−Removed: 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”.
−Removed: We are a bank holding company headquartered in Los Angeles, California.
−Removed: Our commercial banking activities are operated through Open Bank, our banking subsidiary.
−Removed: We offer commercial banking services to small and medium-sized businesses, their owners and retail customers with a focus on the Korean-American community.
−Removed: 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.
−Removed: We opened our tenth full service branch in Cerritos, located in Los Angeles County, California, in the first quarter of 2022.
−Removed: We anticipate opening our eleventh full service branch in Las Vegas, Nevada in the second quarter of 2023.
−Removed: We completed our initial public offering in March 2018 and our common stock is listed on the Nasdaq Global Market.
−Removed: As of December 31, 2022, we had consolidated total assets of $2.09 billion, total deposits of $1.89 billion, total loans outstanding (net of $19.2 million of allowance for loan losses) of $1.66 billion, and total shareholders’ equity of $176.9 million.
−Removed: We believe that we provide our customers with a high degree of service, convenience and the financial products they need to achieve their financial objectives, by offering a customer-oriented product mix, competitive pricing, and convenient locations.
+Added: Unless we state otherwise or the context otherwise requires, references in this Annual Report on Form 10-K (this "Report") 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”.
+Added: We began operations in 2005 as a California chartered banking association under the name First Standard Bank.
+Added: 2010, we rebranded the bank as “Open Bank” and in 2016, we incorporated OP Bancorp in California as a bank holding company with Open Bank as our sole subsidiary.
+Added: We are headquartered in Los Angeles, California, and our common stock is quoted on The Nasdaq Global Market under the ticker symbol, "OPBK." Our commercial banking activities are operated through Open Bank, our wholly owned banking subsidiary.
+Added: The Bank offers commercial banking services to small and medium-sized businesses, their owners and retail customers with a focus on the Korean-American community.
+Added: Having grown our branch and loan production office network, we now operate through eleven full service branches located in the greater metropolitan area of Los Angeles, Orange, and Santa Clara Counties in California, the Dallas metropolitan area in Texas, Clark County in Nevada, and four loan production offices in the Korean-American communities in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynnwood, Washington.
+Added: We opened our eleventh full service branch in Las Vegas, Nevada, in the third quarter of 2023.
+Added: As of December 31, 2023, we had consolidated total assets of $2.15 billion, total deposits of $1.81 billion, total loans outstanding, net of $22.0 million of allowance for credit losses, of $1.74 billion, and total shareholders’ equity of $192.6 million.
+Added: We provide our customers with a high degree of service, convenience and the financial products we believe they need to achieve their financial objectives, by offering a customer-oriented product mix, competitive pricing, and convenient locations.
Our lending activities are diversified and include commercial real estate, commercial and industrial, SBA, home mortgage, and consumer loans.
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We also heavily invest in our Korean-American communities through our annual contributions to the Open Stewardship Foundation.
−Removed: We believe that customers value a banking partner who is knowledgeable about their business needs with a willingness and commitment to reinvest back into the community.
−Removed: We convey to our customers that banking with us indirectly provides them an opportunity to contribute to the community.
+Added: We believe that our customers value a banking partner that is knowledgeable about their business needs with a willingness and commitment to reinvest in our communities.
+Added: We assure our customers that banking with us indirectly provides them an opportunity to contribute to their community.
We believe our strategic approach creates opportunities for expanding our banking relationships with new and existing customers who value personalized attention, local decision making and view us as an alternative to the large-consolidated Korean-American financial institutions.
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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.
−Removed: 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.
−Removed: We anticipate opening our eleventh full service branch in Las Vegas, Nevada in the second quarter of 2023.
+Added: We have continued our organic growth while further diversifying our geographical concentration with our eleventh full service branch in Las
+Added: Vegas, Nevada in the third 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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• Leverage our Franchise in the Korean-American Communities We Serve .
−Removed: The Korean-American banking landscape has seen increased consolidation of the larger Korean-American financial institutions that do business in our market areas.
−Removed: We believe that the customers at these larger institutions will look for an alternative banking experience tailored towards their specific financial objectives.
+Added: The Korean-American banking landscape has seen increased consolidation among the larger Korean-American financial institutions that do business in our market areas.
