022 from 0.16% for the year ended December 31, 2021, partially offset by a
−Removed: $116.2 million decrease in the average balance of federal funds sold and interest-bearing balances in banks for the year ended December 31, 2022 compared to the same period in 2021.
+Added: Interest income included $92,000 in fees earned related to PPP loans during the year ended December 31, 2023, compared to $2.0 million in same period a year ago.
+Added: As of December 31, 2023, there was a minimal amount of unrecognized PPP deferred fees and costs.
+Added: Interest income on loans for the year ended December 31, 2023 and 2022, included $486,000 and $1.3 million respectively, in fees related to prepayment penalties.
+Added: Interest income on loans for the year ended December 31, 2023 and December 31, 2022 included $44,000 in amortization and $2.3 million in accretion respectively, of the net discount on acquired loans and revenue from PCD loans in excess of discounts.
+Added: The remaining net discount on these acquired loans was $395,000 and $522,000 at December 31, 2023 and 2022, respectively.
+Added: Interest income on investment securities, excluding FRB and FHLB stock, increased $908,000, or 14.9%, to $7.0 million for the year ended December 31, 2023 from $6.1 million for the year ended December 31, 2022.
+Added: The increase was due to an 80 basis point increase in the yield on investment securities to 4.05% for the year ended December 31, 2023 from 3.25% for the year ended December 31, 2022, partially offset by a $14.4 million decrease in the average balance of investment securities.
+Added: Dividends on FHLB and FRB stock totaled $1.4 million and $1.2 million for the years ended December 31, 2023 and 2022, respectively.
+Added: Interest income on fed funds sold and interest-bearing balances in banks increased $7.6 million, or 187.9% to $11.6 million for the year ended December 31, 2023 from $4.0 million for the year ended December 31, 2022.
+Added: The increase was due to a 385 basis point increase in the yield on fed funds sold and interest-bearing balance in banks to 5.20% for the year ended December 31, 2023 from 1.35% for the year ended December 31, 2022, partially offset by a $74.6 million decrease in the average balance of federal funds sold and interest-bearing balances in banks for the year ended December 31, 2023 compared to the same period in 2022.
Interest expense.
−Removed: Interest expense increased by $1.5 million, or 17.6%, to $10.4 million for the year ended December 31, 2022 from $8.8 million for the year ended December 31, 2021.
−Removed: The increase was driven by a $1.4 million increase in interest expense on deposits, primarily time deposits and money market accounts, and to a lesser extent a $151,000 increase in interest expense paid on junior subordinated debentures, net.
−Removed: T he average rate paid on interest bearing liabilities increased three basis points to 0.70% for the year ended December 31, 2022 from 0.67% for the year ended December 31, 2021.
−Removed: The total average balance of interest-bearing liabilities increased by $170.2 million, or 13.0%, to $1.4 billion for the year ended December 31, 2022, from $1.3 billion for the year ended December 31, 2021, primarily due to an increase in total interest bearing deposits.
−Removed: Interest expense on deposits increased $1.4 million, or 28.7%, to $6.3 million for the year ended December 31, 2022 from $4.9 million for the year ended December 31, 2021, primarily due to increases in the average rate paid on interest bearing deposits, principally higher costing money market accounts, and increases in the average balances of money market and time deposits.
−Removed: The average rate paid on interest bearing deposits increased to 0.44% for the year ended December 31, 2022, from 0.39% for the year ended December 31, 2021, with the average rate paid on money market deposits increasing nine basis points to 0.49% during 2022 compared to 0.40% during 2021.
−Removed: The overall average cost of deposits for the year ended December 31, 2022 increased to 0.29%, compared to 0.25% for the year ended December 31, 2021.
−Removed: The average balance of noninterest bearing deposits increased $64.4 million, or 8.87%, to $789.8 million for the year ended December 31, 2022 compared to $725.4 million for the year ended December 31, 2021.
+Added: Interest expense increased $18.1 million, or 175.0%, to $28.5 million for the year ended December 31, 2023 from $10.4 million for the year ended December 31, 2022, reflecting higher funding costs related to increased rates of interest payable on our money market and time deposits and junior subordinated debentures .
+Added: The average rate paid on interest bearing liabilities for the year ended December 31, 2023 was 1.87% compared to 0.70% for year ended December 31, 2022.
+Added: The total average balance of interest-bearing liabilities increased $37.9 million, or 2.55%, to
+Added: $1.5 billion for the year ended December 31, 2023, from the year ended December 31, 2022, primarily due to an increase in interest-bearing time deposits.
+Added: Interest expense on deposits increased $17.8 million, or 283.2%, to $24.0 million for the year ended December 31, 2023 from $6.3 million for the year ended December 31, 2022, primarily due to increases in the average rate paid on money market and accounts and time deposits, and an increase in the average balance of time deposits.
+Added: The average rate paid on interest bearing deposits increased to 1.66% for the year ended December 31, 2023, from 0.44% for the year ended December 31, 2022, with the average rate paid on money market deposits increasing 115 basis points to 1.64% during 2023 compared to 0.49% during 2022, and the average rate paid on time deposits increasing 231 basis points to 3.22% during 2023 compared to 0.91% during 2022.
+Added: The overall average cost of deposits, which includes noninterest-bearing deposits, for the year ended December 31, 2023 increased to 1.13%, compared to 0.29% for the year ended December 31, 2022.
+Added: The average balance of noninterest bearing deposits decreased $102.5 million, or 13.0%, to $687.3 million for the year ended December 31, 2023 compared to $789.8 million for the year ended December 31, 2022.
