Sierra Bancorp (the “Company”) is a California corporation headquartered in Porterville, California, and is a registered bank holding company under federal banking laws.
−Removed: The Company was formed to serve as the holding company for Bank of the Sierra (the “Bank”), and has been the Bank’s sole shareholder since August 2001.
+Added: The Company was formed to serve as the holding company for Bank of the Sierra (the “Bank”) and it’s subsidiaries, two special purpose entities organized to facilitate repossessed assets.
+Added: The Company has been the Bank’s sole shareholder since August 2001.
The Company exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries it may acquire or establish.
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Sierra National Bank in 2000, Santa Clara Valley Bank in 2014, Coast National Bank in 2016, and Ojai Community Bank in October 2017.
−Removed: Our recent business activity included the establishment of a Sacramento-area loan production office in January 2020, and the closure of five branches in June 2021.
−Removed: The Bank now maintains administrative offices, a loan production office, and operates 35 full-service branches in the following California locations:
+Added: Our recent business activity included the establishment of an agricultural loan production office in April 2022.
+Added: The Bank now maintains administrative offices, loan production offices, and 35 full-service branches in the following California locations:
Administrative Headquarters
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Three Rivers:
+Added: Agricultural Credit Center
+Added: 613 South Main Street
Three Rivers Office
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We strive to retain our deposit customers by providing a consistently high level of service.
−Removed: At December 31, 2021, the Company had 123,200 deposit accounts which remained relatively flat with the number of accounts held at December 31, 2020.
−Removed: Although the number of accounts remained the same, total deposits were $2.8 billion at December 31, 2021, as compared to $2.6 billion at December 31, 2020.
+Added: At December 31, 2022, the Company had 122,596 deposit accounts down slightly from 123,176 at December 31, 2021.
+Added: Total deposits however remained unchanged at $2.8 billion at December 31, 2022, and December 31, 2021, respectively.
Our officers and employees are continually searching for ways to increase public convenience, enhance customer access to payment systems, and enable us to improve our competitive position with the development of new products and services.
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We hold no patents or licenses (other than licenses required by bank regulatory agencies), franchises, or concessions.
−Removed: Our business has a modest seasonal component due to the heavy agricultural orientation of the Central Valley, but as our branch network has expanded to include more metropolitan areas, we have become less reliant on the agriculture-related base.
−Removed: We are not dependent on a single customer or group of related customers for a material portion of our core
+Added: We are not dependent on a single customer or group of related customers for a material portion of our core deposits.
Furthermore, loan categories that could be considered to be concentrations include commercial real estate loans (59.2%);
−Removed: with the most concentrated segments in office space (14.8%), retail (12.8%) and loans in the hotel industry (9%).
+Added: with the most concentrated segments in retail (13.4%), office space (12.6%) and loans in the hotel industry (7.6%).
Our efforts to comply with government and regulatory mandates on consumer protection and privacy, anti-terrorism, and other initiatives have resulted in significant ongoing expense to the Bank, including compliance staffing costs and other expenses associated with compliance-related software.
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Bank of the Sierra ranks fifth on the 2022 market share list with 4.6% of total deposits.
−Removed: In Tulare County, however, where the Bank was originally formed, we rank first for deposit market share with 18.9% of total deposits at June 30, 2021 and had the largest number of branch locations (13, including our online branch).
+Added: In Tulare County, however, where the Bank was originally formed, we rank second for deposit market share with 18.8% of total deposits at June 30, 2022 and had the largest number of branch locations (13), including our online branch).
The larger banks noted above have, among other advantages, the ability to finance wide-ranging advertising campaigns and allocate their resources to regions of highest yield and demand.
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Strong competition for deposits and loans among financial institutions and non-banks alike affects interest rates and terms on which financial products are offered to customers.
−Removed: Mergers between financial institutions have created additional pressures within the financial services industry to streamline operations, reduce expenses, and increase revenues in order to remain competitive.
+Added: Mergers between financial institutions have created additional
+Added: pressures within the financial services industry to streamline operations, reduce expenses, and increase revenues in order to remain competitive.
Competition is also impacted by federal and state interstate banking laws which permit banking organizations to expand into other states.
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As of December 31, 2022, the Company had 442 full-time and 46 part-time employees.
−Removed: On a full-time equivalent (“FTE”) basis staffing stood at 480 at December 31, 2021, down from 501 FTE employees at December 31, 2020.
+Added: On a full-time equivalent (“FTE”) basis staffing stood at 491 at December 31, 2022, up from 480 FTE employees at December 31, 2021.
At December 31, 2022, the population of our workforce was as follows:
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In response to the COVID-19 pandemic, in 2020 the Company established remote work arrangements with staff in an effort to consider the health and safety of its employees.
−Removed: At December 31, 2021, the Company had 132 employees working remotely.
−Removed: The Company is monitoring the current environment surrounding the pandemic and is evaluating all remote and hybrid work arrangements.
−Removed: It is anticipated that certain positions may continue with a remote or hybrid work arrangement once the pandemic is over due to efficiencies gained from such arrangements.
−Removed: There were no known adverse effects on financial reporting systems, internal controls over financial reporting and disclosure control and procedures from the remote work arrangements.
−Removed: No employees were terminated or suspended due directly to the COVID-19 pandemic.
+Added: In 2022, noting efficiencies gained from these working arrangements, the Company created permanent remote and hybrid work arrangements where it was mutually feasible and presented efficiencies for the Company.
+Added: At December 31, 2022, the Company had 47 employees working remotely and 157 employees working in hybrid arrangements.
The Company has long been committed to comprehensive and competitive compensation and benefits programs as the Company recognizes that it operates in intensely competitive environments for talent.
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The Company invests in its employees’ future by sponsoring and prioritizing continued education throughout its employee ranks.
−Removed: The Company encourages and requires certain of its employees to participate in educational activities and training curriculum, which improve or maintain their skills in their current position, as well as to enhance future opportunities at the Company.
−Removed: The Company's employees are notified periodically of available internal course offerings and educational seminars run by outside parties, including but not limited to the American Bankers Association and Bankers Compliance
+Added: The Company requires certain of its employees and directors to participate in educational activities and training
+Added: curriculum, which stay abreast of current compliance, human resource and enterprise risk, including cyber risk, issues.
+Added: In addition, the Company provides opportunities to its employees to improve or maintain their skills in their current position as well as to enhance future opportunities at the Company.
+Added: The Company's employees are notified periodically of available internal course offerings and educational seminars run by outside parties, including but not limited to the American Bankers Association and Bankers Compliance Group.
Employees are also encouraged to continue their higher education at accredited colleges and universities and may receive assistance from the Company for their participation.
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The Company believes that employees’ well-being and personal and professional development is fostered by outreach to the communities it serves.