+Added: We believe that customers at these larger institutions will look for an alternative banking experience tailored towards their specific financial objectives.
We strive to be the most prominent alternative to the larger Korean-American financial institutions.
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• Increase our Share of Lower-Cost Deposits .
−Removed: We believe the quality of our deposit base and access to stable funding are key components of our success.
+Added: We believe the quality of our customer base and access to stable funding from reliable deposits are key drivers of our success.
We have a strong deposit base, characterized by a high level of core deposits, a high proportion of noninterest-bearing accounts and relatively low funding costs.
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We believe that our convenient branch network, personal relationship-driven culture, diversified product offering, and flexible pricing allow us to accelerate deposit growth.
−Removed: We plan to continue investing in our franchise brand, our community reputation, employees, and product capabilities to further improve customer loyalty with a view toward growing our high quality deposit portfolio.
+Added: We plan to continue investing in our brand, our community reputation, employees, and product capabilities to further improve customer loyalty with a view toward growing our high quality deposit portfolio.
• Branch Expansion .
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We have pursued this growth strategy since the beginning of 2012 when we only had one branch location.
−Removed: 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.
−Removed: We opened our tenth branch in Cerritos, located in Los Angeles County, California, in the first quarter of 2022.
−Removed: 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.
+Added: As of December 31, 2023, we have eleven branches in total, nine of which are in the greater metropolitan areas of Los Angeles, Orange, and Santa Clara Counties in California, one branch in Carrollton, Texas, and one branch in Las Vegas, Nevada.
+Added: 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 Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynwood, Washington.
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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.
−Removed: We expect to increase our commercial lending business in our expanding branch network, where we can continue
−Removed: to leverage our ability to develop personal, community-based relationships and leverage our quality service model into new opportunities.
+Added: 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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We believe our credit culture supports accountable bankers, who maintain an ability to expand our customer base as well as make sound decisions.
+Added: Our compensation philosophy and our corporate strategy and policies are designed to mitigate the risks associated with inappropriate lending activities, and we believe our credit quality is a direct result of these strategies.
As of December 31, 2023, our ratio of nonperforming assets to total assets was 0.28% and our ratio of nonperforming loans to total loans was 0.34%.
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The members of our executive management team have, on average, more than 30 years’ experience working for large, billion-dollar-plus financial institutions in our markets during various economic cycles.
−Removed: The members of our executive team have been with Open Bank for an average of seven years.
+Added: The members of our executive team have been with Open Bank for an average of 8 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.
−Removed: 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
−Removed: 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.
+Added: 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 are headquartered in Los Angeles, California.
−Removed: We currently have one branch in the financial district of downtown Los Angeles, one branch in the fashion district directly adjacent to downtown Los Angeles, and three branches in Koreatown.
−Removed: We also operate a branch in Gardena, located in Los Angeles County, California and a branch in Buena Park, located in Orange County, California.
−Removed: We opened our tenth full service branch in Cerritos, located in Los Angeles County, California, in the first quarter of 2022.
−Removed: In addition, we have one branch in northern California in Santa Clara and one branch in Carrollton, Texas.
−Removed: We anticipate opening our eleventh full service branch in Las Vegas, Nevada in the second quarter of 2023.
+Added: We currently have one branch in the downtown Los Angeles financial district, one branch in the nearby fashion district, and three branches in the Koreatown neighborhood.
+Added: We also operate two branches in Gardena and Cerritos, located in Los Angeles County, California, a branch in Buena Park, located in Orange County, California, and a branch in northern California in Santa Clara.
+Added: In addition, we operate one branch in Carrollton, Texas and one recently-opened branch in Las Vegas, Nevada.
The economic base of these areas is heavily dependent on small- and medium-sized businesses.
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Lending Activities
−Removed: 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,
+Added: Our lending strategy is to maintain a broadly diversified loan portfolio based on the type of customer (i.e., businesses versus individuals and across various business segments), 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
+Added: (e.g., manufacturing, retail, hospitality, etc.).
We principally focus our lending activities on loans that we originate from borrowers located in our market areas.
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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.
−Removed: We also offer various consumer loans to individuals and professionals including residential mortgage loans, and unsecured personal lines of credit.