The increase in the cost of interest bearing deposits between the years was driven by market and competitive factors following increases in the target Fed Funds Rate.
−Removed: Interest expense on borrowings increased $151,000, or 3.8%, to $4.1 million for the year ended December 31, 2022, from $3.9 million for the year ended December 31, 2021 due to rising interest rates.
−Removed: The average balance of borrowings outstanding decreased $1.5 million to $72.1 million for the year ended December 31, 202 2, compared to $73.6 million for the year ended December 31, 2021.
+Added: Interest expense on borrowing, which consisted solely of subordinated debt and junior subordinated debentures, increased $345,000, or 8.5%, to $4.4 million for the year ended December 31, 2023, from $4.1 million for the year ended December 31, 2022 due to higher overall interest rates.
+Added: The average balance of borrowings outstanding increased $451,000 to $72.5 million for the year ended December 31, 202 3, compared to $72.1 million for the year ended December 31, 2022.
The average cost of borrowings increased 45 basis points to 6.10% for the year ended December 31, 2023, from 5.66% for the year ended December 31, 2022.
1 unchanged sentence
Net interest income increased $1.2 million, or 1.2%, to $97.9 million for the year ended December 31, 2023 compared to $96.7 million for the year ended December 31, 2022.
−Removed: The increase between periods primarily was the result of an increase in interest income on loans and investments driven by higher average balances and, to a lesser extent, higher yields earned on those portfolios, as well as higher yields earned on fed funds sold and cash and cash equivalents, partially offset by higher funding costs.
+Added: The increase in net interest income primarily was due to increases in interest income on loans, federal funds sold and interest-bearing balances in banks and, to a lesser extent, investment securities, including dividends on FRB and FHLB stock, partially offset by higher funding costs related to our deposits and junior subordinated debentures due to higher market rates.
Net interest margin for the year ended December 31, 2023 was 4.05%, a 15 basis point increase from 3.90% for the year ended December 31, 2022.
−Removed: The increase in net interest margin primarily reflects an improved mix of interest-earning assets, including increased balances of higher yielding loans and investment securities available for sale.
−Removed: During these periods, the recognition of deferred loan fees related to PPP loans and accretion on acquired loans, also had a positive impact on the net interest margin.
−Removed: PPP loans are originated at an interest rate of 1%, although the effective yield is higher as a result of the origination fees paid to us by the SBA.
−Removed: The average yield on PPP loans was 4.88%, including the recognition of deferred fees, resulting in a positive impact to the net interest margin of eight basis for the year ended December 31, 2022, compared to an average yield of 4.52% and positive impact of 20 basis points for the year ended December 31, 2021.
−Removed: The impact of PPP loans on net interest margin will change during any period based on the volume of prepayments or amounts forgiven by the SBA as certain criteria are net, but will cease completely after the maturity of the loans.
−Removed: Accretion of acquisition accounting discounts on loans and the recognition of revenue from purchase credit impaired loans in excess of discounts increased our net interest margin by 11 basis points and 17 basis points for the years ended December 31, 2022 and 2021, respectively.
−Removed: The average yield on interest earning assets for the year ended December 31, 2022 was 4.31%, a 57 basis point increase from 3.74% for the year ended December 31, 2021, primarily due to higher market interest rates, while the average cost of interest bearing liabilities for the year ended December 31, 2022 was 0.70%, a three basis point increase from 0.67% for the year ended December 31, 2021.
+Added: The increase in net interest margin reflects the increased net interest income resulting from variable-rate interest-earning assets beginning to reprice higher, outpacing rising costs on average interest-bearing liabilities, and a lower average balance of interest earning assets.
+Added: The average yield on PPP loans for the year ended December 31, 2023 was 2.71%, including the recognition of deferred fees, resulting in a negative impact of one basis points to the net interest margin during the year ended December 31, 2023, compared to an average yield of 4.88%, including the recognition of deferred fees, resulting in a positive impact of eight basis points during the year ended December 31, 2022, respectively.
+Added: The impact of PPP loans on net interest margin in the future is expected to be negligeable, given that a significant portion of these loans in the portfolio have been repaid.
+Added: Accretion of acquisition accounting discounts on loans and the recognition of revenue from PCD loans in excess of discounts increased our net interest margin by three basis points and 11 basis points for the years ended December 31, 2023 and 2022, respectively.
+Added: The average yield on interest earning assets for the year ended December 31, 2023 was 5.23%, a 92 basis point increase from 4.31% for the year ended December 31, 2022, primarily due to higher market interest rates, while the average cost of interest bearing liabilities for the year ended December 31, 2022 was 1.87%, a 117 basis point increase from 0.70% for the year ended December 31, 2022.
Average Balances, Interest and Average Yields/Cost.
5 unchanged sentences
Yields have been calculated on a pre-tax basis.
−Removed: The loan yields include the effect of amortization or accretion of deferred loan fees/costs and purchase accounting premiums/ discounts to interest and fees on loans.
+Added: Loan yields include the effect of amortization or accretion of deferred loan
+Added: fees/costs and purchase accounting premiums/ discounts to interest and fees on loans.
+Added: Non-accrual loans are included in the average balance.
Year ended December 31,
(Dollars in thousands)
+Added: (Dollars in thousands)
Interest earning assets
Fed Funds sold and interest-bearing balances in banks
−Removed: Investments securities available-for-sale
+Added: Investments securities
Total interest earning assets
3 unchanged sentences
Time deposits
−Removed: Total deposit accounts
+Added: Total interest bearing deposit accounts
Subordinated debt, net
33 unchanged sentences
Fed funds sold and interest bearing balances in banks
−Removed: Investments available-for-sale
+Added: Investments securities
FHLB stock and FRB stock
9 unchanged sentences
Net interest income
−Removed: Provision for loan losses.
