4 unchanged sentences
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.
−Removed: 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.
−Removed: We opened our eleventh full service branch in Las Vegas, Nevada, in the third quarter of 2023.
+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 five loan production offices in the Korean-American communities in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, Lynnwood, Washington, and Fairfax, Virginia.
As of December 31, 2024, we had consolidated total assets of $2.37 billion, total deposits of $2.03 billion, total loans outstanding, net of $24.8 million of allowance for credit losses, of $1.93 billion, and total shareholders’ equity of $205.0 million.
14 unchanged sentences
We have committed to contribute annually 10% of our consolidated net income after taxes to the Foundation.
−Removed: Since inception, we have donated over $15.6 million to the Foundation, aiding over 228 local non-profits.
+Added: Since inception, we have donated more than $17.5 million to the Foundation, aiding over 230 local non-profits.
We plan to continue to leverage our experienced management team, our personal relationship, community banking focus in the attractive Korean-American communities in which we serve, and our diversified lending approach to drive future organic growth.
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 eleventh full service branch in Las
−Removed: 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.
19 unchanged sentences
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.
−Removed: As of December 31, 2023, deposits accounted for 92.5% of total liabilities.
+Added: As of December 31, 2024, deposits accounted for 93.8% of our total liabilities.
Core deposits, which we define as all deposits excluding time deposits exceeding $250,000, accounted for 72.1% of total deposits.
9 unchanged sentences
We have pursued this growth strategy since the beginning of 2012 when we only had one branch location.
−Removed: 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: As of December 31, 2024, we had eleven branches in total, nine of which are in the greater metropolitan areas of Los Angeles, Orange, and Santa Clara Counties in California.
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.
−Removed: In addition, we currently operate four loan production offices located in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynwood, Washington.
−Removed: We will continue to look for additional markets to expand our loan production capabilities.
• Expand and Diversify our Commercial Lending .
We are committed to continuing to expand and grow our commercial loan portfolios, while maintaining what we believe are conservative underwriting standards.
−Removed: 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.
+Added: 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.
31 unchanged sentences
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 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
+Added: 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 21 years of combined banking experience, and our chief risk officer, who has more than 22 years of banking experience.
8 unchanged sentences
We are headquartered in Los Angeles, California.
−Removed: 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.
−Removed: 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.
−Removed: In addition, we operate one branch in Carrollton, Texas and one recently-opened branch in Las Vegas, Nevada.
+Added: We currently have one branch in our headquarters building in the downtown Los Angeles financial district and a total of eight other branches in the Los Angeles/Orange County metropolitan area, as well as a branch in the Bay area and additional branches in Nevada and Texas, as well as loan production offices in the Bay Area and in suburban ares of Atlanta, Seattle, Denver and Northern Virginia.
The economic base of these areas is heavily dependent on small- and medium-sized businesses.
−Removed: We also operate loan production offices in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynnwood, Washington to support our SBA lending efforts.
Deposit Products
13 unchanged sentences
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 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
−Removed: (e.g., manufacturing, retail, hospitality, etc.).
+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 (e.g., manufacturing, retail, hospitality, etc.).
We principally focus our lending activities on loans that we originate from borrowers located in our market areas.
1 unchanged sentence
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 consumers residential mortgage loans, unsecured term loans, and unsecured lines of credit.
+Added: We also offer consumers residential mortgage loans,
+Added: 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.
21 unchanged sentences
Large Credit Relationships .
−Removed: As of December 31, 2023, the aggregate amount of loans to our 10 and 25 largest borrowers (including related entities) amounted to approximately $229.4 million, or 13.0% of total loans, and $417.5 million, or 23.6% of total loans, respectively.
+Added: As of December 31, 2024, the aggregate amount of loans and commitments to our 10 and 25 largest borrowers (including related entities) amounted to approximately $304.9 million, or 15.6% of total loans, and $515.4 million, or 26.3% of total loans, respectively, compared to $229.4 million, or 11.7% of total loans, and $417.5 million, or 21.3% of total loans, respectively, as of December 31, 2023.
