What changed in this filing

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Item 1. Business

2023-03-16 compared with 2022-03-18 · 96 added, 92 removed, 664 unchanged (22% of the section changed)

Unless we state otherwise or the context otherwise requires, references in this prospectus to “we”, “our”, “us,” “ourselves,” “the company” and “the Company” refer to OP Bancorp, a California corporation, and its consolidated wholly-owned subsidiary, Open Bank, a California corporation, which is referred to as “Open Bank” or “the Bank”.

We are a bank holding company headquartered in Los Angeles, California.

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We offer commercial banking services to small and medium-sized businesses, their owners and retail customers with a focus on the Korean-American community.

Having grown our branch and loan production office network over the past ten years, we now operate through nine full service branches located in the greater metropolitan area of Los Angeles, California, Orange County, California, Santa Clara County, California, and Carrollton, Texas, and four loan production offices in the Korean-American communities in Atlanta, Georgia, Aurora, Colorado, and Lynnwood and Seattle, Washington.

We intend to open our tenth full service branch in Cerritos, located in Los Angeles County, California, in the first quarter of 2022.

Having grown our branch and loan production office network over the past ten years, we now operate through ten full service branches located in the greater metropolitan area of Los Angeles, California, Orange County, California, Santa Clara County, California, and Carrollton, Texas, and four loan production offices in the Korean-American communities in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynnwood, Washington.

We opened our tenth full service branch in Cerritos, located in Los Angeles County, California, in the first quarter of 2022.

We anticipate opening our eleventh full service branch in Las Vegas, Nevada in the second quarter of 2023.

We completed our initial public offering in March 2018 and our common stock is listed on the Nasdaq Global Market.

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While other institutions frequently enter new geographies through acquisitions, we have grown our geographic footprint through de novo branches, while remaining true to our business model.

We have continued our organic growth while further diversifying our geographical concentration with the anticipated opening of our tenth full service branch in Cerritos, located in Los Angeles County, California, in the first quarter of 2022.

We have continued our organic growth while further diversifying our geographical concentration with our tenth full service branch opened in Cerritos, located in Los Angeles County, California, in the first quarter of 2022.

We anticipate opening our eleventh full service branch in Las Vegas, Nevada in the second quarter of 2023.

Although our growth has historically been organic, we are amenable to considering opportunistic strategic acquisitions to enhance our long-term growth strategy.

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We have pursued this growth strategy since the beginning of 2012 when we only had one branch location.

As of December 31, 2021, we had nine branches.

Eight branches are in the greater metropolitan area of Los Angeles, California, Orange County, California, and Santa Clara County, California, and we opened our ninth branch in Carrollton, Texas in 2019.

We anticipate opening a tenth branch in Cerritos, located in Los Angeles County, California, in the first quarter of 2022.

We will continue to review future potential target areas for de novo expansion based on our ability to attract experienced bankers within such targeted regions.

In addition, we currently operate four loan production offices located in Atlanta, Georgia, Aurora, Colorado, and Lynwood and Seattle, Washington.

As of December 31, 2022, we have ten branches in total and nine branches are in the greater metropolitan area of Los Angeles, California, Orange County, California, and Santa Clara County, California, and one branch in Carrollton, Texas.

We opened our tenth branch in Cerritos, located in Los Angeles County, California, in the first quarter of 2022.

We anticipate opening our eleventh full service branch in Las Vegas, Nevada in the second quarter of 2023 and will continue to review future potential target areas for de novo expansion based on our ability to attract experienced bankers within such targeted regions.

In addition, we currently operate four loan production offices located in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynwood, Washington.

We will continue to look for additional markets to expand our loan production capabilities.

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We are committed to continuing to expand and grow our commercial loan portfolios, while maintaining what we believe are conservative underwriting standards.

We expect to increase our commercial lending business in our expanding branch network, where we can continue to leverage our ability to develop personal, community-based relationships and leverage our quality service

model into new opportunities.

We expect to increase our commercial lending business in our expanding branch network, where we can continue

to leverage our ability to develop personal, community-based relationships and leverage our quality service model into new opportunities.