−Removed: We establish an allowance for loan losses by charging amounts to the loan provision at a level required to reflect probable loan losses in the loan portfolio.
−Removed: In evaluating the level of the allowance for loan losses, management considers, among other factors, historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect borrowers’ ability to repay, estimated value of any underlying collateral, prevailing economic conditions and current risk factors specifically related to each loan type.
−Removed: See “Critical Accounting Estimates — Allowance for loan losses” above for a description of the manner in which the provision for loan losses is established.
−Removed: Based on management’s evaluation of the foregoing factors, we recorded a provision for loan losses of $4.4 million for the year ended December 31, 2022, compared to a provision for loan losses of $466,000 for the year ended December 31, 2021, an increase of $4.0 million.
−Removed: The provision for loan losses for the year ended December 31, 2022 was primarily due to net charge-offs during the year, coupled with new loan production and, to a lesser extent, a deterioration in forecasted economic conditions and indicators utilized to estimate loan losses.
−Removed: We recorded no provision for loan losses for acquired loans related to the acquired non-purchased credit impaired loans as accounted for in accordance with ASC Topic 310-20, for both the years ended December 31, 2022 and 2021.
−Removed: We recorded $18,000 provision on the PCI loans accounted for in accordance with ASC Topic 310-30 during the year ended December 31, 2022, compared to $107,000 reversal of provision during the year ended December 31, 2021.
−Removed: We had a net charge-offs of $3.2 million for the year ended December 31, 2022 compared to net charge-offs of $266,000 for the year ended December 31, 2021.
−Removed: The increase in net charge-offs was primarily due to one $4.5 million participation interest in a national shared credit, with total cumulative net charge-offs of $3.1 million during the year.
−Removed: The Company received final settlement from the lead lender during the fourth quarter of 2022, with no additional charge-offs required.
−Removed: In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net discount to the loans contractual amounts.
−Removed: Credit discounts are included in the determination of fair value and as a result, no allowance for loan losses is recorded for acquired loans at the acquisition date.
−Removed: However, the allowance for loan loss includes an estimate for credit deterioration of acquired loans that occurs after the date of acquisition, which is included in the loan loss provision in the period that the deterioration occurred.
−Removed: The discount recorded on the acquired loans is not reflected in the allowance for loan losses, or related allowance coverage ratios.
+Added: Provision for credit losses.
+Added: W e recorded a $2.0 million provision for credit losses for the year ended December 31, 2023, compared to a $4.4 million provision for loan losses for the year ended December 31, 2022, respectively.
+Added: As previously discussed, f or the year ended December 31, 2023, the provision for credit losses was primarily due to a $3.3 million increase in reserves for individually evaluated loans, $550,000 of net loan charge-offs during the year and an additional reserve taken on a loan to a Trust.
+Added: The increase in specific reserves included one commercial real estate loan and one multifamily loan.
+Added: Based on updated appraisals received during the fourth quarter of 2023, the underlying collateral values of these loans experienced declines due to property specific factors and conditions .
+Added: The change in the provision was partially offset by a decrease in the quantitative reserve primarily due to improvements in forecasted economic conditions, specifically, national gross domestic product and national unemployment indicators utilized to estimate credit losses over the next four quarters, as compared to those used in estimating the allowance for credit losses on loans at adoption, and to a lesser extent a decrease in outstanding loan balances.
+Added: There was an adjustment to the determined risk level for the effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses in the portfolio qualitative factor during the year ended December 31, 2023.
+Added: We recorded net charge-offs of $550,000 for the year ended December 31, 2023 compared to $3.2 million for the year ended December 31, 2022.
Noninterest income.
−Removed: Noninterest income decreased $595,000, or 5.3%, to $10.7 million for the year ended December 31, 2021 compared to $11.3 million for the year ended December 31, 2021.
−Removed: The decrease in noninterest income was primarily due to a $2.0 million decrease in gain on sale of loans as a result of a decrease in the volume of loans sold and decrease in premiums realized and a $1.3 million decrease in income from our investment in a SBIC fund as a result of declining operating results throughout 2022, partially offset by a $1.7 million bargain purchase gain related to the PEB Merger, a $704,000 increase in service charges and other fees and a $343,000 increase in loan servicing and other loan fees due to higher transaction volumes.
−Removed: During the year ended December 31, 2022, the Company sold $34.0 million of SBA loans (the guaranteed portion), which generated a gain on sale of $2.7 million , compared to the sale of $45.8 million of SBA loans (the guaranteed portion) with a gain on sale of $4.8 million for the year ended December 31, 2021 .
+Added: Noninterest income increased $877,000, or 14.4%, to $7.0 million for the year ended December 31, 2023 compared to $6.1 million for the year ended December 31, 2022.
+Added: The increase was primarily due to a $3.4 million decrease in loss on equity securities and a $1.2 million increase in income on investment in a SBIC fund, partially offset by a $2.2 million decrease in gain on sale of loans as a result of a decrease in the volume of loans sold.
+Added: In addition, we recorded a $1.7 million bargain purchase gain related to the PEB merger in 2022, which did not recur in 2023.
+Added: During the year ended December 31, 2023, the Company sold $7.2 million of SBA loans (the guaranteed portion), which
+Added: generated a gain on sale of $508,000, compared to the sale of $34.0 million of SBA loans (the guaranteed portion) with a gain on sale of $2.7 million for the year ended December 31, 2022 .