+Added: The increase in 2024 was primarily attributable to additional commitments on new mortgage warehouse lines of credit.
Loan Underwriting and Approval .
3 unchanged sentences
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
−Removed: lending authority to our internal management loan committee, which is comprised of members of our executive management team.
+Added: 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.
34 unchanged sentences
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
−Removed: 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 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 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
+Added: 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.
6 unchanged sentences
Our total commercial real estate loan portfolio totaled $980.2 million as of December 31, 2024.
−Removed: We had no nonperforming commercial real estate loans as of December 31, 2023.
+Added: We had nonperforming commercial real estate loans of $1.9 million, or 0.20% of total commercial real estate loans, as of December 31, 2024.
Payments on loans secured by such properties are often dependent on the successful operation (in the case of owner occupied real estate) or management (in the case of non-owner occupied real estate) of the properties.
68 unchanged sentences
The total home mortgage loan portfolio totaled $509.5 million as of December 31, 2024.
−Removed: Our nonperforming single-family residential real estate loans, as of December 31, 2023, were $2.5 million.
+Added: There were no nonperforming single-family residential real estate loans as of December 31, 2024.
Consumer Loans .
24 unchanged sentences
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
−Removed: 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 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.
Day-to-day activities pertaining to the securities portfolio are conducted by the investment officer under the supervision of our Chief Executive Officer and Chief Financial Officer.
−Removed: We actively monitor our investments on an ongoing basis to identify any material changes in the securities.
+Added: monitor our investments on an ongoing basis to identify any material changes in the securities.
At lease quarterly we also review our securities for potential other-than-temporary impairment.
25 unchanged sentences
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
−Removed: 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 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.
35 unchanged sentences
Under the Coexistence Agreement, Open Bank S.A.
−Removed: retains the right to use and market its services in relation to its registered
−Removed: 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 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.
1 unchanged sentence
If Open Bank S.A.
−Removed: decides to become a licensed bank in California or in any of the other Permitted Markets, depending on its business and marketing plan, there could be confusion created by the use of the name “Open Bank” which could have a material adverse impact on our ability to build its brand in the Permitted Markets.
+Added: decides to become a licensed bank in California or in any of the other Permitted Markets,
+Added: depending on its business and marketing plan, there could be confusion created by the use of the name “Open Bank” which could have a material adverse impact on our ability to build its brand in the Permitted Markets.
In addition, if Open Bank, S.A.
were to assert that we breached the Coexistence Agreement, Open Bank, S.A.
−Removed: could file for an injunction, seek to have the Bank change its name or seek monetary damages, all of which could have a material adverse impact on our financial condition and results of operations.
+Added: could file for an injunction, seek to have the Bank change its name or seek monetary damages, any of which could have a material adverse impact on our financial condition and results of operations.
There are no approval rights of either party for any of the actions or no actions that either party may take under the Coexistence Agreement.
15 unchanged sentences
We developed these components to recruit, retain, and reward top talent and remain an employer of choice by employees.
+Added: We believe that our culture and values are among the attributes that our prospective employees find most attractive, and that these traits permeate throughout our organization and allow us to recruit talented individuals in ways that larger, less personalized financial institutions cannot.
As of December 31, 2024, we had 231 full-time equivalent employees, compared with 222 full-time equivalent employees as of December 31, 2023.
−Removed: Our executive team is comprised of three females and four males.
+Added: Our executive team is comprised of three females and five males.
We consider our relationship with our employees to be good and have not experienced interruptions of operations due to labor disagreements.
10 unchanged sentences
federal and state law.
−Removed: As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the California Department of Financial Protection and Innovation (the “DFPI”), the Federal Reserve, the FDIC and the Consumer Financial Protection Bureau (the “CFPB”).