−Removed: The Company’s employees’ desire for active community involvement enables the Company to sponsor a number of local community events and initiatives, including food drives for local food pantries during the COVID-19 pandemic.
+Added: The Company’s employees’ desire for active community involvement enables the Company to sponsor a number of local community events and initiatives, including holiday toy and food drives, and planting trees in fire damaged areas of the National Forest, in partnership with One Tree Planted and the Sequoia conservancy in Sequoia National Park.
Website Access
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The following is a summary of certain statutes, regulations and regulatory guidance affecting the Company and the Bank.
−Removed: This summary is not intended to be a complete explanation of such statutes, regulations and guidance, all of which are subject to change in the future, nor does it fully address their effects and potential effects on the Company and the Bank.
+Added: This summary is not intended to be a complete explanation of such statutes, regulations and guidance, all of which are subject to change in the future, nor does it fully address their effects or potential effects on the Company and the Bank.
Regulation of the Company Generally
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The federal banking agencies published a final rule on November 13, 2019, that provided a simplified measure of capital adequacy for qualifying community banking organizations.
−Removed: A qualifying community banking organization that opts into the community bank leverage ratio framework and maintains a leverage ratio greater than 9 percent will be considered to have met the minimum capital requirements, the capital ratio requirements for the well capitalized category under the Prompt Corrective Action framework, and any other capital or leverage requirements to which the qualifying banking organization is subject (see below for further discussion of the requirements for well capitalized and the Prompt Corrective Action framework).
−Removed: A qualifying community banking organization with a leverage ratio of greater than 9 percent may opt into the community bank leverage ratio framework if it has average consolidated total assets of less than $10 billion, has off-balance-sheet exposures of 25% or less of total consolidated assets, and has total trading assets and trading liabilities of 5 percent or less of total consolidated assets.
+Added: A qualifying community banking organization that opts into the community bank leverage ratio framework and maintains a leverage ratio greater than 9 percent will be considered to have met the minimum capital requirements for the well capitalized category under the Prompt Corrective Action framework, and any other capital or leverage requirements to which the qualifying banking organization is subject (see below for further discussion of the requirements for well capitalized and the Prompt Corrective Action framework).
+Added: A qualifying community banking organization with a leverage ratio of greater than 9 percent may opt into the community bank leverage ratio framework if it has average consolidated total assets of less than $10 billion, has off-balance-sheet exposures, which are not unconditionally cancelable, of 25% or less of total consolidated assets, and has total trading assets and trading liabilities of 5 percent or less of total consolidated assets.
Further, the bank must not be an advance approaches banking organization.
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The Company and the Bank met the criteria outlined in the final rule and opted into the community bank leverage ratio framework in the first quarter 2020.
−Removed: On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) became law.
−Removed: Section 4012 of the CARES Act directs the agencies to issue an interim final rule providing that, for purposes of section 201 of Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), the community bank leverage ratio shall be 8 percent, and a qualifying community banking organization whose leverage ratio falls below the community bank leverage ratio requirement established under the CARES Act shall have a reasonable grace period to satisfy the requirement.
−Removed: Section 4012 of the CARES Act specifies that the interim final rule is effective during the period beginning on the date on which the agencies issue the interim final rule and ending on the sooner of the termination date of the national emergency concerning the coronavirus disease (COVID-19) outbreak declared by the President on March 13, 2020, under the National Emergencies Act, or December 31, 2020 (termination date).
−Removed: Since the statutory interim final rule could cease to be effective at any time before December 31, 2020, the agencies issued a separate interim final rule pursuant to section 201(b) of EGRRCPA that provides a graduated transition from the temporary 8-percent community bank leverage ratio requirement to the 9-percent community bank leverage ratio requirement as established under the 2019 final rule (transition interim final rule).
−Removed: Specifically, the transition interim final rule provides that, once the statutory interim final rule ceases to apply, the community bank leverage ratio will be 8 percent in the second quarter through fourth quarter of calendar year 2020,
−Removed: 8.5 percent in calendar year 2021, and 9 percent thereafter.
−Removed: The transition interim final rule also modifies the two-quarter grace period for a qualifying community banking organization to account for the graduated increase in the community bank leverage ratio requirement.
−Removed: The interim final rules do not make any changes to the other qualifying criteria in the community bank leverage ratio framework.
−Removed: The transition interim final rule extends the 8-percent community bank leverage ratio through December 31, 2020, in the event the statutory interim final rule terminates before December 31, 2020.
−Removed: Thus, even if the statutory interim final rule had terminated prior to December 31, 2020, the community bank leverage ratio would have continued to be set at 8 percent for the remainder of 2020.
−Removed: Section 201 of EGRRCPA requires a qualifying community banking organization to exceed the community bank leverage ratio established by the agencies in order to be considered to have met the generally applicable rule, any other applicable capital or leverage requirements, and, if applicable, the “well capitalized” capital ratio requirements, whereas section 4012 of the CARES Act requires that a qualifying community banking organization meet or exceed an 8 percent community bank leverage ratio to be considered the same.
Capital Adequacy Requirements
The Company and the Bank are subject to the regulations of the Federal Reserve Board and the FDIC, respectively, governing capital adequacy.
−Removed: These agencies have adopted risk-based capital guidelines to provide a systematic analytical framework that imposes regulatory capital requirements based on differences in risk profiles among banking organizations, considers off-balance sheet exposures in evaluating capital adequacy, and minimizes disincentives to holding liquid, low-risk assets.
+Added: These agencies have adopted risk-based capital guidelines to provide a systematic analytical framework that imposes regulatory capital requirements based on differences in risk profiles among banking organizations, considers off-balance sheet exposures in evaluating capital adequacy, and minimizes disincentives to holding liquid, low-
Capital levels, as measured by these standards, are also used to categorize financial institutions for purposes of certain prompt corrective action regulatory provisions.
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(ii) qualifying non-cumulative perpetual preferred stock and related surplus (and, in the case of holding companies, senior perpetual preferred stock issued to the U.S.
−Removed: Treasury Department pursuant to the Troubled Asset Relief Program);
+Added: Treasury Department pursuant to the Troubled Asset Relief Program and the Emergency Capital Investment Program);
(iii) minority interests in the equity accounts of consolidated subsidiaries;
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Tier 2 capital includes the following supplemental capital elements:
−Removed: (i) allowance for loan and lease losses (but not more than 1.25% of an institution’s risk-weighted assets);
+Added: (i) allowance for credit losses on loans and leases (but not more than 1.25% of an institution’s risk-weighted assets);
(ii) perpetual preferred stock and related surplus not qualifying as core capital;
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Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases, and on the payment of discretionary bonuses to executive management.