We believe we can leverage our personalized customer service, extensive knowledge of our local markets and high visibility community activities to attract and retain customers seeking alternatives to the larger Korean-American financial institutions.

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The members of our executive management team have, on average, more than 28 years’ experience working for large, billion-dollar-plus financial institutions in our markets during various economic cycles.

The members of our executive team have been with Open Bank for an average of six years.

The members of our executive team have been with Open Bank for an average of seven years.

Our executive management team has instilled a transparent and entrepreneurial culture that rewards leadership, innovation, and problem solving.

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We place significant emphasis on risk management as an integral component of our organizational culture.

We believe our comprehensive risk management system is designed to make sure that we have sound policies, procedures, and practices for the management of key risks under our risk framework (which includes market, operational, liquidity, interest rate sensitivity, credit, regulatory,

legal and reputational risk) and that any exceptions to written policy are reported by senior management to our board of directors or audit committee.

We believe our comprehensive risk management system is designed to make sure that we have sound policies, procedures, and practices for the management of key risks under

our risk framework (which includes market, operational, liquidity, interest rate sensitivity, credit, regulatory, legal and reputational risk) and that any exceptions to written policy are reported by senior management to our board of directors or audit committee.

Our risk management practices are overseen by the chairman of our audit committee and the chairman of Open Bank’s risk and compliance committees, who have more than 35 years of combined banking experience, and our chief risk officer, who has more than 20 years of banking experience.

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We also operate a branch in Gardena, located in Los Angeles County, California and a branch in Buena Park, located in Orange County, California.

We opened our tenth full service branch in Cerritos, located in Los Angeles County, California, in the first quarter of 2022.

In addition, we have one branch in northern California in Santa Clara and one branch in Carrollton, Texas.

We anticipate opening our eleventh full service branch in Las Vegas, Nevada in the second quarter of 2023.

The economic base of these areas is heavily dependent on small- and medium-sized businesses.

We intend to open our tenth full service branch in Cerritos, located in Los Angeles County, California, in the first quarter of 2022.

We also operate loan production offices in Atlanta, Georgia, Aurora, Colorado, and Lynnwood and Seattle, Washington to support our SBA lending efforts.

We also operate loan production offices in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynnwood, Washington to support our SBA lending efforts.

Deposit Products

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Lending Activities

Our lending strategy is to maintain a broadly diversified loan portfolio based on the type of customer (i.e., businesses versus individuals), type of loan product (e.g., commercial real estate, commercial and industrial loans, etc.), geographic location and industries in which our business customers are engaged (e.g., manufacturing, retail, hospitality, etc.).

We principally focus our lending activities on loans that we originate from borrowers located in our market areas.

We serve the credit needs of high-quality business and individual borrowers in the communities that we serve.

We offer a variety of loans, including CRE loans (including loans secured by owner occupied commercial properties), SBA loans, mortgage warehouse lines of credit and commercial and industrial loans to local manufacturing and industrial companies and other businesses.

We offer a variety of loans, including commercial real estate loans (including loans secured by owner occupied commercial properties), SBA loans, mortgage warehouse lines of credit and commercial and industrial loans to local manufacturing and industrial companies and other businesses.

We also offer various consumer loans to individuals and professionals including residential mortgage loans, and unsecured personal lines of credit.

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Commercial real estate $ 842,208 $ 701,450

Small business administration (1) 275,858 211,375

234,717 275,858

Commercial and industrial 116,951 162,543

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Most of our lending activity is conducted with businesses and individuals in our market areas.

Our loan portfolio consists primarily of CRE loans, which were $701.5 million and constituted 53.3% of our total loans as of December 31, 2021, SBA loans, which were $275.9 million and constituted 21.0% of our total loans as of December 31, 2021, home mortgage loans, which were $173.3 million and constituted 13.2% of our total loans as of December 31, 2021, and commercial and industrial loans, including trade finance loans, which were $162.5 million and constituted 12.4% of our total loans as of December 31, 2021.