−Removed: Furthermore, tax laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the FASB, securities laws administered by the SEC and state securities authorities, anti-money laundering laws enforced by the U.S.
−Removed: Department of the Treasury, or Treasury, and mortgage related rules, including with respect to loan securitization and servicing by the U.S.
−Removed: Department of Housing and Urban Development and agencies such as Fannie Mae and Freddie Mac, also impact our business.
−Removed: The effect of these statutes, regulations, regulatory policies and rules are significant to our financial condition and results of operations.
−Removed: Further, the nature and extent of future legislative, regulatory or other changes affecting financial institutions are impossible to predict with any certainty.
+Added: The effects of these laws and regulations affect our ability to make management decisions and to conduct our operations, and over recent years the volume, scope and complexity of these regulations have expanded substantially.
+Added: The combined application of these laws and regulations applies to virtually every aspect of our business, and to a substantial degree affects our relationships with clients, vendors, and affiliates as well.
+Added: Further, the cost of complying with these laws and regulations, and the potential penalties, liabilities or other consequences of failure to comply, has risen dramatically in recent years, and we do not expect that these costs or associated risks will be ameliorated in the foreseeable future.
+Added: As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by federal and state statutes and by the regulations and policies of various bank regulatory agencies.
Federal and state banking laws impose a comprehensive system of supervision, regulation and enforcement on the operations of banks, their holding companies and affiliates.
1 unchanged sentence
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.
+Added: With respect to the Company, we are regulated and examined by the California Department of Financial Protection and Innovation (“DFPI”), the Federal Reserve Bank of San Francisco.
+Added: Heritage Bank of Commerce files reports with and is examined by the FDIC, the DFPI, and the Consumer Financial Protection Bureau (“CFPB”).
+Added: In addition to banking and financial institutions laws and regulations, we are subject to a broad swath of other regulatory frameworks applicable to public companies generally, including federal and state tax laws, accounting rules developed by the Financial Accounting Standards Board (“FASB”), and federal and state securities laws.
+Added: These statutes, regulations, regulatory policies and rules are significant to the financial condition and results of operations of the Company and its subsidiaries, including the Bank.
+Added: This section offers a brief summary of the most significant aspects of applicable banking laws and regulations, but the implications and effects of these laws and regulations upon our business is far too extensive to be described completely, and readers should refer to the section of this Report entitled “Item 1A, Risk Factors,” for certain effects of these laws and regulations that may have a particular effect on our assets, results of operations and financial condition.
+Added: We have not attempted to summarize laws of general applicability, such as corporate, tax, securities and accounting regulations, or other laws, such as employment laws, that may also have a material impact upon our business.
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.
1 unchanged sentence
The regulatory agencies have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies.
+Added: Further, federal bank regulatory agencies have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver for financial institutions.
+Added: Failure to comply with applicable laws and regulations could subject us and our officers and directors to administrative sanctions and potentially substantial civil money penalties.
+Added: In addition, the appropriate federal bank regulatory agency may appoint the FDIC as conservator or receiver for a depository institution (or the FDIC may appoint itself, under certain circumstances) if any one or more of a number of circumstances exist, including, without limitation, the fact that the depository institution is undercapitalized and has no reasonable prospect of becoming adequately capitalized, fails to become adequately capitalized when required to do so, fails to submit a timely and acceptable capital restoration plan or materially fails to implement an accepted capital restoration plan.
+Added: The DFPI also has broad enforcement powers over us, including the power to impose orders, remove officers and directors, impose fines and appoint supervisors and conservators.
The following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and its subsidiary, the Bank.
−Removed: 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.
+Added: It does not describe all of the applicable statutes, regulations and regulatory
+Added: 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.
11 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: Tier 1 risk-based capital ratio is the ratio of the institution’s Tier 1 capital to its total risk-weighted assets.
+Added: The 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.
