−Removed: Headquartered in the greater Sacramento metropolitan area of California, Five Star Bancorp (“Bancorp” or the “Company”) is a bank holding company that operates through its wholly owned subsidiary, Five Star Bank (“Five Star” or the “Bank”), a California state-chartered non-member bank.
+Added: Headquartered in the greater Sacramento metropolitan area of California, Five Star Bancorp is a bank holding company that operates through its wholly owned subsidiary, Five Star Bank, a California state-chartered non-member bank.
The Bank began operations on December 20, 1999.
3 unchanged sentences
Information on our website should not be considered a part of this Annual Report on Form 10-K.
−Removed: The Company provides a broad range of banking products and services to small and medium-sized businesses, professionals, and individuals primarily in Northern California through seven branch offices, one loan production office, the Internet, and its mobile banking application.
−Removed: The Bank’s deposits are insured in whole or in part by the Federal Deposit Insurance Corporation (the “FDIC”).
+Added: The Company provides a broad range of banking products and services to small and medium-sized businesses, professionals, and individuals primarily in Northern California through seven branch offices, the Internet, and its mobile banking application.
+Added: The Bank expects to open a full service branch in Downtown San Francisco in the second half of 2024.
+Added: The Bank’s deposits are insured in whole or in part by the FDIC.
The Bank’s loans and deposits are primarily within Northern California, and the Bank’s primary funding source is deposits from customers.
2 unchanged sentences
We aim to consistently deliver value that meets or exceeds expectations of our shareholders, customers, employees, business partners, and community.
−Removed: We refer to our mission as “purpose-driven and integrity-centered banking.” As of December 31, 2022, we had total assets of $3.2 billion, total loans held for investment, net of allowance for loan losses, of $2.8 billion, and total deposits of $2.8 billion.
−Removed: In May 2021, the Company completed its initial public offering (“IPO”), in connection with which the Company terminated its status as a Subchapter S corporation as of May 5, 2021 and became a taxable C Corporation.
+Added: We refer to our mission as “purpose-driven and integrity-centered banking.” As of December 31, 2023, we had total assets of $3.6 billion, total loans held for investment, net of allowance for credit losses, of $3.0 billion, and total deposits of $3.0 billion.
+Added: In May 2021, the Company completed its IPO, in connection with which the Company terminated its status as a Subchapter S corporation as of May 5, 2021 and became a taxable C Corporation.
Unless otherwise indicated, references in this report to “we,” “our,” “us,” “the Company,” or “Bancorp” refer to Five Star Bancorp and our consolidated subsidiary.
2 unchanged sentences
Our primary loan products are commercial real estate loans, commercial loans, commercial land and construction loans, and farmland loans.
−Removed: Our primary deposit products are money market accounts, non-interest-bearing accounts, and interest checking accounts.
+Added: Our primary deposit products are checking accounts, savings accounts, money market accounts, and term certificate accounts.
Our principal geographic market is the Roseville/Sacramento/Rancho Cordova/Elk Grove area (the “Greater Sacramento Area”).
2 unchanged sentences
We believe that our market growth confirms the quality of the purpose-driven and integrity-centered banking that we strive to deliver to our customers.
+Added: During 2023, we hired eight business development officers and two relationship managers as part of our expansion into the San Francisco Bay Area.
+Added: We expect to open a full service branch in Downtown San Francisco in the second half of 2024.
Our Products and Services
2 unchanged sentences
We offer a variety of loans to small and medium-sized businesses, professionals, and individuals, including commercial real estate, commercial, commercial land and construction, and farmland loans.
−Removed: Although a substantial portion of our loan portfolio consists of commercial real estate loans within our market, our portfolio is diverse and includes a significant amount of Small Business Administration (“SBA”) loans to customers nationwide.
+Added: Although a substantial portion of our loan portfolio consists of commercial real estate loans within our market, our portfolio is diverse and includes a significant amount of SBA loans to customers nationwide.
To a lesser extent, we also offer residential real estate and construction loans and consumer loans.
17 unchanged sentences
In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.
−Removed: As of December 31, 2022, our total commercial SBA portfolio held for investment, excluding Paycheck Protection Program (“PPP”) loans, was $49.0 million, representing 1.75% of total loans before deferred fees.
−Removed: In 2022, we sold 172 SBA loans, excluding PPP loans, with government-guaranteed portions totaling $50.8 million.
+Added: As of December 31, 2023, our total commercial SBA portfolio held for investment was $49.2 million, representing 1.59% of total loans before deferred fees.
+Added: In 2023, we sold 143 SBA loans with government-guaranteed portions totaling $36.5 million.
We participate in the SBA 7(a) program in order to meet the needs of our small business community as well as customers nationwide.