As of December 31, 2022, our loan portfolio consists primarily of commercial real estate loans, which were $842.2 million and constituted 50.2% of our total loans, home mortgage loans, which were $482.9 million and constituted 28.8% of our total loans, SBA loans, which were $234.7 million and constituted 14.0% of our total loans, and commercial and industrial loans, including trade finance loans, which were $117.0 million and constituted 7.0% of our total loans.

Our commercial real estate loans are secured by first liens on real property.

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Open Bank’s board of directors delegates loan authority, up to the board-approved limits, to its Loan & Credit Policy Committee, which is comprised of members of its board of directors.

Our board of directors also delegates limited lending authority to our internal management loan committee, which is comprised of members of our executive management team.

Our board of directors also delegates limited lending authority to our internal management loan committee, which is

comprised of members of our executive management team.

The objective of our approval process is to provide a disciplined, collaborative approach to larger credits while maintaining responsiveness to client needs.

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We believe that our management team has extensive knowledge of our borrowers and the markets where we operate.

We further believe that our management team takes a conservative approach to commercial real estate lending, focusing on what we believe to be high quality credits with low loan-to-value ratios, income-producing properties with strong cash flow characteristics, and strong collateral profiles.

We further believe that our management team takes a conservative approach to commercial

real estate lending, focusing on what we believe to be high quality credits with low loan-to-value ratios, income-producing properties with strong cash flow characteristics, and strong collateral profiles.

We require our commercial real estate loans to be secured by what we believe to be well-managed property with adequate margins, and we generally obtain a personal guarantee from responsible parties.

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Loan amounts generally do not exceed 70% of the lesser of the appraised value or the purchase price depending on the property audits we utilize.

Our total commercial real estate loan portfolio totaled $701.5 million at December 31, 2021.

Our total commercial real estate loan portfolio totaled $842.2 million as of December 31, 2022.

We had no nonperforming commercial real estate loans as of December 31, 2022.

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The underwriting analysis also may include credit verification, reviews of appraisals, environmental hazard reports, the borrower’s liquidity and leverage, management experience of the owners or principals, economic condition and industry trends.

Small Business Administration Loans .

We offer SBA loans for qualifying businesses for loan amounts up to $5 million.

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We originate SBA loans through our branch staff, loan production officers, marketing officers and through SBA brokers.

A provision in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) created the Paycheck Protection Program (“PPP”), which is administered by the Small Business Administration (“SBA”).

A provision in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) created the Paycheck Protection Program (“PPP”), which is administered by the SBA.

The PPP is intended to provide loans to small businesses to pay expenses related to their employees, rent, mortgage interest and utilities.

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The Paycheck Protection Program and Health Care Enhancement Act (“PPP / HCEA Act”), which was signed into law on April 24, 2020, authorized $310 billion of additional funding under the CARES Act for PPP loans to be issued by financial institutions through the SBA.

Through December 31, 2021, the Company originated 2,930 loans with an

aggregate loan balance of $154.5 million under the CARES Act and PPP / HCEA Act.

The PPP loans are included in the SBA—non-real estate in the Company’s loan portfolio.

Through December 31, 2021, the Company originated 2,930 loans with an aggregate loan balance of $154.5 million under the CARES Act and PPP / HCEA Act.

During the year ended December 31, 2022, no PPP loan was funded and the PPP loans are included in the SBA—non-real estate in the Company’s loan portfolio.

All of our SBA loans are originated through our SBA Loan Department.

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We have attained SBA Preferred Lender status nationwide.

As of December 31, 2021, our SBA loan portfolio, including SBA PPP loans of $40.6 million, totaled $275.9 million, of which $220.1 million was secured by real estate and $55.8 million was unsecured or secured by business assets.

As of December 31, 2022, our SBA loan portfolio, including SBA PPP loans of $442 thousand, totaled $234.7 million, of which $221.3 million was secured by real estate and $13.4 million was unsecured or secured by business assets.

Our nonperforming SBA loans, as of December 31, 2022, were $1.5 million.

Commercial and Industrial Business Loans .

Commercial and Industrial Loans .

We have significant expertise in the small- to medium-sized commercial and industrial lending market, including trade finance loans.

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The total commercial and industrial loan portfolio totaled $117.0 million at December 31, 2022.