−Removed: Based on our capital levels at December 31, 2021 and 2020, the Company and the Bank met all capital adequacy requirements to which they are subject, including utilizing the Capital Simplification for Qualifying Community Bank
−Removed: Organization as applicable.
+Added: Based on our capital levels at December 31, 2022 and 2021, the Company and the Bank met all capital adequacy requirements to which they are subject,utilizing the Capital Simplification for Qualifying Community Bank Organization.
For more information on the Company’s capital, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation – Capital Resources.
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and “critically undercapitalized” (tangible equity to total assets less than or equal to 2%).
−Removed: A bank may be treated as though it were in the next lower capital category if, after notice and the opportunity for a hearing, the appropriate federal agency finds an unsafe or unsound condition or practice merits a downgrade, but no bank may be treated as “critically undercapitalized” unless its actual tangible equity to assets ratio warrants such treatment.
−Removed: As of December 31, 2021 and 2020, both the Company and the Bank qualified as well capitalized for regulatory capital purposes, including utilizing the Capital Simplification for Qualifying Community Bank Organization, as applicable.
+Added: A bank may be treated as though it were in the next lower capital category if, after notice and the opportunity for a hearing, the appropriate federal agency finds an unsafe or unsound condition or practice merits a downgrade, but no bank may be treated as “critically undercapitalized” unless its actual tangible equity to assets ratio
+Added: warrants such treatment.
+Added: As of December 31, 2022 and 2021, both the Company and the Bank qualified as well capitalized for regulatory capital purposes, utilizing the Capital Simplification for Qualifying Community Bank Organization.
At each successively lower capital category, an insured bank is subject to increased restrictions on its operations.
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The Bank’s deposits are insured up to maximum applicable limits under the Federal Deposit Insurance Act (generally $250,000 per depositor), and the Bank is subject to deposit insurance assessments to maintain the FDIC’s Deposit Insurance Fund (the “DIF”).
−Removed: In October 2010, the FDIC adopted a revised restoration plan to ensure that the DIF’s designated reserve ratio (“DRR”) reaches 1.35% of insured deposits by September 30, 2020, the deadline mandated by the Dodd-Frank Act.
+Added: In October 2010, the FDIC adopted a revised restoration plan to ensure that the DIF’s
+Added: designated reserve ratio (“DRR”) reaches 1.35% of insured deposits by September 30, 2020, the deadline mandated by the Dodd-Frank Act.
In August 2016 the FDIC announced that the DIF reserve ratio had surpassed 1.15% as of June 30, 2016 and assessment rates for most institutions were adjusted downward, but institutions with $10 billion or more in assets were assessed a quarterly surcharge which will continue until the reserve ratio reaches the statutory minimum of 1.35%.
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surcharges on large banks (total consolidated assets of $10 billion or more) ended, with the last surcharge on large banks being collected on December 28, 2018;
−Removed: and, banks with total consolidated assets of less than $10 billion were awarded credits for the portion of their assessments that contributed to the growth in the reserve ratio from 1.15 % to 1.35 %, to be applied when the reserve ratio is at least 1.38 percent.
+Added: and, banks with total consolidated assets of less than $10 billion were awarded credits for the portion of their assessments that contributed to the growth in the reserve ratio from 1.15% to 1.35%, to be applied when the reserve ratio is at least 1.38%.
Bank of the Sierra received credits to reduce our FDIC assessments.
+Added: On October 18, 2022 the FDIC adopted a final rule to increase the base deposit insurance rate uniformly by 2 basis points, beginning with the first quarterly assessment period of 2023.
+Added: The FDIC also concurrently maintained the Designated Reserve Ratio (DRR) for the DIF at 2.00% for 2023.
+Added: The increase in assessment rate is intended to increase the likelihood that the reserve ratio of the DIF reaches the statutory minimum of 1.35% by the statutory deadline of September 30, 2028.
We are generally unable to control the amount of premiums that we are required to pay for FDIC deposit insurance.
If there are additional bank or financial institution failures or if the FDIC otherwise determines, we may be required to pay higher FDIC premiums, which could have a material adverse effect on our earnings and/or on the value of, or market for, our common stock.
−Removed: In addition to DIF assessments, banks were required to pay quarterly assessments that were applied to the retirement of Financing Corporation bonds issued in the 1980’s to assist in the recovery of the savings and loan industry.
−Removed: The Financing Corporation bonds matured in September 2019, with a final assessment of 0.12 basis points of insured deposits in March 2019.
Community Reinvestment Act
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The CRA further requires the agencies to consider a financial institution’s efforts in meeting its community credit needs when evaluating applications for, among other things, domestic branches, mergers or acquisitions, or the formation of holding companies.
−Removed: In measuring a bank’s compliance with its CRA obligations, the regulators utilize a performance-based evaluation system under which CRA ratings are determined by the bank’s actual lending, service, and investment performance, rather than on the extent to which the institution conducts needs assessments, documents community outreach activities or complies with other
−Removed: procedural requirements.
−Removed: In connection with its assessment of CRA performance, the FDIC assigns a rating of “outstanding,” “satisfactory,” “needs to improve” or “substantial noncompliance.” The Bank most recently received a “needs to improve” CRA assessment rating in December 2020.
−Removed: On September 21, 2020, the FDIC issued an advance notice of proposed rulemaking on updating the agency’s three-decade-old CRA regulations.
−Removed: The objectives of the new rules include, more effectively meeting the needs of low-to-moderate-income communities and address disparities in credit access, increasing the clarity consistency and transparency of supervisory expectations and standards regarding where activities are assessed, which activities qualify and how eligible activities are assessed, while minimizing data collection burden, tailoring CRA supervision based on size, business model, local market conditions, etc., updating standards to reflect changes in banking over time, including the increased use of mobile and internet delivery channels, promoting community engagement, strengthening the special treatment of minority depository institutions, and recognizing that CRA and fair lending responsibilities are mutually reinforcing.
−Removed: The Company is monitoring this proposal so that our CRA efforts are in compliance with any changes to the old rules once implemented.
−Removed: The FDIC never finalized the proposed rule, but it is anticipated that there will be inter-agency action on a proposed and final rule related to CRA soon.
+Added: In measuring a bank’s compliance with its CRA obligations, the regulators utilize a performance-based evaluation system under which CRA ratings are determined by the bank’s actual lending, service, and investment performance, rather than on the extent to which the institution conducts needs assessments, documents community outreach activities or complies with other procedural requirements.
+Added: In connection with its assessment of CRA performance, the FDIC assigns a rating of “outstanding,” “satisfactory,” “needs to improve” or “substantial noncompliance.” The Bank most recently received a “satisfactory” CRA assessment rating in August 2022.
+Added: On May 5, 2022, the Federal Reserve Board along with the FDIC and OCC issued a notice of proposed rulemaking on updating the three-decade-old CRA regulations.