As an approved participant in the SBA Preferred Lender Program, we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not SBA Preferred Lenders.
−Removed: Pursuant to the Consolidated Appropriations Act, 2021 (the “Consolidated Appropriations Act”), the SBA guaranteed 90% of the principal amount of each qualifying SBA loan originated under the SBA’s 7(a) loan program (excluding PPP loans) through October 1, 2021.
−Removed: The SBA presently guarantees 75% to 90% of the principal amount of qualifying loans originated under the 7(a) loan program (excluding PPP loans).
+Added: Pursuant to the Consolidated Appropriations Act, 2021 (the “Consolidated Appropriations Act”), the SBA guaranteed 90% of the principal amount of each qualifying SBA loan originated under the SBA’s 7(a) loan program through October 1, 2021.
+Added: The SBA presently guarantees 75% to 90% of the principal amount of qualifying loans originated under the 7(a) loan program.
The guarantee is conditional and covers a portion of the risk of payment default by the borrower, but not the risk of improper closing and servicing by the lender.
1 unchanged sentence
We typically sell in the secondary market the SBA-guaranteed portion of the SBA loans we originate.
−Removed: Pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) passed in March 2020, we funded over 1,500 loans to eligible small businesses and non-profit organizations nationwide who participated in the PPP administered by the SBA as of December 31, 2022.
−Removed: In addition, we received a fee of 1.00% to 5.00% from the SBA depending on the loan amount.
−Removed: PPP loans are fully guaranteed by the SBA and are expected to be forgiven by the SBA if borrowers meet the requirements of the program.
−Removed: PPP loans have terms of two to five years and earn interest at 1.00%.
−Removed: At December 31, 2022, there were no outstanding balances from PPP loans on our books.
Commercial land and construction loans :
8 unchanged sentences
We are a strong agricultural lender, with both lines of credit and term loans.
−Removed: Farmland loans are
−Removed: generally made to producers and processors of crops and livestock.
+Added: Farmland loans are generally made to producers and processors of crops and livestock.
Repayment is primarily from the sale of an agricultural product or service.
5 unchanged sentences
To monitor and manage residential loan risk, policies and procedures are developed and modified, as needed.
−Removed: We believe that this activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk.
+Added: We believe that this activity, coupled with relatively small loan amounts that are
+Added: spread across many individual borrowers, minimizes risk.
Underwriting standards for home loans are heavily influenced by statutory requirements, which include, but are not limited to, a maximum loan-to-value percentage, collection remedies, the number of such loans a borrower can have at one time, and documentation requirements.
17 unchanged sentences
Our board of directors approves, from time to time, a delegated lending authority to members of the Management Loan Committee.
−Removed: The amount of authority delegated to each member of the committee varies based on years of direct lending experience, responsibility, and performance, and the authority limits also vary by collateral type.
+Added: The amount of authority delegated to each member of the committee varies based on years of direct lending experience, responsibility, and performance.
+Added: The authority limits also vary by collateral type.
Concentrations of Credit Risk
6 unchanged sentences
Representing 91.52% of our total liabilities as of December 31, 2023, deposits are our primary source of funding for our business operations.
−Removed: As of December 31, 2022, we held $2.8 billion of total deposits, including $1.0 billion in non-interest-bearing deposits.
+Added: As of December 31, 2023, we held total deposits of $3.0 billion, including $0.8 billion in non-interest-bearing deposits.
We offer a complete array of deposit products for small and medium-sized businesses, professionals, and individuals, including a variety of checking and savings accounts, time deposits, and money market accounts.
3 unchanged sentences
We emphasize obtaining deposit relationships at loan origination.
−Removed: We provide a high level of customer service to our depositors.
+Added: We provide a high level of customer
+Added: service to our depositors.
We have invested in personnel, business and compliance processes, and technology that enable us to acquire, and efficiently and effectively serve, a wide array of business deposit accounts, while continuing to provide the level of customer service for which we are known.
9 unchanged sentences
We regularly evaluate the composition of our investment portfolio as the interest rate yield curve changes and may sell or pledge investment securities from time to time to adjust our exposure to interest rates or to provide liquidity to meet loan demand.
−Removed: Due to loan growth, we are holding the majority of our on-balance sheet liquidity in interest-bearing bank deposits to provide readily available funds for loan growth and deposit activities in the normal course of business for our existing clients.
+Added: Due to loan growth, we are holding the majority of our on-balance sheet liquidity in the Federal Reserve Bank to provide readily available funds for loan growth and deposit activities in the normal course of business for our existing clients.
The banking business is highly competitive, and we face strong competition from many other financial institutions and financial services providers.
1 unchanged sentence
Our profitability depends in large part upon our continued ability to successfully compete with these institutions for lending opportunities, deposit funds, financial products, bankers, and potential acquisition targets.