Our nonperforming commercial and industrial loans, as of December 31, 2021, were $313 thousand.

Our nonperforming commercial and industrial loans were $279 thousand as of December 31, 2022.

In general, commercial and industrial loans may involve increased credit risk and, therefore, typically yield a higher return.

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Each advance against the WHLOC is collateralized by an executed mortgage note.

TPO sells mortgage notes on the secondary market to investors that may include banks, correspondents, aggregators or Government Sponsored Enterprise (“GSE”), with the proceeds of those secondary market sales flowing directly to Open Bank to repay that specific loan advance.

mortgage notes on the secondary market to investors that may include banks, correspondents, aggregators or Government Sponsored Enterprise (“GSE”), with the proceeds of those secondary market sales flowing directly to Open Bank to repay that specific loan advance.

Typically, the mortgage notes are sold to an investor within a short period of time and are subject to various curtailment schedules.

Single-Family Residential Loans .

Home Mortgage Loans .

We originate residential real estate loans collateralized by owner occupied and non-owner occupied properties located in our market areas enabling borrowers to purchase or refinance existing homes.

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The relative amount of adjustable-rate mortgage loans that can be originated at any time is largely determined by the demand for such loans in a competitive environment and the effect each has on our interest rate risk.

We originate residential mortgage loans directly through our retail branch network and through our correspondent lender network.

We also purchase residential mortgage loans from TPO based on the review of their underwriting and file quality as opportunities arise.

We originate home loans directly through our retail branch network and through our correspondent lender network.

We also purchase home mortgage loans from TPO based on the review of their underwriting and file quality as opportunities arise.

Loans collateralized by single-family residential real estate generally are originated in amounts of no more than 70% of the appraised value.

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Loan fees on these products, interest rates and other provisions of mortgage loans are determined by us on the basis of our own pricing criteria and competitive market conditions.

Interest rates and payments on our adjustable-rate loans, generally, are adjusted annually based on the 1 year-LIBOR rate.

While single-family residential real estate loans are normally originated with up to 30-year terms, such loans typically remain outstanding for substantially shorter periods of time because borrowers often prepay their loans in full either upon sale of the underlying property pledged as security or upon refinancing the original loan.

The interest rates charged on our adjustable-rate loans are set at specified spreads based on LIBOR or SOFR rates.

While home mortgage loans are normally originated with up to 30-year terms, such loans typically remain outstanding for substantially shorter periods of time because borrowers often prepay their loans in full either upon sale of the underlying property pledged as security or upon refinancing the original loan.

In addition, all of the mortgage loans in our loan portfolio contain due-on-sale clauses providing that the Bank may declare the unpaid amount due and payable upon the sale of the property securing the loan.

The total single-family residential real estate loan portfolio totaled $173.3 million at December 31, 2021.

The total home mortgage loan portfolio totaled $482.9 million at December 31, 2022.

Our nonperforming single-family residential real estate loans, as of December 31, 2022, were $1.3 million.

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Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans.

The total consumer loan portfolio totaled $865 thousand as of December 31, 2021.

The total consumer loan portfolio totaled $1.5 million as of December 31, 2022.

We had no nonperforming consumer loans as of December 31, 2022.

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Future services may also be significantly influenced by improvements and developments in technology and evolving state and federal laws and regulations.

In our primary markets in Southern California, we view the Korean-American direct banking market competition, including Open Bank, as comprised of eight banks divided into four segments:

large publicly-traded banks (two banks), medium-sized banks (two publicly-traded banks and one locally-owned bank), a small locally-owned bank, and banks that are subsidiaries of Korean banks (two banks).

In our primary markets in Southern California, we view the Korean-American direct banking market competition as comprised of eight banks divided into four segments:

large publicly-traded banks (two banks), medium-sized banks (two publicly-traded banks, including Open Bank, and one locally-owned bank), a small locally-owned bank, and banks that are subsidiaries of Korean banks (two banks).

Excluding two banks that are subsidiaries of Korean banks, all six banks, including Open Bank, are based in California.

As of December 31, 2021, we are the seventh-largest bank, based on total assets, among this group of eight banks.