+Added: We also offer consumers residential mortgage loans, unsecured term loans, and unsecured lines of credit.
Lending activities originate from the relationships and efforts of our bankers, with an emphasis on providing banking solutions tailored to meet our customers’ needs while maintaining our underwriting standards.
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Commercial real estate $ 885,585 $ 842,208
−Removed: 234,717 275,858
+Added: SBA 239,692 234,717
Commercial and industrial 120,970 116,951
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Gross loans receivable $ 1,765,845 $ 1,678,292
−Removed: (1) Includes Paycheck Protection Program (“PPP”) loans.
−Removed: For additional information concerning our loan portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Loan Portfolio.”
+Added: For additional information concerning our loan portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Loans.”
Concentrations of Credit Risk .
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The geographic concentration subjects the loan portfolio to the general economic conditions within Southern California.
−Removed: The risks created by such concentrations have been considered by management in the determination of the adequacy of the allowance for loan losses.
−Removed: Management believes the allowance for loan losses is adequate to cover probable incurred losses in our loan portfolio as of December 31, 2022.
+Added: The risks created by such concentrations have been considered by management in the determination of the adequacy of the allowance for credit losses.
+Added: Management believes the allowance for credit losses is adequate to cover estimated lifetime expected losses in our loan portfolio as of December 31, 2023.
Sound risk management practices and appropriate levels of capital are essential elements of a sound commercial real estate lending program.
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We have loan policies designed to assist us in managing this business risk.
−Removed: These policies provide a general framework for our loan origination, monitoring and funding activities, while recognizing that not all risks can be anticipated.
+Added: These policies provide a general framework for our loan origination, monitoring and funding activities, as well as our incentive compensation programs, while recognizing that not all risks can be anticipated or completely controlled.
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.
−Removed: Our board of directors also delegates limited lending authority to our internal management loan committee, which is
−Removed: comprised of members of our executive management team.
+Added: Our board of directors also delegates limited
+Added: 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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In addition, a third-party loan review is performed to assist in the identification of problem assets and to confirm our internal risk rating of loans.
−Removed: We attempt to identify potential problem loans early in an effort to seek aggressive resolution of these situations before the loans become a loss, record any necessary charge-offs promptly and maintain adequate allowance levels for probable loan losses inherent in the loan portfolio.
+Added: We attempt to identify potential problem loans early in an effort to seek aggressive resolution of these situations before the loans become a loss, record any necessary charge-offs promptly and maintain adequate allowance levels for estimated lifetime expected losses on a collective basis in the loan portfolio.
Our loan policies generally include other underwriting guidelines for loans collateralized by real estate.
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problem loan identification;
−Removed: maintenance of an adequate allowance for loan losses and other matters relating to lending practices.
+Added: maintenance of an adequate allowance for credit losses and other matters relating to lending practices.
Lending Limits .
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As of December 31, 2023, the Bank’s legal lending limit on loans to a single borrower was $57.2 million for secured loans and $34.3 million for unsecured loans.
+Added: We rarely extend loans that approach these limits, and in the limited instances we do, we monitor these credits carefully so as to mitigate the disproportionate risks that could arise with lending relationships of this magnitude.
Our loan policies provide general guidelines for loan-to-value ratios that restrict the size of loans to a maximum percentage of the value of the collateral securing the loans, which percentage varies by the type of collateral.
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We offer commercial real estate loans collateralized by real estate, which may be owner occupied or non-owner occupied real estate.
−Removed: Commercial real estate lending typically involves higher loan principal amounts and the repayment is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service.
+Added: Commercial real estate lending typically involves higher loan principal
+Added: amounts and the repayment is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service.
We believe that our management team has extensive knowledge of our borrowers and the markets where we operate.
−Removed: We further believe that our management team takes a conservative approach to commercial
−Removed: 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.
+Added: 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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Adjustable-rate loans are generally based on the prime rate and adjust with the prime rate.
−Removed: At December 31, 2022, approximately 78.9% of the commercial real estate loan portfolio consisted of fixed rate loans.
+Added: As of December 31, 2023, approximately 76.1% of the commercial real estate loan portfolio consisted of fixed rate loans.
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.