The following table presents the key components of noninterest income for the years ended December 31, 2023 and 2022.
+Added: 2022 (As Restated)
(Dollars in thousands)
Gain on sale of loans
+Added: Loss on equity securities
Service charges and other fees
6 unchanged sentences
Noninterest expense.
−Removed: Noninterest expense increased $10.8 million, or 19.6%, to $65.9 million for the year ended December 31, 2022 compared to $55.1 million for the year ended December 31, 2021 .
−Removed: The increase was primarily attributable to a $6.7 million or 19.9% increase in salaries and employee benefits as a result of an increase in the number of full-time equivalent employees, reflecting our acquisition of PEB in February 2022, coupled with retention incentives and salary adjustments due to upward market pressure on wages in 2022.
−Removed: The increase was also a result of increases in occupancy and equipment expense of $1.0 million, data processing fees of $1.4 million and other noninterest expenses of $1.7 million.
−Removed: Noninterest expense for the year ended December 31, 2022 included $3.1 million of nonrecurring acquisition-related expenses associated with the PEB Merger recorded in the first quarter of 2022, which were comprised of $556,000 in salary and employee benefits, $1.1 million in data processing expenses, $724,000 in professional and legal fees, $375,000 in occupancy and equipment expense and $347,000 other expenses.
−Removed: Excluding acquisition-related expense, noninterest expense for the year ended December 31, 2022 increased $7.7 million compared to year ended December 31, 2021 primarily as a result of a $6.2 million increase in salary and employee benefits due to increase in the number of full-time equivalent employees due to the PEB Merger and open positions that were filled during the year, as well as increases in salaries and wages due to upward market pressure on wages.
−Removed: In addition, occupancy costs increased $625,000 primarily due to the PEB Merger, revaluing the right-of-use asset for the renewal of four lease agreements and increased utilities and lease related expenses.
−Removed: Data processing expenses increased $331,000 due to higher transaction activity, and other noninterest expense increased $612,000 reflecting increased operating expenses, increased professional and other services as businesses reopened from COVID-19 related closures.
+Added: Noninterest expense decreased $1.3 million, or 1.9%, to $64.7 million for the year ended December 31, 2023 compared to $65.9 million for the year ended December 31, 2022 .
+Added: The changes in noninterest expense included a $1.2 million decrease in other noninterest expenses due primarily to $3.1 million in PEB acquisition-related expenses in 2022 with no similar expenses in 2023, and a $347,000 decrease in data processing expense due to $1.1 million in PEB acquisition-related expenses incurred in 2022 (absent in 2023) and vendor data processing invoice credits in 2023, partially offset by increased data processing volume, annual price increases, and data processing project expense in 2023.
+Added: There was also a $226,000 decrease in occupancy and equipment expense due to $375,000 of PEB acquisition-related expenses incurred in 2022 (absent in 2023), partially offset by increased depreciation and property maintenance expense.
+Added: Salaries and employee benefits increased $521,000 due to annual wage increases and an increase in full-time equivalent employees, partially offset by decreased incentive compensation expenses due to lower financial and operational performance of the Company.
The following table presents the key components of noninterest expense for the periods indicated:
+Added: Year ended December 31,
(Dollars in thousands)
6 unchanged sentences
The Company’s effective tax rate was 28.1% for the year ended December 31, 2023 compared to 26.8% for 2022.
−Removed: The effective tax rate for the year ended December 31, 2022 was impacted by the non-taxable bargain purchase gain in the first quarter 2022, partially offset by accrual for non-deductible compensation expenses that were not present in 2021.
+Added: The effective tax rate for the year ended December 31, 2022 was positively impacted by the non-taxable bargain purchase gain in 2022.
Comparison of Operating Results for the Years Ended December 31, 2022 and 2021
−Removed: Earnings summary.
−Removed: We reported net income of $20.7 million for the year ended December 31, 2021, compared to $13.7 million for the year ended December 31, 2020, an increase of $7.0 million, or 50.7%.
−Removed: Net income for the year ended December 31, 2021 primarily reflects a $9.9 million, or 95.5%, decrease in the provision for loan losses, a $3.4 million, or 6.0%, decrease in noninterest expense and a $2.5 million, or 28.4%, increase in noninterest income, partially offset by a $5.6 million, or 7.0%, decrease in interest income and a $3.3 million, or 73.0%, increase in the provision for income taxes.
−Removed: Diluted earnings per share were $1.90 for the year ended December 31, 2021, an increase of $0.75 from diluted earnings per share of $1.15 for the year ended December 31, 2020.
−Removed: Our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income before provision for loan losses plus noninterest income, was 65.57% for the year ended December 31, 2021, compared to 67.21% for the year ended December 31, 2020.
−Removed: The improvement in the efficiency ratio during the year ended December 31, 2021 was primarily due the reduced noninterest expense during 2021.
−Removed: Interest income.
−Removed: Interest income for the year ended December 31, 2021 was $81.6 million, compared to $87.2 million for the year ended December 31, 2020, a decrease of $5.6 million, or 6.4%.
−Removed: The decrease in interest income primarily was due to a decrease in both the average balance and yield for interest earning assets, principally loans.
−Removed: Interest income on loans decreased $6.1 million as a result of a $39.6 million decrease in the average balance of loans outstanding and a 25 basis point decrease in the average loan yield during the year ended December 31, 2021 as compared to 2020.
−Removed: The average yield earned on loans for the year ended December 31, 2021 was 4.69%, compared to 4.94% for the year ended December 31, 2020.