+Added: The objectives of the new rules include strengthening the achievement of the core purpose of the statute, adapting to changes in the banking industry, including mobile and online banking, providing greater clarity and consistency in the application of the regulations, tailoring performance standards to account for differences in bank size, business model, and local conditions, tailoring data collection and reporting requirements and use of existing data whenever possible, promoting transparency and public engagement, ensuring that CRA and fair lending are mutually reinforcing, and creating a consistent regulatory approach among all three banking agencies.
+Added: The deadline for submitting comments on the NPR was August 5, 2022.
+Added: The interagency rule has not been finalized, however the Company is monitoring this proposed rule so that our CRA efforts are in compliance with any changes to the current rules once implemented.
Privacy and Data Security
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The Financial Modernization Act generally prohibits disclosure of consumer information to non-affiliated third parties unless the consumer has been given the opportunity to object and has not objected to such disclosure.
−Removed: The statute also directed federal regulators, including the Federal Reserve and the FDIC, to establish standards for the security of consumer information, and requires financial institutions to disclose their privacy policies to consumers annually.
−Removed: Effective January 2020, the California Consumer Privacy Act (“CCPA”) added required notice about personal information we collect, use, share, and disclose for business purposes.
+Added: The statute also
+Added: directed federal regulators, including the Federal Reserve and the FDIC, to establish standards for the security of consumer information, and requires financial institutions to disclose their privacy policies to consumers annually.
+Added: In June 2018, the California Consumer Privacy Act (“CCPA”) was signed into law, creating new privacy rights for Californians and significant new data protection obligations for businesses.
+Added: The CCPA went into effect Jan.
+Added: California’s Office of the Attorney General has enforcement authority.
+Added: The CCPAadded required notices about personal information we collect, use, share, and disclose for business purposes.
The CCPA provides California residents rights regarding their personal information specifically related to exercising access, data portability and deletion rights.
There are also California breach notification and disclosure requirements.
+Added: In November 2020, the California Privacy Rights Act (CPRA) a ballot initiative, amending the CCPA which includes additional privacy protections for consumers, was passed.
+Added: The majority of the CPRA’s provisions will be in force January 1, 2023, with a look-back to January 2022.
On November 23, 2021, the federal banking agencies issued a final rule requiring banking organizations that experience a computer-security incident to notify its primary Federal regulator of the occurrence of an event that rises to the level of a “notification incident.” Generally, a notification incident occurs when a banking organization has suffered a computer-security incident that has a reasonable likelihood of materially disrupting or degrading the banking organization or its operations.
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The rule also requires bank service providers to notify each affected banking organization if that bank service provider experiences a computer-security incident that has caused, or is reasonably likely to cause, a material service disruption or degradation for four or more hours.
−Removed: The rule becomes effective on April 1, 2022, with a compliance date of May 1, 2022.
+Added: The rule became effective on April 1, 2022, with a compliance date of May 1, 2022.
+Added: On January 3, 2023, the federal banking agencies issued a joint statement on crypto-asset risks to banking organizations following events which exposed vulnerabilities in the crypto-asset sector, including the risk of fraud and scams, legal uncertainties, significant volatility, and contagion risk.
+Added: Although banking organizations are not prohibited from crypto-asset related activities, the agencies have expressed significant safety and soundness concerns with business models that are concentrated in crypto-asset related activities or have concentrated exposures to the crypto-asset sector.
+Added: Presently, we do not engage in any crypto-asset related activities.
The Electronic Funds Transfer Act, as implemented by the Federal Reserve’s Regulation E, governs transfers initiated through automated teller machines (“ATMs”), point-of-sale terminals, and other electronic banking services.
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The rule does not apply to other types of transactions, such as check automated clearinghouse (“ACH”) and recurring debit card transactions.
−Removed: Additionally, in November 2010 the FDIC issued its Overdraft Guidance on automated overdraft service programs, to ensure that a bank mitigates the risks associated with offering automated
−Removed: overdraft payment programs and complies with all consumer protection laws and regulations.
−Removed: The Company continuously evaluates its overdraft practices and monitors potential legislative and regulatory changes to overdraft rules.
+Added: In November 2010 the FDIC issued its Overdraft Payment Supervisory Guidance on automated overdraft payment programs, to ensure that a bank mitigates the risks associated with offering automated overdraft payment programs and complies with all consumer protection laws and regulations.
+Added: Additionally in August 2022 the FDIC issued guidance on assessing multiple re-presentment NSF fees of the same unpaid transaction.
+Added: This guidance included their supervisory approach when a violation of law is identified, as well as expectations for full corrective action.
+Added: In 2022, the Company proactively issued $0.7 million in restitution payments to customers charged nonsufficient fund fees in the past five years for representments.
+Added: As of the third quarter of 2022, the Company is no longer charging customers for nonsufficient fund (NSF) fees.
+Added: The Company also increased the discretionary overdraft privilege amount for both commercial and consumer customers, but is limiting the number of daily overdraft fees to four per day (previously five per day) and is no longer charging a fee for continuous overdrafts (previously a $35 charge after the 10 th consecutive day an account is in an overdraft position).
+Added: These changes to our NSF fees, overdraft fees and discretionary overdraft privilege program are not expected to have a material impact on deposit fee income.
+Added: The Company continuously evaluates its overdraft practices and monitors potential legislative and regulatory changes, as well as other regulatory guidance related to overdrafts.
Consumer Financial Protection and Financial Privacy
−Removed: Dodd-Frank created the Consumer Finance Protection Bureau (the “CFPB”) as an independent entity with broad rulemaking, supervisory and enforcement authority over consumer financial products and services including deposit products, residential mortgages, home-equity loans and credit cards.
+Added: Dodd-Frank created the Consumer Financial Protection Bureau (the “CFPB”) as an independent entity with broad rulemaking, supervisory and enforcement authority over consumer financial products and services including deposit products, residential mortgages, home-equity loans and credit cards.
The CFPB’s functions include investigating consumer complaints, conducting market research, rulemaking, supervising and examining bank consumer transactions, and enforcing rules related to consumer financial products and services.
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These and other laws require disclosures including the cost of credit and terms of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections, prohibit unfair, deceptive and abusive practices, restrict the Company’s ability to raise interest rates and otherwise subject the Company to substantial regulatory oversight.
+Added: On June 9, 2022, the DFPI’s proposed commercial financing disclosure regulations were approved, which became effective on December 9, 2022.
+Added: The regulations require commercial financing providers to disclose certain information to assist small businesses in making more informed decisions, including the amount of funding the small business will receive, the Annual Percentage Rate calculated for the transaction, the term, details related to prepayment policies and an average monthly cost.
In addition, as is the case with all financial institutions, the Bank is required to maintain the privacy of its customers’ non-public, personal information.