11 unchanged sentences
Higher or more sensitive risk weights are assigned to various categories of assets, among which are credit facilities that finance the acquisition, development or construction of real property, certain exposures or credits that are 90 days past due or are nonaccrual, foreign exposures, certain corporate exposures, securitization exposures, equity exposures and in certain cases mortgage servicing rights and deferred tax assets.
−Removed: Enforcement Powers of Federal and State Banking Agencies
−Removed: The federal bank regulatory agencies have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver for financial institutions.
−Removed: Failure to comply with applicable laws and regulations could subject us and our officers and directors to administrative sanctions and potentially substantial civil money penalties.
−Removed: In addition, the appropriate federal bank regulatory agency may appoint the FDIC as conservator or receiver for a depository institution (or the FDIC may appoint itself, under certain circumstances) if any one or more of a number of circumstances exist, including, without limitation, the fact that the depository institution is undercapitalized and has no reasonable prospect of becoming adequately capitalized, fails to become adequately capitalized when required to do so, fails to submit a timely and acceptable capital restoration plan or materially fails to implement an accepted capital restoration plan.
−Removed: The DFPI also has broad enforcement powers over us, including the power to impose orders, remove officers and directors, impose fines and appoint supervisors and conservators.
−Removed: As a bank holding company, the Company is subject to regulation, supervision and periodic examination by the Federal Reserve under the Bank Holding Company Act of 1956, as amended (the “BHCA”).
−Removed: The Company is required to file with the Federal Reserve periodic reports of its operations and such additional information as the Federal Reserve may require.
−Removed: In accordance with Federal Reserve laws and regulations, the Company is required to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances where the Company might not be in a financial position to do so.
−Removed: The Company is also a bank holding company within the meaning of Section 1280 of the California Financial Code.
−Removed: Consequently, the Company is subject to examination by, and may be required to file reports with, the DFPI.
−Removed: 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
−Removed: assets of a bank or bank holding company.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: In approving interstate acquisitions, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its insured depository institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.
−Removed: Furthermore, in accordance with the Dodd-Frank Act, bank holding companies must be well-capitalized and well-managed in order to complete interstate mergers or acquisitions.
−Removed: For a discussion of the capital requirements, see “ -Regulatory Capital Requirements” above.
−Removed: Federal law also prohibits any person or company from acquiring control of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator.
−Removed: The Federal Reserve adopted a tiered framework of presumptions where the level of voting share ownership is assessed in combination with relationship-based factors to determine whether control exists.
−Removed: “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.
−Removed: The FDIC and the U.S.
−Removed: 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.
−Removed: Under the California Financial Code, any proposed acquisition of control of the Bank must be approved by the Commissioner of the DFPI.
−Removed: The California Financial Code defines “control” as the power, directly or indirectly, to direct the Bank’s management or policies or to vote 25% or more of any class of the Bank’s outstanding voting securities.
−Removed: Additionally, a rebuttable presumption of control arises when any person (including a company) seeks to acquire, directly or indirectly, 10% or more of any class of the Bank’s outstanding voting securities.
+Added: As a bank holding company, we are subject to regulation, supervision and periodic examination by the Federal Reserve under the Bank Holding Company Act of 1956, as amended (the “BHCA”), and by the DFPI in accordance with the California Financial Code.
+Added: OP Bancorp is required to file with the Federal Reserve periodic reports of
+Added: its operations and such additional information as the Federal Reserve may require.
+Added: In accordance with Federal Reserve laws and regulations, the Company is required to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances where the Company might not otherwise do so.
Permitted Activities .
−Removed: The BHCA generally prohibits the Company from controlling or engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries.
−Removed: 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 development) and mortgage banking and brokerage.
−Removed: The BHCA generally does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies.
−Removed: 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.
−Removed: 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.