−Removed: Interest income included $5.4 million in fees earned related to PPP loans during the year ended December 31, 2021, compared to $1.7 million in same period a year ago.
−Removed: As of December 31, 2021, total unrecognized fees on PPP loans were $2.1 million.
−Removed: For the year ended December 31, 2021, the average balance of PPP loans was $78.4 million and the average yield was 7.83%.
−Removed: The impact of PPP loans on loan yields will change during any period based on the volume of prepayments or amounts forgiven by the SBA as certain criteria are met, and will cease completely after the maturity of these loans.
−Removed: Approximately two-thirds of the PPP loans are set to mature by the end of 2022, while the remaining loans have a five-year maturity date.
−Removed: Interest income on loans for the year ended December 31, 2021 included $2.7 million in accretion of purchase accounting fair value adjustments on acquired loans, compared to $5.1 million for the year ended December 31, 2020.
−Removed: The remaining net discount on these acquired loans was $2.1 million and $3.3 million at December 31, 2021 and 2020, respectively.
−Removed: Interest income on investment securities increased $930,000 as a result of a $9.7 million, increase in the average balance of investment securities and 46 basis point increase in the yield on such securities to 3.02% for the year ended December 31, 2021 from 2.56% for the year ended December 31, 2020.
−Removed: Interest income on fed funds sold and interest-
−Removed: bearing balances in banks decreased $585,000 due to a 35 basis point decline in the yield on interest bearing deposits to 0.16% for the year ended December 31, 2021 from 0.51% for the year ended December 31, 2020, partially offset by a $9.7 million increase in the average balance of fed funds sold and interest bearing balances in banks during 2021 compared to 2020.
−Removed: Interest expense.
−Removed: Interest expense decreased by $97,000, or 1.1%, to $8.8 million for the year ended December 31, 2021 from $8.9 million for the year ended December 31, 2020.
−Removed: The decrease was driven by a $2.1 million decrease in interest expense on deposits, primarily time deposits and money market accounts, and to lesser extent a $196,000 decrease in interest expense paid on junior subordinated debentures, net and other borrowings.
−Removed: These decreases were partially offset by a $2.2 million increase in interest expense on subordinated debt, net.
−Removed: The average rate paid on interest bearing liabilities decreased six basis points to 0.67% during the year ended December 31, 2021 from 0.73% during the same period in 2020.
−Removed: The total average balance of interest bearing liabilities increased by $91.7 million, or 7.5%, to $1.3 billion for the year ended December 31, 2021, from $1.2 billion for the year ended December 31, 2020, primarily due to the issuance of our Notes.
−Removed: Interest expense on borrowings increased $2.0 million, or 101.9%, to $3.9 million for the year ended December 31, 2021, from $1.9 million for the year ended December 31, 2020, as a result of the issuance of the Notes which were outstanding for the entire year in 2021 compared to five months during 2020.
−Removed: The average balance of borrowings outstanding increased $35.1 million to $73.6 million during the year ended December 31, 2021, compared to $38.5 million during 2020 for the same reason.
−Removed: The average cost of borrowings increased to 5.34% for the year ended December 31, 2021, from 5.06% for the year ended December 31, 2020.
−Removed: Net interest income.
−Removed: Net interest income decreased $5.5 million, or 7.0%, to $72.8 million for the year ended December 31, 2021 compared to $78.3 million for the year ended December 31, 2020.
−Removed: Net interest margin for the year ended December 31, 2021 decreased 50 basis point to 3.34% from 3.84% for 2020.
−Removed: During the year ended December 31, 2021, the net interest margin was impacted by lower yielding loans, including PPP loans and resetting adjustable rate instruments as well as reduced interest rates on new fixed-rate real estate loan and adjustable-rate commercial loan originations and the increase in low yielding overnight cash balances causing a decrease in the average yield on interest-earning assets that outweighed the contribution to net interest margin from the decrease in the average cost of interest-bearing liabilities.
−Removed: The decrease in net interest margin was offset partially by an increase in deferred PPP loan fees recognized due to the volume of forgiven SBA PPP loans during 2021, which benefited net interest margin compared to a reduction in net interest margin from the Company’s origination of low yielding PPP loans during the same period in 2020.
−Removed: PPP loans are originated at an interest rate of 1%, although the effective yield is higher as a result of the origination fees paid to us by the SBA.
−Removed: The average yield on PPP loans was 4.52%, including the recognition of deferred fees, resulting in a positive impact to the net interest margin of 20 basis points during the year ended December 31, 2021, compared to an average yield of 2.71% and positive impact of 11 basis points during 2020.
−Removed: The impact of PPP loans on net interest margin will change during any period based on the volume of prepayments or amounts forgiven by the SBA as certain criteria are net, but will cease completely after the maturity of the loans.
−Removed: Accretion of acquisition accounting discounts on loans and the recognition of revenue from purchase credit impaired loans in excess of discounts increased our net interest margin by 17 basis points and 31 basis points during years ended December 31, 2021, and 2020, respectively.
−Removed: Provision for loan losses.
−Removed: We recorded a provision for loan losses of $466,000 for the year ended December 31, 2021, compared to a provision for loan losses of $10.3 million for the year ended December 31, 2020, a decrease of $9.9 million.
−Removed: The decrease in the provision for loan losses was primarily due to an adjustment to the qualitative factors utilized to calculate the allowance for loan losses resulting from improvements in the economic forecast since December 31, 2020.
−Removed: Our allowance for loan losses specific reserves was $930,000 at December 31, 2021, compared to $521,000 at December 31, 2020.
