What changed in this filing

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Item 1A. Risk Factors

2021-05-10 compared with 2020-11-06 · 23 added, 22 removed, 29 unchanged (61% of the section changed)

7 unchanged sentences

” in this Quarterly Report on Form 10-Q.

Risks relating to the COVID-19

pandemic has significantly impacted the banking industry and our business.

7 unchanged sentences

Our customers could be expected to draw further on their lines of credit or to seek deferments of scheduled loan payments to help mitigate the effects of lost revenues.

As previously noted, we have already increased our allowance for expected credit losses by $23.5 million for the nine months ended September 30, 2020, due to the continuing anticipated impact of COVID-19-related

economic distress on our loan portfolios, coupled with the implementation of CECL for determining our overall provision for credit losses in the first quarter of 2020.

In addition, as also noted above, through October 9, 2020, we have granted temporary payment deferments of interest or of principal and interest to customers for 33 loans, with a gross balance of $68.6 million, or less than 1% of our total loan portfolio at September 30, 2020.

We implemented CECL, for determining our overall provision for credit losses, at the beginning of the first quarter of 2020.

For the year ended December 31, 2020, our allowance for credit losses increased by $23.5 million in provision for credit losses, primarily due to the forecasted impact of COVID-19

on certain economic variables that may cause distress to our loan portfolios.

During the first quarter of 2021, forecasted improvements in macroeconomic variables, because of the wide availability of vaccines and government economic stimulus, resulted in a $19.5 million recapture of provision for credit losses.

In addition, through March 31, 2021 we have temporary payment deferments of interest or of principal and interest to customers for six loans, with a gross balance of $10 million, or 0.12% of our total loan portfolio at March 31, 2021.

Depending on the scope and duration of the COVID-19

pandemic, we believe there is a reasonable possibility that additional loan payment deferments and increased provisions for expected credit losses could prove necessary for the final calendar quarter in 2020.

pandemic, we believe there is a possibility that increased provisions for credit losses could prove necessary in the future.

Similarly, because of changing economic and market conditions affecting bond issuers, we may be required to recognize credit losses in future periods on the securities we hold as well as reductions in other comprehensive income.

2 unchanged sentences

The extent to which the COVID-19

pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

Our bank has elected to participate as a lender in the Small Business Administration’s Paycheck Protection Program (PPP) and to register as an Eligible Lender under the Federal Reserve’s Main Street Lending Program (MSLP), and has accordingly become subject to a number of significant risks applicable to lenders under the PPP and MSLP, respectively.

pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the safety, effectiveness, distribution and acceptance of vaccines developed to mitigate the pandemic, and actions taken by governmental authorities and other third parties in response to the pandemic.

Our bank has elected to participate as a lender in the Small Business Administration’s Paycheck Protection Program (PPP), and has accordingly become subject to a number of significant risks applicable to lenders under the PPP.

As one set of responses to the COVID-19

pandemic, our federal, state and local governments have promulgated a wide variety of laws, regulations, executive orders and programs designed to ameliorate the severe and widespread economic distress caused by the mandatory closings of many businesses throughout the State of California and counties in which we operate.

One such program is the Paycheck Protection Program (PPP) enacted under the federal CARES Act.

One such program is the PPP enacted under the federal CARES Act.

This program is designed, among other things, to provide employee payroll maintenance support for small and medium-sized

businesses throughout the United States, including in the State of California, through loans made by authorized lenders and guaranteed by the federal Small Business Administration (SBA).

businesses throughout the United States,

including in the State of California, through loans made by authorized lenders and guaranteed by the federal Small Business Administration (SBA).

Because the Company is an authorized SBA lender and our primary customer base consists of small and medium-sized

businesses, the Company has actively participated in the PPP.

Including the second round of funding after Legislation passed on April 24, 2020, we have originated and funded approximately 4,100 PPP loans from our customers and, through two separate rounds of authorized funding for the PPP, totaling $1.10 billion as of September 30, 2020.

Including the second round of funding, after legislation passed on April 24, 2020, we originated and funded approximately 4,100 PPP loans totaling approximately $1.10 billion, of which $582.8 million was outstanding at March 31, 2021.

On January 13, 2021, the SBA reopened the PPP for Second Draw loans to small businesses and non-profit

organizations that did receive a loan through the initial PPP phase.

At least $25 billion has been set aside for Second Draw PPP loans to eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in low or moderate income neighborhoods.