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Interest rates for the first TD Bank loans are subject to normal bank commercial rates and terms and the second TD CDC loans are fixed for the life of the loans based on certain indices.
−Removed: We originate SBA loans through our branch staff, loan production officers, marketing officers and through SBA brokers.
−Removed: 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.
−Removed: The PPP is intended to provide loans to small businesses to pay expenses related to their employees, rent, mortgage interest and utilities.
−Removed: The loans may be forgiven conditioned upon the client providing applicable documentation evidencing their compliance with the terms of the program, including compliance regarding the use of funds.
−Removed: The Bank is an approved SBA lender and began accepting applications for the program on April 3, 2020.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: We originate SBA loans through our branch staff, loan production officers, marketing officers and SBA brokers.
All of our SBA loans are originated through our SBA Loan Department.
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We have attained SBA Preferred Lender status nationwide.
−Removed: 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.
+Added: As of December 31, 2023, our SBA loan portfolio totaled $239.7 million, of which $224.7 million was secured by real estate and $15.0 million was unsecured or secured by business assets.
Our nonperforming SBA loans, as of December 31, 2023, were $3.6 million.
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All of our international letters of credit, SWIFT, and export advice are denominated in U.S.
−Removed: The total commercial and industrial loan portfolio totaled $117.0 million at December 31, 2022.
−Removed: Our nonperforming commercial and industrial loans were $279 thousand as of December 31, 2022.
+Added: The total commercial and industrial loan portfolio totaled $121.0 million as of December 31, 2023.
+Added: We had no nonperforming commercial and industrial loans as of December 31, 2023.
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.
−Removed: 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.
+Added: 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.
Typically, the mortgage notes are sold to an investor within a short period of time and are subject to various curtailment schedules.
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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.
−Removed: The interest rates charged on our adjustable-rate loans are set at specified spreads based on LIBOR or SOFR rates.
+Added: The interest rates charged on our adjustable-rate loans are set at specified spreads based on 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.
−Removed: The total home mortgage loan portfolio totaled $482.9 million at December 31, 2022.
+Added: The total home mortgage loan portfolio totaled $518.0 million as of December 31, 2023.
Our nonperforming single-family residential real estate loans, as of December 31, 2023, were $2.5 million.
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ALM establishes risk limits and policy for conducting investment activities.
−Removed: ALM receives quarterly reports from management’s Asset Liability Management Committee (“ALCO”), which approves investment strategies and meets monthly to review investment reports and monitor investment activities.
+Added: ALM receives quarterly reports from management’s Asset Liability Management Committee (“ALCO”), which approves investment strategies and meets
+Added: monthly to review investment reports and monitor investment activities.
ALCO receives investment related reports and any policy exceptions from the investment officer, who is appointed by ALM and responsible for ensuring compliance and implementation of investment policy guidelines.
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Many of the major banks operating in our market area offer certain services, which we do not offer directly (but some of which we offer through correspondent institutions).
−Removed: By virtue of their greater total capitalization, such banks also have substantially higher lending limits (restricted to a percentage of our total shareholders’ equity, depending upon the nature of the loan transaction) than us.
+Added: By virtue of their greater total capitalization, such banks also have substantially
+Added: higher lending limits (restricted to a percentage of our total shareholders’ equity, depending upon the nature of the loan transaction) than us.
In addition to other banks, our competitors include savings institutions, credit unions, thrift and loan companies and numerous non-banking institutions, such as finance companies, leasing companies, insurance companies, brokerage firms, and investment banking firms located in our primary market area.
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We have not registered the trademark “Open Bank” under the trademark laws of the United States.
−Removed: Open Bank, S.A., a corporation organized and existing under the laws of Spain with its principal office located in Ciudad Grupo
−Removed: Santander, Av.
+Added: 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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Under the Coexistence Agreement, Open Bank S.A.
−Removed: retains the right to use and market its services in relation to its registered trademark in any state or territory in the United States.
+Added: retains the right to use and market its services in relation to its registered
+Added: trademark in any state or territory in the United States.
We further agreed not to challenge Open Bank, S.A.’s trademark registration or any future applications by Open Bank S.A.
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Human Capital Resources
−Removed: We are an organization with a vision to be known as a faith-based community bank focused on relationship banking.