In addition to Korean-American banks, we also compete with other banks in the region, particularly with Chinese-American banks in our market areas.

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The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems, and the accelerating pace of consolidation among financial services providers.

We compete for loan and deposit customers with other commercial

banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, and other nonbank financial service providers.

We compete for loan and deposit customers with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, and other nonbank financial service providers.

Many of these competitors, including the majority of the other Korean-American banks located in greater Los Angeles County, have a longer operating history, are much larger in total assets and capitalization, have greater access to capital markets and offer a broader range of financial services than we do.

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We have not registered the trademark “Open Bank” under the trademark laws of the United States.

Open Bank, S.A., a corporation organized and existing under the laws of Spain with its principal office located in Ciudad Grupo Santander, Av.

Open Bank, S.A., a corporation organized and existing under the laws of Spain with its principal office located in Ciudad Grupo

Santander, Av.

Catabria Boadilla del Monte Madrid Spain (“Open Bank S.A.”) originally registered the trademark “Open Bank” (U.S.

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Of our workforce, 37% are male and 63% are female.

Our executive team is comprised of four females and two males.

Our executive team is comprised of three females and four males.

We consider our relationship with our employees to be good and have not experienced interruptions of operations due to labor disagreements.

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The Company makes these reports available through its website on the same day they appear on the SEC website.

Supervision and Regulation

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Federal and state laws, and the related regulations of the bank regulatory agencies, affect, among other things, the scope of business, the kinds and amounts of investments banks and bank holding companies may make, their reserve requirements, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, the ability to merge, consolidate and acquire, dealings with insiders and affiliates and the payment of dividends.

This supervisory and regulatory framework subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that, while not publicly available, can affect the conduct and growth of their businesses.

This supervisory and regulatory framework subjects banks and bank holding companies to periodic examination by their respective regulatory agencies, which results in examination reports and ratings that, while not publicly available, can affect the conduct and growth of their businesses.

These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors.

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The following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and its subsidiary, the Bank.

It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described.

It does not describe all of the applicable statutes, regulations and regulatory policies, nor does it restate all of the requirements of those that are described.

The descriptions are qualified in their entirety by reference to the particular statutory or regulatory provision.

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The Capital Rules set forth the manner in which certain capital elements are determined, including but not limited to, requiring certain deductions related to mortgage servicing rights and deferred tax assets.

The Rules permit holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes the Company) to continue to include trust preferred securities issued prior to May 19, 2010 in Tier 1 capital, generally up to 25% of other Tier 1 capital.

The Capital Rules permit holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes the Company) to continue to include trust preferred securities issued prior to May 19, 2010 in Tier 1 capital, generally up to 25% of other Tier 1 capital.

The Capital Rules also prescribe the methods for calculating certain risk-based assets and risk-based ratios.

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banking or financial system, the convenience and needs of the communities to be served, including the applicant’s performance record under the Community Reinvestment Act of 1977, as amended (“CRA”), compliance with fair housing and other consumer protection laws, and the effectiveness in combating money laundering activities.

In addition, failure to implement or maintain adequate compliance programs could cause bank regulators not to approve an acquisition where regulatory approval is required or to prohibit an acquisition even if approval is not required.

In addition, failure to implement or maintain adequate compliance programs could cause bank regulators to not approve an acquisition where regulatory approval is required or prohibit an acquisition even if approval is not required.

Subject to certain conditions (including deposit concentration limits established by the BHCA and the Dodd-Frank Act), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States.

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“Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 5% and 24.99% ownership.

The FDIC and the U.S.

Department of Justice’s Antitrust Division recently sought public comment on their bank merger review guidelines, which suggests that the analytical framework that has guided the regulatory review of bank mergers or the manner in which the regulatory standards apply may change.

Under the California Financial Code, any proposed acquisition of control of the Bank must be approved by the Commissioner of the DFPI.

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This general prohibition is subject to a number of exceptions.

The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking as to be a proper incident thereto.” This authority would permit the Company to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage.

development) and mortgage banking and brokerage.

The BHCA generally does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies.