Generally speaking, businesses with more than 300 employees and/or less than a 25% reduction in gross receipts between comparable quarters in 2019 and 2020 are not eligible for Second Draw loans.

Further, maximum loan amounts have been increased for accommodation and food service businesses.

Recently, the Bank began accepting applications for the second round of PPP loans.

As of March 31, 2021, we have originated approximately 1,500 round two loans totaling $325 million in customer borrowings.

Under interim final regulations promulgated by the SBA, PPP lenders are entitled to rely on borrower certifications with respect to issues such as program eligibility and eligible loan amounts, and PPP loans are designed to be subsequently forgivable, in whole or part, if certain additional criteria are met by the borrower with respect to employee payroll maintenance.

However, in view of the fact that the PPP was by design intended to support economically distressed businesses, the SBA’s guarantee of PPP loan amounts to participating lenders is a critical feature of the program.

In this regard, because the PPP was quickly implemented into operation and the SBA’s interim regulations have been repeatedly revised and are continuing to evolve, there are significant risks to the Company’s participation in the PPP, including whether certain borrowers will ultimately be found to have been eligible for PPP loans, whether eligible PPP loan amounts for certain borrowers were correctly calculated, whether certain PPP loans will ultimately be determined to be forgivable, and if not, whether the SBA’s guarantee will continue to apply to any unforgiven PPP loan amounts.

As of November 5, 2020, 69 loans, representing approximately $43 million, were submitted to the SBA and granted forgiveness.

To date, our customers who have had their forgiveness requests reviewed by the SBA have received nearly 100% loan forgiveness.

Another program enacted pursuant to the federal CARES Act and designed to help provide support to small and medium-sized

business and their employees throughout the U.S., including California, is the Federal Reserve’s Main Street Lending Program (MSLP).

The Company has elected to participate as an Eligible Lender under at least three sub-facilities

of the MSLP, including the Main Street New Loan Facility, the Main Street Priority Loan Facility and the Nonprofit Organization New Loan Facility.

Each of these lending facilities offers different terms and conditions, including with respect to borrower eligibility criteria, maximum loan amounts, whether loan proceeds can be utilized to refinance borrower indebtedness to other lenders, contractual priority, non-subordination

and collateralization requirements, etc.

Eligible Lenders may extend new MSLP loans to eligible borrowers and sell a 95% participation in each MSLP loan to a special purpose vehicle established by the Federal Reserve Bank of Boston (Main Street SPV), subject to numerous borrower and lender certifications and covenants and the terms of a Loan Participation Agreement and a Servicing Agreement.

In contrast to the PPP, loans under the MSLP are not forgivable, carry an adjustable rate of interest at LIBOR (one or three month) plus 300 basis points, require the payment of specified fees, and must be repaid in full at the end of a five year maturity period, with principal repayment commencing after a deferment period consisting of the first two years following loan origination.

In addition, eligible lenders must retain five percent of each MSLP loan and continue to service such loan until it matures or the Main Street SPV sells all of its 95% participation interest.

In this regard, because the MSLP is a newly constituted program without any established operating history, there are significant risks to the Company’s participation in the MSLP, including whether certain borrowers will ultimately be found to have been eligible for MSLP loans, whether the numerous required lender and borrower certifications will be found to have been made in good faith, whether the borrower will remain in compliance with the terms and conditions of its MSLP loan throughout its applicable term, whether any given lender or MSLP loan will be found to have been in compliance with the terms of the Main Street SPV’s Loan Participation Agreement and/or Servicing Agreement, and whether any individual MSLP loan will be repaid by the borrower on schedule, and, if not, whether the Main Street SPV will seek recourse against the originating lender.

There are significant risks to the Company’s participation in the PPP, including whether certain borrowers will ultimately be found to have been eligible for PPP loans, whether eligible PPP loan amounts for certain borrowers were correctly calculated, whether certain PPP loans will ultimately be determined to be forgivable, and if not, whether the SBA’s guarantee will continue to apply to any unforgiven PPP loan amounts.

As of March 31, 2021, approximately 2,400 loans, representing nearly $544 million in loan balances, were submitted to the SBA and granted forgiveness.

To date, our customers who have had their forgiveness requests reviewed by the SBA have received almost 100% loan forgiveness.

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.

What changed 10-Q

Item 1A. Risk Factors