+Added: Our vision is to be known as a faith-based community bank focused on relationship banking.
We have invested in developing a distinct corporate culture guided by a core set of values.
−Removed: These values underlie everything we do, including the way we engage with customers, collaborate with colleagues, do business and manage our resources.
+Added: These values underlie everything we do, including the way we engage with customers and vendors, collaborate with colleagues, do business and manage our resources.
Our values are fostered by stewardship, integrity, teamwork, and excellence.
We believe our commitment to our communities, culture and quality of our people have been catalysts of our success and will continue to propel our future.
−Removed: We aim to recruit and retain a workforce that will embrace our culture and values through our hiring process.
−Removed: We also believe that our overall capabilities, culture and opportunities for career growth will allow us to continue to attract talented and entrepreneurial commercial and retail bankers from larger Korean-American financial institutions.
+Added: We aim to recruit and retain a workforce that embraces our culture and values through our hiring process.
+Added: We also believe that our overall capabilities, culture and opportunities for career growth will allow us to continue to attract talented and entrepreneurial commercial and retail bankers from larger financial institutions.
We are dedicated to building and fostering an excellent relationship with our employees by promoting a healthy work environment, comprehensive total rewards package, open communications, and employee involvement.
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We developed these components to recruit, retain, and reward top talent and remain an employer of choice by employees.
−Removed: As of December 31, 2022, we had approximately 221 full-time equivalent employees.
−Removed: Of our workforce, 37% are male and 63% are female.
+Added: As of December 31, 2023, we had 222 full-time equivalent employees, compared with 221 full-time equivalent employees as of December 31, 2022.
Our executive team is comprised of three females and four males.
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Regulatory Capital Requirements
−Removed: The Company and the Bank are subject to a comprehensive capital framework (the “Capital Rules”) adopted by Federal banking regulators (including the Federal Reserve and the FDIC).
+Added: The Bank is subject to a comprehensive capital framework (the “Capital Rules”) adopted by Federal banking regulators (including the Federal Reserve and the FDIC), and similar rules will apply to the Company once its total assets exceed $3 billion or if it engages in certain types of activities.
The Capital Rules implement the Basel III framework for strengthening the regulation, supervision and risk management of banks, as well as certain provisions of the Dodd-Frank Act.
1 unchanged sentence
common equity Tier 1 capital, additional Tier 1 capital and Tier 2 capital.
−Removed: Common equity Tier 1 capital generally consists of retained earnings
−Removed: and common stock instruments (subject to certain adjustments), as well as accumulated other comprehensive income (“AOCI”) except to the extent that the institution exercises a one-time irrevocable option to exclude certain components of AOCI.
+Added: Common equity Tier 1 capital generally consists of retained earnings and common stock instruments (subject to certain adjustments), as well as accumulated other comprehensive income (“AOCI”) except to the extent that the institution exercises a one-time irrevocable option to exclude certain components of AOCI.
We exercised the opt-out election regarding the treatment of AOCI in part to avoid significant variations in our capital levels resulting in changes in the fair market value of our available-for-sale investment securities portfolio as interest rates fluctuate.
4 unchanged sentences
The common equity Tier 1 capital ratio is the ratio of the institution’s common equity Tier 1 capital to its total risk-weighted assets.
−Removed: The Tier 1 risk-based capital ratio is the ratio of the institution’s Tier 1 capital to its total risk-weighted assets.
+Added: Tier 1 risk-based capital ratio is the ratio of the institution’s Tier 1 capital to its total risk-weighted assets.
The total risk-based capital ratio is the ratio of the institution’s total capital to its total risk-weighted assets.
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Acquisitions, Activities and Change in Control .
−Removed: The BHCA generally requires the prior approval by the Federal Reserve for any merger involving a bank holding company, any bank holding company’s acquisition of more than 5% of a class of voting securities of an unaffiliated bank or bank holding company, or acquisition of all or substantially all of the assets of a bank or bank holding company.
+Added: The BHCA generally requires the prior approval by the Federal Reserve for any merger involving a bank holding company, any bank holding company’s acquisition of more than 5% of a class of voting securities of an unaffiliated bank or bank holding company, or acquisition of all or substantially all of the
+Added: assets of a bank or bank holding company.