−Removed: We conduct business through eight banking centers in our key market of Northern California.
+Added: We conduct business through seven branches in our key market of Northern California.
+Added: We expect to open a full service branch in Downtown San Francisco in the second half of 2024.
Many other commercial and community banks, savings institutions, credit unions, and other financial institutions maintain a physical presence in our primary market area, and some maintain only a virtual presence.
3 unchanged sentences
To offset these competitive disadvantages, we concentrate marketing efforts in the local markets we service with local advertisements and personal contacts.
−Removed: We depend on our reputation of having greater personal service than our competitors, as well as consistency, flexibility, the ability to make credit and other business decisions quickly, and our deep knowledge of competitor strengths and weaknesses.
−Removed: Based on the FDIC Summary of Deposits as of June 30, 2022, Five Star ranks eighth in the Sacramento-Roseville-Folsom metropolitan statistical area (“MSA”) by deposit market share with deposits of $2.2 billion and four branches.
−Removed: As of June 30, 2022, total market deposits in the Sacramento-Roseville-Folsom MSA were $74.7 billion, of which $59.7 billion, or approximately 79.9%, is held by seven money center banks across 211 branches.
−Removed: We are the 52nd largest insured depository institution in California by deposits as of June 30, 2022.
+Added: We depend on our reputation of having greater personal service than our competitors, as well as consistency, flexibility, our ability to make credit and other business decisions quickly, and our deep knowledge of competitor strengths and weaknesses.
+Added: Based on the FDIC Summary of Deposits as of June 30, 2023, Five Star ranks sixth in the Sacramento-Roseville-Folsom metropolitan statistical area (“MSA”) by deposit market share with deposits of $2.6 billion and four branches.
+Added: As of June 30, 2023, total market deposits in the Sacramento-Roseville-Folsom MSA were $94.9 billion, of which $78.3 billion, or approximately 82.5%, is held by five money center banks across 186 branches.
+Added: We are the 44th largest insured depository institution in California by deposits as of June 30, 2023.
Information Technology Systems
2 unchanged sentences
We utilize nationally recognized software vendors and their cloud/hosted models, which allow us to outsource the processing of our data.
−Removed: Our internal network and e-mail systems are administered by a managed service provider specializing in financial institutions, and we maintain our production infrastructure in a data center facility near Reno, Nevada.
+Added: Our internal network and e-mail systems are administered by a managed service provider specializing in financial institutions, and we maintain our
+Added: production infrastructure in a data center facility near Reno, Nevada.
This site provides for power and connectivity redundancy, and we maintain a disaster recovery program, including a cloud-based recovery environment.
−Removed: The majority of our other systems, including our electronic funds transfer, transaction processing, and our online banking services are hosted by third-party service providers.
+Added: The majority of our other systems, including our electronic funds transfer, transaction processing, and online banking services are hosted by third-party service providers.
The scalability of this infrastructure will support our growth strategy.
6 unchanged sentences
• we are exempt from the requirement to provide an opinion from our auditors on the design and operating effectiveness of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”);
−Removed: • we may choose not to comply with any new requirements adopted by the Public Company Accounting Oversight Board (the “PCAOB”) requiring mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and our audited financial statements;
+Added: • we may choose not to comply with any new requirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and our audited financial statements;
• we are permitted to provide less extensive disclosure regarding our executive compensation arrangements pursuant to the rules applicable to smaller reporting companies, which means we are not required to include a compensation discussion and analysis and other disclosures regarding our executive compensation in this Annual Report on Form 10-K;
5 unchanged sentences
(iii) the date on which we have during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities;
−Removed: or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the U.S.
−Removed: Securities and Exchange Commission (the “SEC”).
+Added: or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
We have elected to adopt the reduced disclosure requirements described above regarding the number of periods for which we are providing audited financial statements and selected financial data, and our executive compensation arrangements.
−Removed: In addition, we take advantage of the reduced reporting and other requirements under the JOBS Act with respect to the periodic reports we file with the SEC and proxy statements that we use to solicit proxies from
−Removed: our shareholders.
+Added: In addition, we take advantage of the reduced reporting and other requirements under the JOBS Act with respect to the periodic reports we file with the SEC and proxy statements that we use to solicit proxies from our shareholders.
Accordingly, the information contained herein may be different than the information you receive from other public companies in which you invest.
21 unchanged sentences
Employee Profile
−Removed: As of December 31, 2022, we had 178 full-time employees and six part-time employees.
+Added: As of December 31, 2023, we had 180 full-time employees and five part-time employees.
None of our employees are covered by a collective bargaining agreement.
4 unchanged sentences
Learning and Development
−Removed: We invest in the growth and development of our employees by providing a multi-dimensional approach to learning that empowers, intellectually grows, and professionally develops our colleagues under the leadership of a Director of Employee Engagement.