The Federal Reserve has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary

when the Federal Reserve has reasonable grounds to believe that continuing such activity, ownership or control constitutes a serious risk to the financial soundness, safety or stability of any bank subsidiary of the bank holding company.

The Federal Reserve has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when the Federal Reserve has reasonable grounds to believe that continuing such activity, ownership or control constitutes a serious risk to the financial soundness, safety or stability of any bank subsidiary of the bank holding company.

Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities.

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The Company has not elected to be a financial holding company, and we have not engaged in any nonbanking activities determined by the Federal Reserve to be financial in nature or incidental or complementary to activities that are financial in nature.

If the Company elects to become a financial holding company to maintain the Company’s status as a financial holding company, the Company and the Bank must be well-capitalized, well-managed, and have a satisfactory CRA rating.

If the Company elects to become a financial holding company, the Company and the Bank must be well-capitalized, well-managed, and have a satisfactory CRA rating.

If the Company were to become a financial holding company and the Federal Reserve subsequently determined that the Company, as a financial holding company, is not well-capitalized or well-managed, the Company would have a period of time during which to achieve compliance, but during the period of noncompliance, the Federal Reserve may place any limitations on the Company it believes to be appropriate.

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Federal law prohibits a bank holding company, and any subsidiary banks, from engaging in certain tie in arrangements in connection with the extension of credit.

Specifically, subject to certain exemptions, the Bank may not extend credit, lease or sell property, or furnish any services, or fix or vary the consideration for any of the foregoing on the condition that the customer must (i) obtain or provide additional credit, property or services from or to the Company or Bank, or (ii) refrain from obtaining other credit, property or services from competitors, except reasonable requirements to assure soundness of credit extended.

Company or Bank, or (ii) refrain from obtaining other credit, property or services from competitors, except reasonable requirements to assure soundness of credit extended.

Dividend Payments, Stock Redemptions and Repurchases .

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Well capitalized institutions are not subject to limitations on brokered deposits, while adequately capitalized institutions are able to accept, renew or roll over brokered deposits only with a waiver from the FDIC and subject to certain restrictions on the yield paid on such deposits.

Undercapitalized institutions are generally not permitted to accept, renew, or roll over brokered deposits.

Undercapitalized institutions are generally

not permitted to accept, renew, or roll over brokered deposits.

As of December 31, 2022, the Bank was eligible to accept brokered deposits without a waiver from FDIC.

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At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, may increase or decrease the assessment rates, following notice and comment on proposed rulemaking.

In October 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023.

During the year ended December 31, 2022, the Bank paid $563 thousand in aggregate FDIC deposit insurance premiums.

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Loans to Directors, Executive Officers and Principal Shareholders .

The authority of the Bank to extend credit to its directors, executive officers and principal shareholders, including their immediate family members and corporations and

other entities that they control, is subject to substantial restrictions and requirements under the Federal Reserve’s Regulation O, as well as the Sarbanes-Oxley Act.

The authority of the Bank to extend credit to its directors, executive officers and principal shareholders, including their immediate family members and corporations and other entities that they control, is subject to substantial restrictions and requirements under the Federal Reserve’s Regulation O, as well as the Sarbanes-Oxley Act.

These statutes and regulations impose limits on the amount of loans the Bank may make to directors and other insiders and require that:

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The federal banking agencies have adopted guidelines establishing operational and managerial standards to promote the safety and soundness of federally insured depository institutions.

The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.

These guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.

In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals.

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The federal banking agencies have adopted regulations which measure a bank’s compliance with its CRA obligations on a performance based evaluation system.

This system bases CRA ratings on an institution’s actual lending

service and investment performance rather than the extent to which the institution conducts needs assessments, documents community outreach or complies with other procedural requirements.

This system bases CRA ratings on an institution’s actual lending service and investment performance rather than the extent to which the institution conducts needs assessments, documents community outreach or complies with other procedural requirements.

The ratings range from “outstanding” to a low of “substantial noncompliance.” The Bank had a CRA rating of “satisfactory” as of its most recent regulatory examination.

The federal banking agencies have expressed support for modernizing the CRA regulatory framework, partly to address changes that have occurred due to the rise in digital banking.

It is unclear at this time whether and to what extent any changes will be made to the applicable CRA requirements.