−Removed: We recorded no provision for loan losses for acquired loans related to the acquired non-purchased credit impaired loans as accounted for in accordance with ASC Topic 310-20, for both the years ended December 31, 2021 and 2020.
−Removed: We recorded $107,000 or reversal provisions on the purchase credit impaired loans accounted for in accordance with ASC Topic 310-30 during the year ended December 31, 2021, compared to none during 2020.
−Removed: We had a net charge-offs of $226,000 for the year ended December 31, 2021 compared to net charge-offs of $220,000 for the year ended December 31, 2020.
−Removed: In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net discount to the loans contractual amounts.
−Removed: Credit discounts are included in the determination of fair value and as a result, no allowance for loan losses is recorded for acquired loans at the acquisition date.
−Removed: However, the allowance for loan loss includes an estimate for credit deterioration of acquired loans that occurs after the date of acquisition, which is included in the loan loss provision in the period that the deterioration occurred.
−Removed: The discount recorded on the acquired loans is not reflected in the allowance for loan losses, or related allowance coverage ratios.
−Removed: The allowance for loan losses to total loans was 1.06% at both December 31, 2021 and 2020.
−Removed: Noninterest income.
−Removed: Noninterest income increased $2.5 million, or 28.2%, to $11.3 million for the year ended December 31, 2021 compared to $8.8 million for the year ended December 31, 2020.
−Removed: The increase in noninterest income was primarily due to a $3.0 million increase in gain on sale of loans and a $399,000 increase in income from our investment in the SBIC fund, partially offset by a $632,000 decrease in loan servicing and other loan fees and a $45,000 decrease in service charges and other fees.
−Removed: During the year ended December 31, 2021, the Company sold $45.8 million of SBA loans (the guaranteed portion), which generated a gain on sale of $4.8 million, compared to the sale of $24.0 million of SBA loans and a gain of $1.8 million during the year ended December 31, 2020.
−Removed: SBIC income increased due to improved operating results throughout 2021 after sustaining COVID-19 related losses in 2020.
−Removed: Loan servicing and other loan fees, and service charges and other fees decreased primarily due to lower transaction volume.
−Removed: The following table presents the key components of noninterest income for the years ended December 31, 2021 and 2020.
−Removed: Year ended December 31,
−Removed: (Dollars in thousands)
−Removed: Gain on sale of loans
−Removed: Service charges and other fees
−Removed: Loan servicing and other loan fees
−Removed: Income on investment in SBIC fund
−Removed: Other income and fees
−Removed: Total noninterest income
−Removed: Noninterest expense.
−Removed: Noninterest expense decreased $3.4 million, or 5.8%, to $55.1 million for the year ended December 31, 2021 compared to $58.5 million for the year ended December 31, 2020.
−Removed: The decrease was primarily attributable to a $2.7 million or 32.3% decrease in data processing expense related to reversing over accrued merger data processing expense related to our GMB acquisition as actual expenses were lower than original estimates.
−Removed: In addition, other non-interest expense decreased slightly for the year ended December 31, 2021 compared to last year reflecting decreased fees paid for employee recruiting and internal auditing and compliance related expenses, and an increase in FDIC insurance premiums as the application of $369,000 in FDIC small bank assessment credits reduced expenses in 2020.
−Removed: Salaries and employee benefits decreased slightly during the year ended December 31, 2021 compared to 2020, primarily due to a decrease in staffing levels.
−Removed: Partially offsetting these decreases was a $296,000 or 4.2% increase in occupancy and equipment expense primarily as a result of normal increases in rent.
−Removed: Noninterest expense for the year ended December 31, 2020 included $3.0 million of GMB acquisition-related expenses, comprised of $266,000 in salaries and benefits, $2.0 million in data processing expenses, $369,000 in professional fees and $383,000 in all other expenses.
−Removed: The following table presents the key components of noninterest expense for the periods indicated:
−Removed: Year ended December 31,
−Removed: (Dollars in thousands)
−Removed: Salaries and related benefits
−Removed: Occupancy and equipment
−Removed: Data processing
−Removed: Total noninterest expense
−Removed: Income taxes.
−Removed: Income tax expense increased $3.3 million, or 73.0%, to $7.8 million for the year ended December 31, 2021 from $4.5 million for the year ended December 31, 2020, reflecting an increase in pre-tax income for the period ended December 31, 2021 and an increase in our effective tax rate.
−Removed: The Company’s effective tax rate was 27.3% for the year ended December 31, 2021 compared to 24.7% for 2020.
−Removed: The increase in the effective tax rate during the year ended December 31, 2020 was primarily due to reduction in favorable permanent adjustments as compared to the prior year.
+Added: For a discussion of the Company’s 2022 results compared to 2021, refer to Part I, Item 7 of our Annual Report on Form 10-K/A for the year ended December 31, 2022, which was filed with the SEC on July 25, 2023.
Liquidity and Capital Resources
2 unchanged sentences
Management maintains a liquidity position that it believes will adequately provide funding for loan demand and deposit run-off that may occur in the normal course of business.
−Removed: We rely on a number of different sources in order to meet our potential liquidity demands.
+Added: We rely on several different sources to meet our potential liquidity demands.
Our primary sources of funds are deposits, principal and interest payments on loans and proceeds from sale of loans.
−Removed: During the years ended December 31, 2022, 2021 and 2020, the Bank sold $34.0 million, $45.8 million and $24.0 million in loans and loan participation interests, respectively.