+Added: We invest in the growth and development of our employees by providing a multi-dimensional approach to learning that empowers, intellectually grows, and professionally develops our colleagues under the leadership of a Director of Employee
We facilitate the educational and professional development of our employees through support to attend conferences and obtain degrees, licenses, and certifications while employed by us.
Commitment to Environmental, Social, and Governance
−Removed: We are executing, and plan to scale-up, an Environmental, Social, and Governance strategy to drive positive change that focuses on environmental impacts of our business, social factors in the communities we serve, and the governance of our board of directors.
+Added: We are executing an Environmental, Social, and Governance strategy designed to promote positive change that focuses on the environmental impacts of our business and the geographical service areas in which we serve, social factors in the communities we serve, and the governance of our board of directors.
Environmental :
1 unchanged sentence
We are committed to developing policies and procedures that can contribute to reducing the effects of climate change, including funding customer business ventures that create a positive environmental impact through agriculture or technology.
−Removed: In 2021, we onboarded over 2,000 loans in a micro-loan program funding residential energy efficiency equipment.
−Removed: In 2022, we added to this program by onboarding an additional 43 loans.
−Removed: In 2022, we also made 209 Sustainable Home Improvement Loans through a program that supports sustainable investments in electrification to further reduce carbon emissions.
+Added: We continue to sponsor and support environmental impact initiatives by partnering with our customers that aid in the efforts of a clean and sustainable community.
Additionally, we equip customers with technology tools designed to reduce their carbon footprint by reducing in-branch customer visits.
We have taken steps designed to help reduce our own carbon footprint by utilizing e-signatures to conduct business to reduce paper consumption and encouraging our employees to work remotely, where possible.
−Removed: We recognize that reducing the effects of climate change and helping to drive the transformation of a lower carbon environment are ongoing efforts, and plan to continually seek out opportunities that can positively impact the effect that climate change has on the environment.
−Removed: We work to create positive social impacts in the communities in which our business operates, including by addressing food deserts, supporting affordable housing projects, and encouraging non-profit donations.
−Removed: As the effects of the COVID-19 pandemic continue, including the emergence of new variants, we remain committed to employee and customer safety through robust alternative working arrangements and extensive safety measures.
+Added: We recognize that reducing the effects of climate change and helping to drive the transformation to a lower carbon environment are ongoing efforts, and plan to continually seek out opportunities that can positively impact the effect that climate change has on the environment.
+Added: We work to create positive social impacts in the communities in which our business operates, including by assisting unhoused populations, supporting affordable housing projects, and prioritizing non-profit donations.
+Added: We believe it is our shared responsibility to build a strong foundation of community by fostering a culture of belonging and inclusion.
+Added: We also remain focused on the investment in, economic development of, and sustainability of the geographical service areas in which we serve.
The Governance and Nominating Committee is committed to diversity on our board of directors and compliance with applicable rules, regulations, and guidance regarding the composition of our leadership.
4 unchanged sentences
We have a fully engaged Senior Vice President, Chief Operations Officer and Chief DE&I Officer who leads our DE&I efforts.
−Removed: Our Human Resources department is demonstrating a commitment to DE&I through hiring practices and employee training.
−Removed: We are committed to ensuring that all employees feel a sense of belonging in the workplace and that processes and programs are impartial, fair, and provide
−Removed: equal opportunity for every individual.
−Removed: We also have a history of serving customers in the non-profit community who assist our region’s most vulnerable, underserved, and underrepresented populations.
+Added: Our Human Resources department is focused on our commitment to DE&I through hiring practices and employee training.
+Added: We are committed to ensuring that all employees feel a sense of belonging in the workplace and that processes and programs are impartial, fair, and provide equal opportunity for every individual.
+Added: We also have a history of serving customers in the non-profit community who are dedicated to the success of under-resourced and vulnerable populations, the empowerment of women, and the continued vitality of the environment.
Available Information
4 unchanged sentences
Federal and state banking laws impose a comprehensive system of supervision, examination, regulation, and enforcement on the operations of insured banks and their holding companies.
−Removed: As a result, our growth, earnings performance, and operations may be affected by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the California Department of Financial Protection and Innovation (the “DFPI”), the FDIC, the Federal Reserve, and the Consumer Financial Protection Bureau (the “CFPB”).
−Removed: Furthermore, tax laws administered by the Internal Revenue Service (the “IRS”) and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board (the “FASB”), securities laws administered by the SEC and state securities authorities, anti-money laundering laws enforced by the U.S.
−Removed: Department of the Treasury (the “Treasury Department”), and SBA regulations with respect to small business loans, have an impact on our business.