In May 2022, the Federal Reserve, along with the FDIC and the OCC, issued proposed amendments to modernize the CRA regulatory framework, partly to address changes that have occurred due to the rise in digital banking.

Some of the key proposed revisions include clarification of eligible community development activities, adjustments to requirements and eligibility of activities outside of facility-based assessment areas, and new testing structures and data collection requirements, particularly for the largest banks.

Anti-Money Laundering and the Office of Foreign Assets Control Regulation .

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Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.

Enacted in January 2021, AMLA was intended to be a comprehensive reform and modernization to U.S.

bank secrecy and anti-money laundering laws.

Among other things, it codified a risk-based approach to anti-money laundering compliance for financial institutions.

AMLA requires financial institutions to develop standards for evaluating technology and internal processes for BSA compliance, expands enforcement-related and investigation-related authority, institutes BSA whistleblower initiatives and protections, and increases sanctions for certain BSA violations.

A comprehensive reform and modernization to U.S.

bank secrecy and anti-money laundering laws was adopted in January 2021.

Among other things, it codified a risk-based approach to anti-money laundering compliance for financial institutions as set forth in AMLA, which requires financial institutions to develop standards for evaluating technology and internal processes for BSA compliance, expands enforcement-related and investigation-related authority, institutes BSA whistleblower initiatives and protections, and increases sanctions for certain BSA violations.

Adopted as part of the 2021 reform, the Corporate Transparency Act (the “CTA”) requires the creation of a national registry of beneficial ownership information.

When the final CTA rules go into effect in 2024, they may impact the AMLA/BSA procedures and reporting requirements of financial institutions.

The Bank has established policies and procedures that it believes comply with these requirements.

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Concentrations in Commercial Real Estate .

Concentration risk exists when financial institutions deploy too many assets to any one industry or segment.

Concentration risk exists when a financial institution deploys too many assets to a specific industry or segment of the economy with the potential to produce losses large enough to threaten its financial health.

Concentration stemming from commercial real estate is one area of regulatory concern.

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We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our customers.

These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Servicemembers Civil Relief Act, the Military Lending Act, and these laws’ respective state law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and

These and other federal laws, among other things, require disclosures of 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 acts and practices (“UDAAP”), restrict our ability to raise interest rates and subject us to substantial regulatory oversight.

The consumer protection laws applicable to us, among other things, require disclosures of 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 acts and practices (“UDAAP”), restrict our ability to raise interest rates and subject us to substantial regulatory oversight.

The consumer protection provisions of the Dodd-Frank Act and the examination, supervision and enforcement of those laws and implementing regulations by the CFPB have created a more intense and complex environment for consumer finance regulation.

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Mortgage and Mortgage-Related Products .

Because abuses in connection with home mortgages were a significant factor contributing to the financial crisis, many new rules issued by the CFPB and required by the Dodd-Frank Act address mortgage and mortgage-related products, their underwriting, origination, servicing and sales.

Because abuses in connection with home mortgages were a significant factor contributing to the financial crisis, many rules issued by the CFPB and required by the Dodd-Frank Act address mortgage and mortgage-related products, their underwriting, origination, servicing and sales.

The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by 1-4 family residential real property and augmented federal law combating predatory lending practices.

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The servicing rules require servicers to meet certain benchmarks for loan servicing and customer service in general.

Servicers must provide periodic billing statements and certain required notices and acknowledgments, promptly credit borrowers’ accounts for payments received and promptly

investigate complaints by borrowers.

Servicers must provide periodic billing statements and certain required notices and acknowledgments, promptly credit borrowers’ accounts for payments received and promptly investigate complaints by borrowers.

Servicers also are required to take additional steps before purchasing insurance to protect the lender’s interest in the property.

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Incentive Compensation Guidance .

The Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at regulated entities with at least $1 billion in total consolidated assets that encourage inappropriate risks by providing an executive officer, employee, director, or principal shareholder with excessive compensation, fees, or benefits that could lead to material financial loss to the entity.

The federal bank regulatory agencies have issued comprehensive guidance intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of those organizations by encouraging excessive risk-taking.