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Interstate Banking and Branching
−Removed: The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Act”), together with Dodd-Frank, relaxed prior interstate branching restrictions under federal law by permitting, subject to regulatory approval, state
−Removed: and federally chartered commercial banks to establish branches in states where the laws permit banks chartered in such states to establish branches.
+Added: The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Act”), together with Dodd-Frank, relaxed prior interstate branching restrictions under federal law by permitting, subject to regulatory approval, state and federally chartered commercial banks to establish branches in states where the laws permit banks chartered in such states to establish branches.
The Interstate Act requires regulators to consult with community organizations before permitting an interstate institution to close a branch in a low-income area.
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As a part of their regulatory oversight, the federal regulators have issued guidelines on sound risk management practices with respect to a financial institution’s concentrations in commercial real estate (“CRE”) lending activities.
−Removed: These guidelines were issued in response to the agencies’ concerns that rising CRE concentrations might expose institutions to
−Removed: unanticipated earnings and capital volatility in the event of adverse changes in the commercial real estate market.
+Added: These guidelines were issued in response to the agencies’ concerns that rising CRE concentrations might expose institutions to unanticipated earnings and capital volatility in the event of adverse changes in the commercial real estate market.
The guidelines identify certain concentration levels that, if exceeded, will expose the institution to additional supervisory analysis with regard to the institution’s CRE concentration risk.
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In general, the guidelines, as amended, establish the following supervisory criteria as preliminary indications of possible CRE concentration risk:
−Removed: (1) the institution’s total construction, land development and other land loans represent 100% or more of Tier 1 risk-based capital plus allowance for loan and lease losses;
−Removed: or (2) total CRE loans as defined in the regulatory guidelines represent 300% or more of Tier 1 risk-based capital plus allowance for loan and lease losses, and the institution’s CRE loan portfolio has increased by 50% or more during the prior 36 month period.
−Removed: At December 31, 2021, the Bank’s total construction, land development and other land loans represented 12% of Tier 1 risk-based capital plus allowance for loan and lease losses.
−Removed: At December 31, 2021, the Bank’s total CRE loans as defined in the regulatory guidelines represented 249% of Tier 1 risk-based capital plus allowance for loan and lease losses, and the Bank’s CRE loan portfolio has increased by more than 50% during the prior 36 month period.
+Added: (1) the institution’s total construction, land development and other land loans represent 100% or more of Tier 1 risk-based capital plus allowance for credit losses on loans and leases;
+Added: or (2) total CRE loans as defined in the regulatory guidelines represent 300% or more of Tier 1 risk-based capital plus allowance for credit losses on loans and leases, and the institution’s CRE loan portfolio has increased by 50% or more during the prior 36 month period.
+Added: At December 31, 2022, the Bank’s total construction, land development and other land loans represented 5% of Tier 1 risk-based capital plus allowance for credit losses on loans and leases.
+Added: At December 31, 2022, the Bank’s total CRE loans as defined in the regulatory guidelines represented 246% of Tier 1 risk-based capital plus allowance for credit losses on loans and leases, and the Bank’s CRE loan portfolio has increased by more than 50% during the prior 36 month period.
The Bank and its board of directors have discussed the guidelines and believe that the Bank’s underwriting policies, management information systems, independent credit administration process, and monitoring of real estate loan concentrations are sufficient to address the risk management of CRE under the guidelines.
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In addition, the market price of the Company’s common stock could decline due to any of the events described in these risks.
−Removed: Section 1.01 Risks Relating to the COVID-19 Pandemic
−Removed: Our business has been and may in the future be adversely affected by volatile conditions in the financial markets and unfavorable economic conditions generally, including continued impact from the ongoing COVID-19 pandemic.
−Removed: National and global economies are constantly in flux, as evidenced by market volatility both recently and in years past.
−Removed: Future economic conditions cannot be predicted, and recurrent deterioration in the economies of the nation as a whole or in the Company’s markets could have an adverse effect, which could be material, on our business, financial condition, results of operations and future prospects, and could cause the market price of the Company’s stock to decline.
−Removed: California’s San Joaquin Valley, where the Company is headquartered and has many of its branch locations, has been particularly hard hit by the COVID-19 pandemic and its effect on the economy.
−Removed: Unemployment levels have historically been elevated in the San Joaquin Valley, including Tulare County which is the Company’s geographic center, but recessionary conditions, precipitated by the COVID-19 Great Lockdown, pushed unemployment rates to exceptionally high levels in 2020.
−Removed: The highest unemployment rate for Tulare County pre-pandemic was 19.3% in March 2010;
−Removed: the unemployment rate reached that same high of 19.3% again in April 2020.
−Removed: The Tulare County unemployment rate declined
−Removed: to 8.4% by December 2021, an uptick from the 8.2% unemployment rate for November 2021, which was the lowest unemployment point of 2021.
−Removed: In addition, as discussed below in connection with challenges facing the agricultural industry, the persistence of a California drought could have a significant negative impact on unemployment rates in our market areas.
−Removed: Furthermore, although oil prices have recently been experiencing record highs, a drop in oil prices could also negatively impact unemployment rates, particularly in Kern County.
−Removed: These conditions have impacted and are expected in the future to impact-our business, results of operations, and financial condition negatively, including through lower revenue from certain of our fee-based businesses;
−Removed: lower net interest income resulting from lower interest rates and increased loan delinquencies;
−Removed: increased provisions for credit losses;
−Removed: impairments on the securities we hold;
−Removed: and decreased demand for certain of our products and services.
−Removed: Additionally, our liquidity and regulatory capital could be adversely impacted by volatility and disruptions in the capital and credit markets;
−Removed: deposit flows;
−Removed: and continued client draws on lines of credit.
−Removed: Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic.
−Removed: Negative impacts from the ongoing COVID-19 pandemic may include:
−Removed: ● Collateral securing our loans may decline in value, which could increase credit losses in our loan portfolio and increase the allowance for loan and lease losses.
−Removed: ● Demand for our products and services may decline, and deposit balances may decrease making it difficult to grow assets and income.
−Removed: ● The continued low interest rate environment, including the target federal funds rate could decrease yields on our existing and new assets that exceed the decline in our cost of interest-bearing liabilities, which may reduce our net interest margin.
−Removed: ● The impact of the CECL standard in 2022, which is highly dependent on unemployment rate forecasts over the life of our loans, could significantly increase the allowance for credit losses and decrease net income.
−Removed: While governmental authorities have taken unprecedented measures to provide economic assistance to individual households and businesses, stabilize the markets, and support economic growth, the success of these measures is unknown, and they may not be sufficient to mitigate fully the negative impact of the ongoing pandemic.
−Removed: Further, some measures, such as a suspension of mortgage and other loan payments and foreclosures, may have a negative impact on our business, while our participation in other measures could result in reputational harm, litigation, or regulatory and government actions, proceedings, or penalties.