In reviewing applications seeking approval of merger and acquisition transactions, the Federal Reserve considers, among other things, the competitive effect and public benefits of the transactions, the capital position and managerial resources of the combined organization, the risks to the stability of the U.S.
16 unchanged sentences
This general prohibition is subject to a number of exceptions.
−Removed: 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
−Removed: development) and mortgage banking and brokerage.
+Added: 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.
The BHCA generally does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies.
26 unchanged sentences
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.
−Removed: 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
−Removed: Company or Bank, or (ii) refrain from obtaining other credit, property or services from competitors, except reasonable requirements to assure soundness of credit extended.
+Added: 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.
Dividend Payments, Stock Redemptions and Repurchases .
25 unchanged sentences
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.
−Removed: Undercapitalized institutions are generally
−Removed: not permitted to accept, renew, or roll over brokered deposits.
+Added: Undercapitalized institutions are generally not permitted to accept, renew, or roll over brokered deposits.
As of December 31, 2023, the Bank was eligible to accept brokered deposits without a waiver from FDIC.
Loans to One Borrower .
−Removed: With certain limited exceptions, the maximum amount that a California bank may lend to any borrower at any one time (including the obligations to the bank of certain related entities of the borrower) may not exceed 25% (and unsecured loans may not exceed 15%) of the bank’s shareholders’ equity, allowance for loan losses, and any capital notes and debentures of the bank.
+Added: With certain limited exceptions, the maximum amount that a California bank may lend to any borrower at any one time (including the obligations to the bank of certain related entities of the borrower) may not exceed 25% (and unsecured loans may not exceed 15%) of the bank’s shareholders’ equity, allowance for credit losses, and any capital notes and debentures of the bank.
Deposit Insurance .
6 unchanged sentences
The assessment base is calculated using average consolidated total assets minus average tangible equity capital.
−Removed: Additionally, the Dodd-Frank Act increased the minimum designated reserve ratio of the DIF to 1.35% of the estimated amount of total insured deposits as of September 30, 2020, and eliminated the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds.
+Added: Additionally, the Dodd-Frank Act increased the minimum designated reserve ratio of the DIF to 1.35% of the estimated amount of total insured deposits as of September 30, 2020, and eliminated the requirement that the FDIC pay
+Added: dividends to depository institutions when the reserve ratio exceeds certain thresholds.
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.
−Removed: During the year ended December 31, 2022, the Bank paid $563 thousand in aggregate FDIC deposit insurance premiums.
+Added: During the year ended December 31, 2023, the Bank paid $1.1 million in aggregate FDIC deposit insurance premiums.
Supervisory Assessments .
33 unchanged sentences
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.
+Added: These guidelines also require us to monitor cybersecurity and other information technology risks, including maintaining systems and policies that protect against both a direct financial loss and the risks of loss or compromise of customer and employee information.
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.
−Removed: If a financial institution fails to comply with any of the standards set forth in the guidelines, its primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance.
+Added: If a financial
+Added: institution fails to comply with any of the standards set forth in the guidelines, its primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance.
If a financial institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency.
10 unchanged sentences
and comprehensive internal controls.
+Added: Financial institutions also must comply with rules designed to improve information-sharing about cyber incidents that may affect the U.S.
+Added: banking system.
+Added: The rule requires financial institutions to notify their primary federal regulator of any significant computer-security incidents within 36 hours after they determine that a cyber-incident occurred.
+Added: 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.
+Added: We do not anticipate this rule to have a material impact on the operations of HCC and HBC at this time.
+Added: The SEC’s new cybersecurity disclosure rules took effect on December 18, 2023, as a result of which public companies are required to report on Form 8-K certain information relating to material cybersecurity incidents within four business days of the determination that such incident was material to the Company.
+Added: As a smaller reporting company, we are not required to comply with the Form 8-K disclosure requirements until June 15, 2024;
+Added: however, we anticipate that we would disclose any material cybersecurity incident promptly after its discovery.
+Added: Additionally, beginning in the annual report covering fiscal year ended December 31, 2023, public companies must report on Form 10-K any cybersecurity risks that have materially affected or are likely to materially affect the company, including the company’s business strategy, financial condition and results of operation.