+Added: As a result, our growth, earnings performance, and operations may be affected by the requirements of federal and state statutes and by the regulations and policies of various
+Added: bank regulatory agencies, including the DFPI, the FDIC, the Federal Reserve, and the CFPB.
+Added: Furthermore, tax laws administered by the IRS and state taxing authorities, accounting rules developed by the FASB, securities laws administered by the SEC and state securities authorities, anti-money laundering laws enforced by the Treasury Department, and SBA regulations with respect to small business loans, have an impact on our business.
These statutes, regulations, and policies are continually under the review of the United States Congress and state legislatures, as well as federal and state regulatory agencies, and the nature and extent of future legislative, regulatory, or other developments affecting financial institutions are impossible to predict with any certainty.
36 unchanged sentences
The Federal Reserve and the FDIC, the primary federal regulators of the Company and Bank, respectively, have substantially similar generally applicable risk-based capital ratio and leverage ratio requirements.
−Removed: Historically, as a bank holding company with less than $3.0 billion in total consolidated assets and that met certain other criteria, we had been operating under the Federal Reserve’s Small Bank Holding Company Policy Statement, which exempts bank holding companies with assets of less than $3.0 billion that are not engaged in significant nonbanking
−Removed: activities, do not conduct significant off-balance sheet activities, and do not have a material amount of debt or equity securities registered with the SEC from the Federal Reserve’s generally applicable risk-based capital ratio and leverage ratio requirements.
−Removed: Because the Company's total consolidated assets exceeded the $3.0 billion threshold as of September 30, 2022, the Company is no longer subject to this policy statement and its capital adequacy will be evaluated relative to the Federal Reserve's generally applicable capital requirements.
+Added: Historically, as a bank holding company with less than $3.0 billion in total consolidated assets and that met certain other criteria, we had been operating under the Federal Reserve’s Small Bank Holding Company Policy Statement, which exempts bank holding companies with assets of less than $3.0 billion that are not engaged in significant nonbanking activities, do not conduct significant off-balance sheet activities, and do not have a material amount of debt or equity securities registered with the SEC from the Federal Reserve’s generally applicable risk-based capital ratio and leverage ratio requirements.
+Added: Because the Company’s total consolidated assets exceeded the $3.0 billion threshold as of September 30, 2022, the Company is no longer subject to this policy statement and its capital adequacy is evaluated relative to the Federal Reserve’s generally applicable capital requirements.
A bank holding company that crosses the $3.0 billion total consolidated assets threshold as of June 30 of a particular year is no longer permitted to file reports as a small holding company beginning the following March.
−Removed: The Company's total consolidated assets were not in excess of $3.0 billion as of June 30, 2022, and so, accordingly, it has prepared and filed financial reports with the Federal Reserve as a small holding company.
−Removed: If the Company's total consolidated assets remain in excess of $3.0 billion as of June 30, 2023, then starting in March 2024, the Company will cease filing financial reports with the Federal Reserve as though it were a small holding company.
+Added: The Company’s total consolidated assets were in excess of $3.0 billion as of June 30, 2023.
+Added: Accordingly, beginning in March 2024, the Company will cease filing financial reports with the Federal Reserve as though it were a small holding company.
Under the generally applicable capital requirements of the Federal Reserve and the FDIC, the Company and the Bank are required to meet a common equity Tier 1 capital to risk-weighted assets ratio of at least 7.00% (a minimum of 4.50% plus a capital conservation buffer of 2.50%), a Tier 1 capital to risk-weighted assets ratio of at least 8.50% (a minimum of 6.00% plus a capital conservation buffer of 2.50%), a total capital to risk-weighted assets ratio of at least 10.50% (a minimum of 8.00% plus a capital conservation buffer of 2.50%), and a Tier 1 leverage ratio of at least 4.00%.
2 unchanged sentences
For purposes of calculating the numerator of the capital ratios, capital, at both the holding company and bank levels, is classified in one of three tiers depending on the “quality” and loss-absorbing features of the capital instrument.
−Removed: Common equity Tier 1 capital is predominantly comprised of common stock instruments (including related surplus) and retained earnings, net of treasury stock, and after making necessary capital deductions and adjustments.
+Added: Common equity Tier 1 capital
+Added: is predominantly comprised of common stock instruments (including related surplus) and retained earnings, net of treasury stock, and after making necessary capital deductions and adjustments.
Tier 1 capital is comprised of common equity Tier 1 capital and additional Tier 1 capital, which includes non-cumulative perpetual preferred stock and similar instruments meeting specified eligibility criteria (including related surplus).
−Removed: Total capital is comprised of Tier 1 capital and Tier 2 capital, which includes certain subordinated debt with a minimum original maturity of five years (including related surplus) and a limited amount of allowance for loan losses.