−Removed: During the years ended December 31, 2022, 2021 and 2020, the Bank received $469.6 million, $490.3 million and $284.4 million in principal repayments, respectively.
+Added: During the years ended December 31, 2023, 2022 and 2021, the Bank sold $9.6 million, $42.5 million and $45.8 million in loans and loan participation interests, and received $196.7 million, $469.6 million and $490.3 million in principal repayments, respectively.
While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, and competition.
−Removed: During the years ended December 31, 2022 and 2021, deposits increased by $100.2 million, and $146.8 million, respectively, partially offset by a decrease in liquid assets in the form of cash and cash equivalents, time deposit in banks and investment securities available-for-sale to $346.8 million at December 31, 2022 from $557.7 million at December 31, 2021.
−Removed: Management believes that our security portfolio is of high quality and the securities would therefore be marketable.
−Removed: Securities purchased during the years ended December 31, 2022 and 2021, excluding FHLB and FRB stock, totaled $28.9 million and $91.0 million, respectively, and securities repayments, maturities and sales in those periods were $11.1 million, and $28.0 million, respectively.
+Added: During the years ended December 31, 2023 and 2022, deposits increased by $47.3 million and $100.2 million, respectively.
+Added: Liquid assets in the form of cash and cash equivalents, time deposit in banks and investment securities available-for-sale increased to $471.9 million at December 31, 2023 from $333.1 million at December 31, 2022.
+Added: Further, Management believes that our security portfolio is of high quality, ensuring marketability.
+Added: Securities purchased during the years ended December 31, 2023 and 2022, excluding FHLB and FRB stock, totaled $25.3 million and $28.9 million, while securities repayments, maturities and sales in those periods were $11.6 million, and $11.1 million, respectively.
Certificates of deposit scheduled to mature in one year or less at December 31, 2023, totaled $372.2 million.
−Removed: It is management’s policy to manage deposit rates that are competitive with other local financial institutions.
−Removed: Based on this management strategy, we believe that most of our maturing certificates of deposit will remain with us.
+Added: It is management’s policy to manage deposit rates that are competitive with other local financial institutions and, as a result of this strategy, we believe that a significant portion of our maturing certificates of deposit will be retained.
In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements.
1 unchanged sentence
The Bank also had Federal Funds lines with available commitments totaling $65.0 million with four correspondent banks.
−Removed: There were no amounts outstanding under these facilities at both December 31, 2022 and December 31, 2021.
+Added: There were no amounts outstanding under these facilities at both December 31, 2023 and 2022.
Subject to market conditions, we expect to utilize these borrowing facilities from time to time in the future to fund loan originations and deposit withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible.
5 unchanged sentences
We use our sources of funds primarily to meet our ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments.
−Removed: Loan commitments and letters of credit were $97.5 million and $104.1 million, including $5.3 million and $3.2 million of undisbursed construction and development loan commitments, at December 31, 2022 and 2021, respectively.
+Added: Loan commitments and letters of credit were $77.4 million and $97.5 million, including $133,000 and $5.3 million of undisbursed construction and development loan commitments, at December 31, 2023 and 2022, respectively.
For information regarding our commitments, see “Note 16 - Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in “Item 8.
3 unchanged sentences
Net cash provided by operating activities was $30.8 million and $39.6 million for the years ended December 31, 2023 and 2022, respectively.
−Removed: During the year ended December 31, 2022, net cash provided by investing activities, which consisted primarily of net change in loans receivable and purchases, sales and maturities of investment securities, was $53.7 million, compared to $60.4 million of cash used in investing activities for the year ended December 31, 2021.
−Removed: Net cash used in financing activities, comprised primarily of net change in deposits, was $296.4 million for the year ended December 31, 2022, compared to $130.3 million of cash provided by financing activities for the year ended December 31, 2021.
−Removed: We incur capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our markets.
+Added: During the year ended December 31, 2023 and December 31, 2022, net cash provided by investing activities, which consisted primarily of net change in loans receivable and purchases, sales and maturities of investment securities, was $80.4 million and $53.9 million, respectively.
+Added: Financing activities, comprised primarily of net change in deposit, provided net cash of $19.5 million during the year ended December 31, 2023, compared to $296.4 million of net cash used in financing activities for the year ended December 31, 2022.
+Added: We incur capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our
We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment.
The amount of capital investment is influenced by, among other things, current and projected demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations.
−Removed: Based on current capital allocation objectives, there are no projects scheduled for capital investments in premises and equipment during the year ending December 31, 2023 that would materially impact liquidity.
+Added: The Bank utilizes funds to acquire, upgrade, and maintain its equipment, IT infrastructure and operating locations, with the investment intended to provide longer-term utility to the Company’s business.
+Added: Based on current capital allocation objectives, there are no projects scheduled for capital investments in premises, IT infrastructure and equipment during the year ending December 31, 2024 that would materially impact liquidity.
We also have purchase obligations, generally with remaining terms of less than three years and contracts with various vendors to provide services, including information processing, for periods generally ranging from one to five years, for which our financial obligations are dependent upon acceptable performance by the vendor.
10 unchanged sentences
The Company has the ability to receive dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends.
−Removed: As of December 31, 2022, the Company declared $2.7 million of cash dividends on its common stock, of with $644,000 remained to be paid on January 13, 2023.
+Added: During 2023, the Company declared $4.8 million of cash dividends on its common stock, of with $1.2 million remained to be paid on January 12, 2024.
The Company expects to continue to pay quarterly cash dividends on its common stock, subject to the Board of Director’s discretion to modify or terminate this practice at any time and for any reason without prior notice.