+Added: This Report describes those risks herein and in the sections below entitled “Item 1A.
+Added: Risk Factors” and “Item 1C.
+Added: Cybersecurity.”
+Added: State regulators also have been increasingly focused on privacy and cybersecurity standards and regulations.
+Added: Recently, several states, notably including California where we conduct a substantial majority of our banking business, have adopted laws and/or regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements.
+Added: Many such states (including California) have also recently implemented or modified their data breach notification and data privacy requirements.
+Added: 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 nearly all our customers are located.
Branching Authority .
10 unchanged sentences
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.
−Removed: 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.
−Removed: 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.
+Added: In October 2023, the FDIC and other federal banking regulators adopted final rules that significantly expand the Bank’s responsibilities under the CRA.
+Added: The revised rules increase the emphasis on the Bank’s lending in low- to moderate-income areas, including support for small businesses.
+Added: As revised, the rules also modernize the regulator’s perspective on digital banking and on remote deposit-gathering, as well as focusing on consumer lending and community development.
+Added: The goal of these regulatory updates are to promote a tailored approach based on an institution’s size and business focus, as well as fostering financial inclusion and responding to recent and evolving trends within the banking industry
Anti-Money Laundering and the Office of Foreign Assets Control Regulation .
18 unchanged sentences
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.
−Removed: Concentration stemming from commercial real estate is one area of regulatory concern.
−Removed: The CRE Concentration Guidance provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny:
−Removed: (i) commercial real estate loans exceeding 300% of capital and increasing 50% or more in the preceding three years;
+Added: Concentration stemming from commercial real estate ("CRE") is one area of regulatory concern.
+Added: The CRE Concentration Guidance provides supervisory criteria, including the following numerical indicators, to assist bank
+Added: examiners in identifying banks with potentially significant CRE loan concentrations that may warrant greater supervisory scrutiny:
+Added: (i) CRE loans exceeding 300% of capital and increasing 50% or more in the preceding three years;
or (ii) construction and land development loans exceeding 100% of capital.
−Removed: The CRE Concentration Guidance does not limit banks’ levels of commercial real estate lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their commercial real estate concentrations.
−Removed: Based on the Bank’s loan portfolio, commercial real estate loans were 275.8% of risk based capital and increased 28.3% in preceding three years as of December 31, 2022.
+Added: The CRE Concentration Guidance does not limit banks’ levels of CRE lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their CRE concentrations.
+Added: Based on the Bank’s loan portfolio, CRE loans were 257.2% of risk based capital as of December 31, 2023 and increased 24.0% in preceding three years.
The Bank continues to further enhance the monitoring and review process of the real estate loan portfolio.
24 unchanged sentences
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.
−Removed: 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.
+Added: The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by 1-4 family residential real property and
+Added: augmented federal law combating predatory lending practices.
In addition to numerous disclosure requirements, the Dodd-Frank Act imposed new standards for mortgage loan originations on all lenders, including banks and savings associations, in an effort to strongly encourage lenders to verify a borrower’s ability to repay, while also establishing a presumption of compliance for certain “qualified mortgages.” The Dodd-Frank Act generally required lenders to retain an economic interest in the credit risk relating to loans that the lender sells if the loans do not comply with the ability-to-repay standards described below.
31 unchanged sentences
These regulations affect how consumer information is transmitted through financial services companies and conveyed to outside vendors.
−Removed: In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications.
+Added: In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from
+Added: applications.
Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services.
2 unchanged sentences
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.
−Removed: The CCPA was expanded by the California Privacy Rights Act of 2020 (the “CPRA”), which
−Removed: provides further privacy rights to California residents and creates a new agency tasked with implementing regulations and conducting investigations and enforcement actions.
−Removed: The CPRA goes into effect on January 1, 2023.
+Added: The CCPA was expanded by the California Privacy Rights Act of 2020 (the “CPRA”), which took effect on January 1, 2023, and which provides further privacy rights to California residents and creates a new agency tasked with implementing regulations and conducting investigations and enforcement actions.
Cybersecurity .
4 unchanged sentences
If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.
−Removed: 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.
+Added: Financial institutions also must 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.
11 unchanged sentences
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.