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The scope and content of the U.S.

banking regulators’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future.

banking regulators’ policies on executive compensation are continuing to develop and may continue evolving in the near future.

In August 2022, the SEC finalized the pay versus performance regulations, which require disclosure of information that shows the relationship between executive compensation actually paid and the company’s financial performance in annual proxy statements The pay versus performance regulations are effective for fiscal years ending on or after December 16, 2022.

Smaller reporting companies are subject to scaled reporting mechanism, and certain companies are exempt from the regulations.

In October 2022, the SEC also adopted final rules on clawback of executive compensation, which direct the stock exchanges to establish listing standards requiring listed companies to develop and implement a policy providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers.

Under the new rules, companies will have to recover compensation in excess of what the executive officer should have received in the event the companies’ financials are restated due to material noncompliance with securities laws.

The rules apply to compensation paid in the three years leading up to restatement.

While we are currently assessing the impact of the new incentive compensation regulations, we do not anticipate any material impact to our operations at this time.

Financial Privacy .

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The CFPB has recently announced its intention to embark on rulemaking about how much control consumers have over their financial data.

California is also enacting legislation relating to data privacy and data protection, such as the California Consumer Privacy Act (the “CCPA”), which went into effect on January 1, 2020.

California is also enacting legislation relating to data privacy and data protection, such as the California Consumer Privacy Act (the “CCPA”).

The CCPA granted California consumers robust data privacy rights and control over their personal information, including the right to know, the right to delete, and the right to opt-out of the sale of their personal information.

The CCPA was recently expanded by the California Privacy Rights Act of 2020 (the “CPRA”), which provides further privacy rights to California residents and creates a new agency tasked with implementing regulations and conducting investigations and enforcement actions.

The CPRA will become effective on January 1, 2023.

The CCPA was expanded by the California Privacy Rights Act of 2020 (the “CPRA”), which

provides further privacy rights to California residents and creates a new agency tasked with implementing regulations and conducting investigations and enforcement actions.

The CPRA goes into effect on January 1, 2023.

Cybersecurity .

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If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.

Effective May 1, 2022, financial institutions are required to comply with the final rule issued by the federal bank regulatory agencies to improve sharing of information about cyber incidents that may affect the U.S.

banking system.

The rule requires financial institutions to notify their primary federal regulator of any significant computer-security incidents as soon as possible and no later than 36 hours after they determine that a cyber-incident occurred.

Notification is required for incidents that have materially affected (or are reasonably likely to materially affect) the viability of a financial institution’s operations, its ability to deliver banking products and services, or the stability of the financial sector.

We do not anticipate this rule to have a material impact on our operations at this time.

State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations.

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Many such states, including California, have also recently implemented or modified their data breach notification and data privacy requirements.

We expect this trend of state-level activity in those

areas to continue, and we continue to monitor relevant legislative and regulatory developments in California where many of our customers are located.

We expect this trend of state-level activity in those areas to continue, and we continue to monitor relevant legislative and regulatory developments in California where many of our customers are located.

In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data.

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We employ a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats.

Notwithstanding the strength of our defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures.

While to date we have not detected a significant compromise, data loss or any material financial losses related to cybersecurity attacks, our systems and those of our customers and third-party service providers are under constant threat and it is possible that we could experience a significant event in the future.

Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.

For further discussion of risks related to cybersecurity, see “—Other Risks Related to Our Business” below.

Impact of Monetary Policy .

The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries.

Among the tools available to the Federal Reserve to affect the money supply are open market transactions in U.S.

government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits.

These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits.

Further Legislative and Regulatory Initiatives .

Federal and state legislatures as well as regulatory agencies may introduce or enact new laws or rules, or amend existing laws and rules, which may affect the regulation of financial institutions and their holding companies.

In addition, some of the financial laws and regulations aiming to ease regulatory and compliance burden on financial institutions that were adopted during the last presidential administration could be repealed or eliminated going forward.

The impact of any future legislative or regulatory changes cannot be predicted, but they could affect the Company and the Bank’s business and operations.

Notwithstanding the strength of our defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly.

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-K

Item 1. Business