+Added: Total capital is comprised of Tier 1 capital and Tier 2 capital, which includes certain subordinated notes with a minimum original maturity of five years (including related surplus) and a limited amount of allowance for credit losses.
Newly issued trust preferred securities and cumulative perpetual preferred stock may not be included in Tier 1 capital, but generally may be included in Tier 2 capital, provided they do not include features that are disallowed by the capital rules, such as the acceleration of principal other than in the event of a bankruptcy, insolvency, or receivership of the issuer.
8 unchanged sentences
It is the policy of the Federal Reserve that a bank holding company should generally pay dividends on common stock only out of earnings, and only if prospective earnings retention is consistent with the company’s capital needs and overall current and prospective financial condition.
−Removed: Additionally, bank holding companies should inform and consult with the Federal Reserve in advance of declaring and paying a dividend that exceeds earnings for the period for which the
−Removed: dividend is being paid.
−Removed: We consulted the Federal Reserve in advance of our distribution of $27.0 million to our S Corporation shareholders, which exceeded earnings for the period for which the dividend was paid, from our federal Accumulated Adjustments Account in 2021.
+Added: Additionally, bank holding companies should inform and consult with the Federal Reserve in advance of declaring and paying a dividend that exceeds earnings for the period for which the dividend is being paid.
According to guidance from the Federal Reserve, a bank holding company’s dividend policies will be assessed against, among other things, its ability to achieve applicable capital ratio requirements.
22 unchanged sentences
These regulations generally require either the blocking of accounts or other property of specified entities or individuals, but they may also require the rejection of certain transactions involving specified entities or individuals.
−Removed: maintains policies, procedures, and other internal controls designed to comply with anti-money laundering requirements and sanctions programs.
+Added: The Company maintains policies, procedures, and other internal controls designed to comply with anti-money laundering requirements and sanctions programs.
Sarbanes-Oxley Act
9 unchanged sentences
Both regulatory agencies have the power to take enforcement action to prevent the development or continuance of unsafe or unsound banking practices or other violations of law.
−Removed: The Bank is subject to supervision, examination, enforcement, and reporting requirements under the FDI Act, the California Financial Code, regulations of the FDIC and DFPI, and certain of the requirements imposed by the Dodd-Frank Act.
+Added: The Bank is subject to supervision, examination, enforcement, and reporting requirements under the FDI Act, the California Financial Code, regulations of the FDIC and the DFPI, and certain of the requirements imposed by the Dodd-Frank Act.
The Company and the Bank are also subject to a wide range of consumer protection laws and regulations.
7 unchanged sentences
California law limits California banks in the amount they may lend to one borrower and the amount they may lend to insiders.
−Removed: Under California law, with limited exceptions, unsecured loans to one person may not exceed 15.00% of the sum of a bank’s shareholders’ equity, allowance for loan losses, capital notes, and debentures.
−Removed: Additionally, both secured and unsecured loans to one person (excluding certain secured lending and letters of credit) at any given time generally may not exceed 25.00% of the sum of a bank’s shareholders’ equity, allowance for loan losses, capital notes, and debentures.
+Added: Under California law, with limited exceptions, unsecured loans to one person may not exceed 15% of the sum of a bank’s shareholders’ equity, allowance for credit losses, capital notes, and debentures.
+Added: Additionally, both secured and unsecured loans to one person (excluding certain secured lending and letters of credit) at any given time generally may not exceed 25% of the sum of a bank’s shareholders’ equity, allowance for credit losses, capital notes, and debentures.
Section 22(g) of the Federal Reserve Act, as implemented by the Federal Reserve’s Regulation O, governs and restricts extensions of credit by a member bank to an executive officer, director, or principal shareholder of the bank and its affiliates.
−Removed: By making these provisions applicable to state non-member banks, the FDI Act and FDIC regulations impose these restrictions on the Bank’s purchases or sales of assets from insiders of the Bank and the Company.
+Added: By making these provisions applicable to state non-member banks, the FDI Act and FDIC regulations impose these restrictions on the Bank’s purchases or sales of assets from or to insiders of the Bank and the Company.
Additionally, California law imposes insider lending limits that are similar to the restrictions of the Federal Reserve’s Regulation O.
Sections 23A and 23B of the Federal Reserve Act, which the FDI Act makes applicable to a state non-member bank like ours in the same manner and to the same extent as if it were a member bank, establish parameters for an insured bank to conduct “covered transactions” with its affiliates, generally:
−Removed: (i) limiting the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount not greater than 10.00% of the bank’s capital stock and surplus, and limiting the aggregate of all such transactions with all affiliates to an amount not greater than 20.00% of the bank’s capital stock and surplus;
−Removed: and (ii) requiring that all such transactions be on terms substantially the same, or at least as favorable, to the bank or subsidiary as those that would be provided to a non-affiliate.