−Removed: The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume, particularly in California.
−Removed: Our Traditional Service Delivery Channels may be Impacted by the COVID-19 Pandemic .
−Removed: In light of the continued external COVID-19 threat, the Board of Directors and senior management are continuously monitoring the situation, providing frequent communications, and making adjustments and accommodations for both external clients and our employees.
−Removed: For the most part, branches remain open to serve our customers and local communities, with modified hours and strict social distancing protocols in place as well as at times limiting certain of our branches to walk-up or drive-up visits.
−Removed: Our customers have been encouraged to utilize branch alternatives such as our ATMs, online banking, and mobile banking application in lieu of in-branch transactions.
−Removed: In addition, many employees are working remotely.
−Removed: Travel, as well as face-to-face meeting restrictions are in effect for Bank personnel.
−Removed: Further, given the increase of the risk of cyber-security incidents during the pandemic, we have enhanced our cyber-security protocols.
−Removed: If the pandemic worsens, resurges or lasts for an extended period of time, to protect the health of the Company’s workforce and our customers, we may need to enact further precautionary measures to help minimize the risks to our employees and customers, thus potentially altering our service delivery channels and operations over a prolonged period.
−Removed: These changes to our traditional service delivery channels may negatively impact our customers’ experience of banking with us, result in loss of service fees, and increase
−Removed: costs through equipment and services needed to support a remote workforce, and therefore negatively impact our financial condition and results of operation.
Section 1.01 Risks Relating to the Bank and our Business
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Future economic conditions cannot be predicted, and recurrent deterioration in the economies of the nation as a whole or in the Company’s markets could have an adverse effect, which could be material, on our business, financial condition, results of operations and future prospects, and could cause the market price of the Company’s stock to decline.
−Removed: Until the recent recession caused by COVID-19, the U.S.
−Removed: economy had undergone a continued and gradual expansion since 2009.
−Removed: Financial stress on borrowers as a result of an uncertain future economic environment could still have an unfavorable effect on the ability of the Company’s borrowers to repay their loans, which could adversely affect the Company’s business, financial condition and results of operations.
−Removed: Economic conditions are currently stressed although appear relatively stable in most of our local markets.
−Removed: Adverse developments, such as, among other things, health epidemics or pandemics (or expectations about them) like the novel coronavirus, international trade disputes, inflation risks, oil price volatility, the level of U.S.
−Removed: debt and global economic conditions, could depress business and/or consumer confidence levels, negatively impact real estate values, and otherwise lead to economic weakness which could have one or more of the following undesirable effects on our business:
+Added: Economic conditions are currently stressed given higher rates and persistent inflation, although appear relatively stable in most of our local markets.
+Added: Adverse developments, such as, among other things, continued inflation, health epidemics or pandemics (or expectations about them) like interest rate volatility, international trade disputes, oil price volatility, the level of U.S.
+Added: debt, including the debt ceiling, and global economic conditions, could depress business and/or consumer confidence levels, negatively impact real estate values, and otherwise lead to economic weakness which could have one or more of the following undesirable effects on our business:
+Added: ● a decrease in low-cost or noninterest bearing deposits;
● a lack of demand for loans, or other products and services offered by us;
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● a decline in the value of our loans or other assets secured by real estate;
−Removed: ● a decrease in deposit balances due to increased pressure on the liquidity of our customers;
● a credit impairment of our investment securities;
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Net interest income, and therefore earnings, can be adversely affected by differences or changes in the interest rates on, or the repricing frequency of, our financial instruments.
−Removed: In a period of low-interest rates, yields on new investments or loans may be lower than existing yields or lower than yields on earning assets that have prepaid or matured.
−Removed: In addition, fluctuations in interest rates can affect the demand of customers for products and services, and an increase in the general level of interest rates may adversely affect the ability of certain borrowers to make variable-rate loan payments.
+Added: Fluctuations in interest rates can affect the demand of customers for products and services, and an increase in the general level of interest rates may adversely affect the ability of certain borrowers to make variable-rate loan payments.
The speed and absolute level of increase or decrease in interest rates can have a material impact on the net interest income and economic value of equity of the Bank depending on the asset liability profile at any point in time.
−Removed: In addition, different parts of the yield curve could change by different amounts causing the yield curve to steepen, flatten, or even invert.
−Removed: A flattening or inversion of the yield curve could have a particularly negative impact on the Company’s earnings.
+Added: In addition, different parts of the yield curve could change by different amounts causing the yield curve to steepen, flatten, or invert.
+Added: The flattening or inversion of the yield curve, similar to what occurred in 2022, could have a particularly negative impact on the Company’s earnings over time.
Changes in market interest rates could have a material adverse effect on the Company’s asset quality, loan origination volume, financial condition, results of operations, and cash flows.
This interest rate risk can arise from Federal Reserve Board monetary policies, as well as other economic, regulatory and competitive factors that are beyond our control.
−Removed: Challenges in the agricultural industry could have an adverse effect on our customers and their ability to make payments to us, particularly in view of recent drought conditions in California and disruptions involving international trade.
+Added: Challenges in the agricultural industry could have an adverse effect on our customers and their ability to make payments to us, particularly in view of drought conditions in California and disruptions involving international trade.
Difficulties experienced by the agricultural industry have led to relatively high levels of nonperforming assets in previous economic cycles.
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In recent years, the state of California experienced the worst drought in its recorded history, and it is difficult to predict if the drought will resume and how long it might last.
−Removed: Another looming issue that could have a major impact on the agricultural industry involves water availability and distribution rights.
+Added: looming issue that could have a major impact on the agricultural industry involves water availability and distribution rights.
If the amount of water available to agriculture becomes increasingly scarce as a result of diversion to other uses, farmers may not be able to continue to produce agricultural products at a reasonable profit, which has the potential to force many out of business.
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Ultimately, competition can and does increase our cost of funds, reduce loan yields and drive down our net interest margin, thereby reducing profitability.
−Removed: It can also make it more difficult for us
−Removed: to continue to increase the size of our loan portfolio and deposit base, and could cause us to rely more heavily on wholesale borrowings which are generally more expensive than retail deposits.
+Added: It can also make it more difficult for us to continue to increase the size of our loan portfolio and deposit base, and could cause us to rely more heavily on wholesale borrowings which are generally more expensive than retail deposits.
We may not be able to continue to attract and retain employees, and our efforts to compete for talent may reduce our profitability.
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Because of the size of our fixed income bond portfolio relative to total assets, a relatively large increase in market interest rates, in particular, could result in a material drop in fair values and, by extension, our capital.
+Added: At December 31, 2022, we had total other comprehensive losses of $67.7 million primarily as a result of unrealized losses in our securities portfolio.