6 unchanged sentences
Shares purchased under such plans may also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards.
−Removed: In October 2022, the Company’s board of directors approved its sixth stock repurchase program pursuant to which the Company may repurchase up to five percent of the Company’s common stock, or approximately 645,000 shares, of which 481,792 shares remain available for repurchase at December 31, 2022.
+Added: In April 2023, the Company’s Board of Directors approved its seventh stock repurchase program, which was completed in August 2023, authorizing the Company to repurchase up to five percent of the Company’s common stock, or approximately 619,000 shares.
+Added: In August 2023, the Company’s Board of Directors approved its eighth stock repurchase program, authorizing the Company to repurchase up to five percent of the Company’s common stock, or approximately 588,000 shares, of which 359,752 shares remained available for repurchase at December 31, 2023.
The repurchase program may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate.
The repurchase program does not obligate the Company to purchase any particular number of shares.
−Removed: See "Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Form 10-K for additional information relating to stock.
21 unchanged sentences
Total capital to risk-weighted assets
−Removed: In addition to the minimum capital ratios, the Bank has to maintain a capital conservation buffer consisting of additional Common Equity Tier 1 capital greater than 2.5% above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions.
+Added: In addition to the minimum capital ratios, the Bank must maintain a capital conservation buffer consisting of additional Common Equity Tier 1 capital greater than 2.5% above the required minimum levels to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses.
At December 31, 2023, the Bank’s Common Equity Tier 1 capital exceeded the required capital conservation buffer.
4 unchanged sentences
Financial Statements and Supplementary Data”, within this Form 10-K.
−Removed: Quantitative and Qualitative Disclosures About Market and Interest Rate Risk
−Removed: Market risk represents the risk of loss due to changes in market values of assets and liabilities.
−Removed: We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads.
−Removed: We have identified two primary sources of market risk:
−Removed: interest rate risk and price risk.
−Removed: Interest Rate Risk.
−Removed: Interest rate risk is the risk to earnings and value arising from changes in market interest rates.
−Removed: Interest rate risk arises from timing differences in the repricing and maturities of interest earning assets and interest bearing liabilities (reprice risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S.
−Removed: Treasuries and LIBOR (basis risk).
−Removed: The Asset Liability Committee of our Board of Directors (“ALCO”) establishes broad policy limits with respect to interest rate risk.
−Removed: ALCO establishes specific operating guidelines within the parameters of the Board of Directors’ policies.
−Removed: In general, we seek to minimize the impact of changing interest rates on net interest income and the economic values of assets and liabilities.
−Removed: Our ALCO meets quarterly to monitor the level of interest rate risk sensitivity to ensure compliance with the Board of Directors’ approved risk limits.
−Removed: Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities.
−Removed: Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.
−Removed: An asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on our interest earning assets would reprice upward more quickly than rates paid on our interest bearing liabilities, thus expanding our net interest margin.
−Removed: Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on our interest bearing liabilities would reprice upward more quickly than rates earned on our interest earning assets, thus compressing our net interest margin.
−Removed: Income simulation analysis.
−Removed: Interest rate risk measurement is calculated and reported to the ALCO at least quarterly.
−Removed: The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.
−Removed: Our primary approach to model interest rate risk is Net Interest Income at Risk (“NII at Risk”).
−Removed: Under NII at Risk, net interest income is modeled utilizing various assumptions for assets, liabilities, and derivatives.
−Removed: We report NII at Risk to isolate the change in income related solely to interest earning assets and interest bearing liabilities.
−Removed: The NII at Risk results reflect the analysis used quarterly by management.
−Removed: It models gradual parallel shifts in market interest rates based on the indicated interest rate environments implied by the forward yield curve over a two-year period.
−Removed: No rates in the model are allowed to go below zero.
−Removed: The following table sets forth the estimated changes in the Company’s annual net interest income that would result from the designated instantaneous parallel shift in interest rates noted, as of the dates indicated.
−Removed: Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.
−Removed: Net Interest Income Sensitivity Immediate Changes in Rates (1)
−Removed: (Dollars in thousands)
−Removed: December 31, 2022
−Removed: Dollar change
−Removed: Percent change
−Removed: December 31, 2021
−Removed: Dollar change
−Removed: Percent change
−Removed: (1) This data does not reflect any actions that we may undertake in response to changes in interest rates such as changes in rates paid on certain deposit accounts based on local competitive factors, which could reduce the actual impact on net interest income, if any.
−Removed: As with any method of gauging interest rate risk, there are certain shortcomings inherent to the methodology noted above.
−Removed: The model assumes interest rate changes are instantaneous parallel shifts in the yield curve.
−Removed: In reality, rate changes are rarely instantaneous.
−Removed: The use of the simplifying assumption that short-term and long-term rates change by the same degree may also misstate historic rate patterns, which rarely show parallel yield curve shifts.
−Removed: Further, the model assumes that certain assets and liabilities of similar maturity or period to repricing will react in the same way to changes in rates.
−Removed: In reality, certain types of financial instruments may react in advance of changes in market rates, while the reaction of other types of financial instruments may lag behind the change in general market rates.
−Removed: Additionally, the methodology noted above does not reflect the full impact of annual and lifetime restrictions on changes in rates for certain assets, such as adjustable-rate loans.
−Removed: When interest rates change, actual loan prepayments and actual early withdrawals from certificates may deviate significantly from the assumptions used in the model.
−Removed: Finally, this methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan borrowers’ ability to service their debt.
−Removed: All of these factors are considered in monitoring the Company’s exposure to interest rate risk.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.