+Added: (i) limiting the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount not greater than 10% of the bank’s capital stock and surplus, and limiting the aggregate of all such transactions with all affiliates to an amount not greater than 20% of the bank’s capital stock and surplus and (ii) requiring that all such transactions be on terms substantially the same, or at least as favorable, to the bank or subsidiary as those that would be provided to a non-affiliate.
In addition, an insured bank’s loans to affiliates generally must be fully collateralized.
2 unchanged sentences
In 2006, the federal bank regulatory agencies released guidance advising financial institutions of the risks posed by commercial real estate lending concentrations and reinforcing that financial institutions should implement sound risk management processes to identify, monitor, and control risks associated with commercial real estate concentrations.
−Removed: Higher allowances for loan losses and capital levels may also be required.
+Added: Higher allowances for credit losses and capital levels may also be required.
The commercial real estate guidance provides that further supervisory analysis of an institution’s commercial real estate loan concentrations is warranted when its concentrations exceed either:
−Removed: (i) total reported loans for construction, land development, and other land of 100.00% or more of a bank’s total risk-based capital;
−Removed: or (ii) total reported loans secured by multifamily and non-farm non-residential properties and loans for construction, land development, and other land of 300.00% or more of a bank’s total risk-based capital, where the outstanding balance of the institution’s commercial real estate portfolio has also increased by 50.00% or more during the prior 36 months.
+Added: (i) total reported loans for construction, land development, and other land of 100% or more of a bank’s total risk-based capital or (ii) total reported loans secured by multifamily and non-farm non-residential properties and loans for construction, land development, and other land of 300% or more of a bank’s total risk-based capital, where the outstanding balance of the institution’s commercial real estate portfolio has also increased by 50% or more during the prior 36 months.
We have exposures to loans secured by commercial real estate due to the nature of our market and the loan needs of both our retail and commercial customers.
14 unchanged sentences
There are various legal and regulatory provisions that limit the amount of dividends the Bank can pay to the Company without regulatory approval.
−Removed: California Financial Code, the Bank may not make any distribution to shareholders that exceeds the lesser of its retained earnings or its net income for the last three fiscal years, less the amount of any distributions made by the Bank to shareholders of the Bank during such period.
+Added: Under the California Financial Code, the Bank may not make any distribution to shareholders that exceeds the lesser of its retained earnings or its net income for the last three fiscal years, less the amount of any distributions made by the Bank to shareholders of the Bank during such period.
However, with prior approval of the DFPI, the Bank may make a distribution to shareholders that exceeds such amounts, subject to limits set forth in the California Financial Code.
8 unchanged sentences
However, the Federal Reserve may adjust reserve requirement ratios in the future if conditions warrant.
−Removed: Balances maintained by or on behalf of depository institutions in accounts at Reserve Banks continue to receive interest when reserve requirement ratios are set to 0.00%.
+Added: Balances maintained by or on behalf of depository institutions in accounts at Federal Reserve Banks continue to receive interest when reserve requirement ratios are set to 0.00%.
All balances earned the interest on excess reserves rate through July 28, 2021.
18 unchanged sentences
In addition, with prior DFPI approval, the Bank may acquire branches of existing banks located in California.
−Removed: Under federal
−Removed: law, the Bank may establish branch offices with the prior approval of the FDIC.
+Added: Under federal law, the Bank may establish branch offices with the prior approval of the FDIC.
Federal law allows a bank to branch into a new state through the establishment of a new branch if, among other factors, the bank is “well-managed” and “well-capitalized” and, under the laws of the state in which the branch is to be located, a state bank chartered by that state would be permitted to establish the branch.
7 unchanged sentences
The increased assessment rate schedules will remain in effect unless and until the reserve ratio of the DIF meets or exceeds 2.00%.
−Removed: As a result of the new rule, the FDIC insurance costs of insured depository institutions, including the Bank, will generally increase.
+Added: As a result of the new rule, the FDIC insurance costs of insured depository institutions, including the Bank, generally increased.
The FDIC uses a risk-based assessment system that imposes insurance premiums as determined by multiplying an insured bank’s assessment base by its assessment rate.
11 unchanged sentences
The Bank operated under a CRA Strategic Plan approved by the FDIC for the years 2019-2021 and received a rating of “Satisfactory” at its most recent CRA evaluation, dated as of May 3, 2021.
−Removed: On May 5, 2022, the federal banking agencies issued a proposed rule that would substantially revise how they evaluate an insured depository institution's record of satisfying the credit needs of its entire communities, including low- and moderate-income individuals and neighborhoods, under the CRA.