The Company has a significant amount of Collateralized Loan Obligations;
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Loans on commercial buildings represented approximately 64.7% of all real estate loans, while construction/development and land loans were 1.0%, loans secured by residential properties accounted for 27.1%, and loans secured by farmland were 6.1% of real estate loans.
−Removed: The Company’s $4.6 million balance of
−Removed: nonperforming assets at December 31, 2021, includes nonperforming real estate loans totaling $3.1 million, and $0.1 million in OREO.
+Added: The Company’s $19.6 million balance of nonperforming assets at December 31, 2022, is mostly comprised of nonperforming real estate loans .
In past recessionary periods, the residential real estate market experienced significant deflation in property values and foreclosures occurred at relatively high rates during and after the recession.
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Our concentration of commercial real estate, construction and land development, and commercial and industrial loans exposes us to increased lending risks.
−Removed: Commercial and agricultural real estate, commercial construction and land development, and commercial and industrial loans and leases (including agricultural production loans but excluding mortgage warehouse loans), which comprised approximately 75.0% of our total loan portfolio as of December 31, 2021, expose the Company to a greater risk of loss than residential real estate and consumer loans, which were a smaller percentage of the total loan portfolio.
+Added: Commercial and agricultural real estate, commercial construction and land development, and commercial and industrial loans and leases (including agricultural production loans but excluding mortgage warehouse loans), which comprised approximately 70.8% of our total loan portfolio as of December 31, 2022,
+Added: expose the Company to a greater risk of loss than residential real estate and consumer loans, which were a smaller percentage of the total loan portfolio.
Commercial real estate and land development loans typically involve relatively large balances to a borrower or a group of related borrowers, and an adverse development with respect to a larger commercial loan relationship would expose us to greater risk of loss than would issues involving a smaller residential mortgage loan or consumer loan.
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Expectations for higher capital levels have also emerged.
−Removed: Any required increase in our allowance for loan and lease losses could adversely affect our net income, and any requirement that we maintain higher capital levels could adversely impact financial performance measures including earnings per share and return on equity.
+Added: Any required increase in our allowance for credit losses on loans and leases could adversely affect our net income, and any requirement that we maintain higher capital levels could adversely impact financial performance measures including earnings per share and return on equity.
If the Company grows commercial real estate loans, it could be limited based on levels of regulatory capital.
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Our nonperforming loans may return to elevated levels, which would negatively impact earnings, possibly in a material way depending on the severity.
−Removed: We do not record interest income on non-accrual loans, thereby adversely
−Removed: affecting income levels.
−Removed: Furthermore, when we receive collateral through foreclosures and similar proceedings, we are required to record the collateral at its fair market value less estimated selling costs, which may result in charges against our allowance for loan and lease losses if that value is less than the book value of the related loan.
+Added: We do not record interest income on non-accrual loans, thereby adversely affecting income levels.
+Added: Furthermore, when we receive collateral through foreclosures and similar proceedings, we are required to record the collateral at its fair market value less estimated selling costs, which may result in charges against our allowance for credit losses on loans and leases if that value is less than the book value of the related loan.
Additionally, our noninterest expense has risen materially in adverse economic cycles due to the costs of reappraising adversely classified assets, write-downs on foreclosed assets resulting from declining property values, operating costs related to foreclosed assets, legal and other costs associated with loan collections, and various other expenses that would not typically be incurred in a normal operating environment.
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nevertheless, losses can and do occur.
−Removed: At December 31, 2021, we established an allowance for estimated loan and lease losses in our accounting records based on:
+Added: At December 31, 2022, we established an allowance for estimated credit losses on loans and leases in our accounting records based on:
● historical experience with our loans;
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changes in actual loan prepayment speeds, actual levels of charge-offs, changes to the level of nonaccrual loans, and changes to management’s estimate of items not otherwise considered as part of the quantitative calculation of the allowance.
−Removed: At any given date, we maintain an allowance for loan and lease losses that we believe is adequate to absorb specifically identified probable losses as well as any other losses inherent in our loan portfolio as of that date.
+Added: At any given date, we maintain an allowance for credit losses on loans and leases that we believe is adequate to absorb specifically identified probable losses as well as any other losses inherent in our loan portfolio as of that date.
While we strive to carefully monitor credit quality and to identify loans that may become nonperforming, at any given time there may be loans in our portfolio that could result in losses but have not been identified as nonperforming or potential problem loans.
We cannot be sure that we will identify deteriorating loans before they become nonperforming assets, or that we will be able to limit losses on loans that have been so identified.
−Removed: In addition, the FDIC and the DFPI, as part of their supervisory functions, periodically review our allowance for loan and lease losses.
+Added: In addition, the FDIC and the DFPI, as part of their supervisory functions, periodically review our allowance for credit losses on loans and leases.
Such agencies may identify additional considerations for us to address with respect to our allowance for credit losses which may cause us to increase our allowance for credit losses.
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In considering whether to make a loan secured by real property, we generally require an appraisal of the property.
−Removed: However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and an
−Removed: error in fact or judgment could adversely affect the reliability of the appraisal.
+Added: However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and an error in fact or judgment could adversely affect the reliability of the appraisal.
In addition, events occurring after the initial appraisal may cause the value of the real estate to decrease.
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Poorly designed or implemented models could result in business decisions made based on the use of models being adversely affected due to the inaccuracy of that information.
−Removed: Models are often based on historical experience to predict future outcome and new experiences or events which are not part of historical experience could significantly increase model imprecision and reliability.
+Added: Models are often based on historical experience to predict future outcomes and new experiences or events which are not part of historical experience could significantly increase model imprecision and reliability.
Model inputs can also include information provided by third parties, such as economic forecasts or macroeconomic variables upon which we rely.
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To the extent we issue capital stock in connection with additional transactions, if any, these transactions and related stock issuances may have a dilutive effect on earnings per share and share ownership.
−Removed: The subsidiary’s CRA rating could also negatively affect the Company’s acquisition strategy as the CRA requires the banking agencies to consider a financial institution’s efforts in meeting its community credit needs when evaluating applications for, among other things, domestic branches, mergers or acquisitions, or the formation of holding companies.
+Added: If the subsidiary’s CRA rating is downgraded to less than satisfactory in the future, it could negatively affect the Company’s acquisition strategy as the CRA requires the banking agencies to consider a financial institution’s efforts in meeting its community credit needs when
+Added: evaluating applications for, among other things, domestic branches, mergers or acquisitions, or the formation of holding companies.
Our earnings, financial condition, and prospects after a merger or acquisition depend in part on our ability to successfully integrate the operations of the acquired company.
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In the event that deteriorating economic conditions increase bank failures, the FDIC ensures payments of deposits up to insured limits from the DIF.