−Removed: If this rule is finalized as proposed, it may become more challenging and/or costly for the Bank to achieve an “Outstanding” or “Satisfactory” CRA rating, which could negatively impact our ability to obtain regulatory approval for an acquisition.
−Removed: Federal Home Loan Bank of San Francisco (“FHLB”) Membership
+Added: On October 24, 2023, the federal banking agencies issued a final rule amending the CRA regulations, substantially revising how they evaluate an insured depository institution’s record of satisfying the credit needs of its entire communities, including low- and moderate-income individuals and neighborhoods.
+Added: Under the final rule, it may be more challenging and costly for the Bank to achieve an “Outstanding” or “Satisfactory” CRA rating.
+Added: Banks with assets of at least $2 billion, including the Bank, will be considered large banks and their retail lending, retail services and products, community development financing, and community development services will be subject to periodic evaluation.
+Added: Depending on a large bank's geographic distribution of lending, the evaluation of retail lending may include assessment areas in which the bank extends loans but does not operate any deposit-taking facilities, in addition to assessment areas in which the bank has deposit-taking facilities.
+Added: Additionally, while the final rule retains the option for a large bank to adopt a strategic plan, a strategic plan will generally be required to cover the same tests and geographies as the revised framework applies to other large banks.
+Added: Most of the final rule’s new requirements are applicable beginning January 1, 2026.
+Added: The remaining new requirements, including data reporting requirements, are applicable on January 1, 2027.
+Added: FHLB Membership
The Bank is a member of the FHLB, which is one of 11 regional Federal Home Loan Banks that administer the home financing credit function of banking institutions.
4 unchanged sentences
Federal banking agencies pay close attention to the cybersecurity practices of banks and their holding companies and affiliates.
−Removed: The interagency council of the agencies, the Federal Financial Institutions Examination Council (the “FFIEC”), has issued several policy statements and other guidance for banks as new cybersecurity threats arise.
+Added: The interagency council of the agencies, the FFIEC, has issued several policy statements and other guidance for banks as new cybersecurity threats arise.
The FFIEC has recently focused on such matters as compromised customer credentials and business continuity planning.
−Removed: Examinations by the banking agencies now include review of an institution’s information technology and its ability to thwart cyberattacks.
+Added: Examinations by the banking agencies now include review of an institution’s information technology and its ability to thwart cyber-attacks.
Banking organizations are required to notify their primary federal regulator of significant computer security incidents within 36 hours of determining that such an incident has occurred.
+Added: In addition, the SEC recently enacted rules, effective as of December 18, 2023, requiring public companies to disclose material cybersecurity incidents that they experience on Form 8-K within four business days of determining that a material cybersecurity incident has occurred and to disclose on annual basis material information regarding their cybersecurity risk management, strategy, and governance.
Limitations on Incentive Compensation
2 unchanged sentences
Such institutions would be prohibited from entering into incentive compensation arrangements that encourage inappropriate risks by the institution:
−Removed: (i) by providing an executive officer, employee, director, or principal shareholder with excessive compensation, fees, or benefits;
−Removed: or (ii) that could lead to material financial loss to the institution.
+Added: (i) by providing an executive officer, employee, director, or principal shareholder with excessive compensation, fees, or benefits or (ii) that could lead to material financial loss to the institution.
The proposal would also impose certain governance and recordkeeping requirements on institutions covered by the rule.
Whether or when the agencies will finalize the proposal is uncertain.
−Removed: Coronavirus Aid, Relief, and Economic Security Act
−Removed: Beginning with the CARES Act in March 2020, the federal government enacted a series of federal statutes creating, funding, and expanding wide-ranging economic relief for individuals and businesses impacted by COVID-19.
−Removed: Among other things, these statutes created and funded the PPP, a stimulus response to the economic impacts of the pandemic designed to provide forgivable loans to smaller businesses, non-profit organizations, and other eligible borrowers that used the proceeds of the loans for payroll and certain other qualifying expenses.
−Removed: The SBA manages the PPP and guarantees PPP loans.
−Removed: If a loan is fully forgiven, the SBA will repay the lending bank in full.
−Removed: If a loan is partially forgiven or not forgiven at all, a bank must look to the borrower for repayment of unforgiven principal and interest.
−Removed: If the borrower defaults, the loan is guaranteed by the SBA.
−Removed: As of December 31, 2022, we had provided approximately $377.4 million in PPP loans to more than 1,500 new and existing customers, which were all forgiven or paid off.
−Removed: The CARES Act, as amended by the Consolidated Appropriations Act, also specified that COVID-19-related loan modifications executed during the course of the COVID-19 pandemic on loans that were current as of December 31, 2019 are not troubled debt restructurings (“TDRs”).
−Removed: Federal banking agency guidance further clarified the accounting treatment of such modifications.
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.