−Removed: Although the Bank’s FDIC insurance assessments have not increased as a result of changes in recent periods, and could possibly even be reduced in the near term, there can be no assurance that the FDIC will not increase assessment rates
−Removed: in the future or that the Bank will not be subject to higher assessment rates as a result of a change in its risk category, either of which could have an adverse effect on the Bank’s earnings.
+Added: In 2022, the FDIC announced an increase in rates in 2023, Therefore, the Bank’s FDIC insurance assessments are expected to increase as a result of this recent change.
+Added: There can be no assurance that the FDIC will not further increase assessment rates in the future or that the Bank will not be subject to higher assessment rates as a result of a change in its risk category, either of which could have an adverse effect on the Bank’s earnings.
Previously enacted and potential future regulations could have a significant impact on our business, financial condition and results of operations.
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Given the uncertainty associated with the manner in which the provisions of Dodd-Frank will be implemented, the full extent to which they will impact our operations is unclear.
−Removed: The changes resulting from Dodd-Frank may impact the profitability of business activities, require changes to certain business practices, impose more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business.
+Added: The changes resulting from Dodd-Frank may impact the profitability of business activities, require changes to certain business practices, impose more stringent
+Added: capital, liquidity and leverage requirements or otherwise adversely affect our business.
In particular, the potential impact of Dodd-Frank on our operations and activities, both currently and prospectively, include, among others:
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Department of Justice, federal banking agencies and other federal agencies are responsible for enforcing these laws and regulations.
−Removed: A challenge to an institution’s compliance with fair lending laws and regulations, receiving a less than satisfactory CRA rating, or challenges related to other consumer protection laws could
−Removed: result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion and restrictions on entering new business lines.
+Added: A challenge to an institution’s compliance with fair lending laws and regulations, receiving a less than satisfactory CRA rating, or challenges related to other consumer protection laws could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion and restrictions on entering new business lines.
Private parties may also challenge an institution’s performance under consumer compliance laws in private class action litigation.
Such actions could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
−Removed: In addition, federal, state and local laws have been adopted that are intended to eliminate certain lending practices considered “predatory.” These laws prohibit practices such as steering borrowers away from more affordable products, selling unnecessary insurance to borrowers, repeatedly refinancing loans and making loans without a reasonable expectation that the borrowers will be able to repay the loans irrespective of the value of the underlying property.
+Added: In addition, federal, state and local laws have been adopted that are intended to eliminate certain lending practices considered “predatory.” These laws prohibit practices such as steering borrowers away from more affordable products, selling unnecessary insurance to borrowers, repeatedly refinancing loans and making loans without a reasonable
+Added: expectation that the borrowers will be able to repay the loans irrespective of the value of the underlying property.
It is our policy not to make predatory loans, but these laws create the potential for liability with respect to our lending and loan investment activities.
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In addition, the Company has a significant level of income from money service businesses.
−Removed: In 2021, the Company recognized approximately $1.9 million in fees related to money service businesses.
+Added: In 2022, the Company recognized approximately $2.0 million in service charges and fees related to money service businesses, excluding $1.9 million in analysis fees.
Changes in regulatory oversight of money service businesses could negatively impact the Company’s number of money service businesses it serves and the related income from such customers.
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● domestic and international economic factors unrelated to our performance.
−Removed: The stock market and, more specifically, the market for financial institution stocks, has experienced significant volatility in the past including all of 2020 and 2021 and the first quarter of 2022.
+Added: The stock market and, more specifically, the market for financial institution stocks, has experienced significant volatility in the past including 2021 and 2022.
As a result, the market price of our common stock has at times been unpredictable and could be in the future, as well.
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The Company relies heavily on the payment of dividends from the Bank.
−Removed: Other than $20.1 million in cash available at the holding company level at December 31, 2021, the Company’s ability to meet debt service requirements and pay dividends depends on the Bank’s ability to pay dividends to the Company, as the Company has no other source of significant income.
+Added: At December 31, 2022, the holding company had $26.1 million in cash available.
+Added: While this cash is sufficient to cover cash flow needs over the course of the next several quarters the Company’s long-term ability to meet debt service requirements and pay dividends depends on the Bank’s ability to pay dividends to the Company, as the Company has no other source of significant income.
However, the Bank is subject to regulations limiting the amount of dividends it may pay.
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The shares of our common stock do not have preemptive rights, which means that you may not be entitled to buy additional shares if shares are offered to others in the future.
−Removed: We are authorized to issue up to
−Removed: 24,000,000 shares of common stock, and as of December 31, 2021, we had 15,270,010 shares of common stock outstanding.
+Added: We are authorized to issue up to 24,000,000 shares of common stock, and as of December 31, 2022, we had 15,170,372 shares of common stock outstanding.
Except for certain limitations imposed by Nasdaq, nothing restricts our ability to offer additional shares of stock for fair value to others in the future.
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These breaches can remain undetected for an extended period of time.
−Removed: Furthermore, our customers and employees have been, and will continue to be, targeted by parties using fraudulent e-mails and other communications that may appear to be legitimate messages sent by the Bank, in attempts to misappropriate passwords, card numbers, bank account information or other personal information or to introduce viruses or malware to personal computers.
+Added: Furthermore, our customers and employees have been, and will continue to be, targeted by parties
+Added: using fraudulent e-mails and other communications that may appear to be legitimate messages sent by the Bank, in attempts to misappropriate passwords, card numbers, bank account information or other personal information or to introduce viruses or malware to personal computers.
Information security risks for financial institutions have increased in part because of new technologies, mobile services and other web-based products used to conduct financial and other business transactions, as well as the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others.
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If personal, non-public, confidential or proprietary customer information in our possession were to be mishandled or misused, we could suffer significant regulatory consequences, reputational damage and financial loss.
−Removed: This could occur, for example, if information was erroneously provided to parties who are not
−Removed: permitted to have the information, either by fault of our systems, employees, or counterparties, or where such information is intercepted or otherwise inappropriately taken by third parties.
+Added: This could occur, for example, if information was erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or where such information is intercepted or otherwise inappropriately taken by third parties.
Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully remediated.
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We also may be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control (for example, computer viruses or electrical or telecommunications outages, or natural disasters, disease pandemics or other damage to property or physical assets) which may give rise to disruption of service to customers and to financial loss or liability.
−Removed: We are further exposed to the risk that our external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their employees) and to the risk that our (or our vendors’) business continuity and data security efforts might prove to be inadequate.
+Added: We are further exposed to the risk that our external vendors may be unable to fulfill their contractual obligations
+Added: (or will be subject to the same risk of fraud or operational errors by their employees) and to the risk that our (or our vendors’) business continuity and data security efforts might prove to be inadequate.
In addition, the Company is named as a defendant in lawsuits from time-to-time.
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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.