−Removed: These nonbanking activities include securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines, by regulation or order, is either financial in nature or incidental to any such financial activity or that the Federal Reserve determines, by order, to be complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Furthermore, if the Company became a financial holding company and the Federal Reserve subsequently determined that the Bank, as a financial holding company subsidiary, has not received a satisfactory CRA rating, the Company would not be able to commence any new financial activities or acquire a company that engages in such activities.
−Removed: Capital Requirements .
−Removed: Bank holding companies are required to maintain capital in accordance with Federal Reserve capital adequacy requirements, as affected by the Dodd-Frank Act and Basel III.
−Removed: For a discussion of capital requirements, see “Regulatory Capital Requirements” above.
+Added: The BHCA generally prohibits a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank or whose business is not “closely related to banking.” 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 a subsidiary's financial soundness, safety or stability.
Source of Strength Doctrine .
Federal Reserve policy historically required bank holding companies to act as a source of financial and managerial strength to their subsidiary banks.
−Removed: The Dodd-Frank Act codified this policy as a statutory requirement.
−Removed: The Company is required to act as a source of strength to the Bank and to commit capital and financial resources to support the Bank, including at times when the Company may not be in a financial position to provide it.
+Added: Dodd-Frank codified this policy as a statutory requirement.
+Added: The Company is required to act as a source of strength to the Bank and to commit capital and financial resources to support the Bank, including at times when the Company may not be in a financial position to do so.
The Company must stand ready to use its available resources to provide adequate capital to the Bank during periods of financial stress or adversity.
−Removed: The Company must also maintain the financial flexibility and capital raising capacity to obtain additional resources to assist the Bank.
+Added: The Company must also maintain the financial flexibility and capital raising capacity to obtain additional resources for assisting the Bank.
The Company’s failure to meet its source of strength obligations may constitute an unsafe and unsound practice, a violation of the Federal Reserve’s regulations, or both.
The source of strength doctrine most directly affects bank holding companies whose subsidiary bank fails to maintain adequate capital levels.
−Removed: In such situation, the subsidiary bank will be required by the bank’s federal regulator to take “prompt corrective action.” Any capital loans by a bank holding company to a subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such bank.
−Removed: In the event of the bank holding company’s bankruptcy, its commitment to a federal bank regulatory agency to maintain the capital of its subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.
−Removed: Safe and Sound Banking Practices .
−Removed: Bank holding companies and their non-banking subsidiaries are prohibited from engaging in activities that represent unsafe and unsound banking practices or that constitute a violation of law or regulations.
−Removed: Under certain conditions the Federal Reserve may conclude that certain actions of a bank holding company, such as a payment of a cash dividend, would constitute an unsafe and unsound banking practice.
−Removed: The Federal Reserve also has the authority to regulate the debt of bank holding companies, including the authority to impose interest rate ceilings and reserve requirements on such debt.
−Removed: Under certain circumstances the Federal Reserve may require a bank holding company to file written notice and obtain its approval prior to purchasing or redeeming its equity securities, unless certain conditions are met.
−Removed: Tie in Arrangements .
−Removed: 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 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: In such situation, the subsidiary bank will be required by the bank’s federal regulator to take “prompt corrective action.” Any capital loans by a bank holding company to its subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of the bank.
+Added: In the event of a bank holding company’s bankruptcy, its commitment to a federal bank regulatory agency to maintain the capital of its subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.
Dividend Payments, Stock Redemptions and Repurchases .
−Removed: The Company’s ability to pay dividends to its shareholders is affected by both general corporate law considerations and the policies of the Federal Reserve applicable to bank holding companies.
−Removed: It is the Federal Reserve’s policy that bank holding companies should generally pay dividends on common stock only out of income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition.
−Removed: It is also the Federal Reserve’s policy that bank holding companies should not maintain dividend levels that undermine their ability to be a source of strength to their banking subsidiaries.
−Removed: Additionally, in consideration of the current financial and economic environment, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong.
−Removed: The Federal Reserve possesses enforcement powers over bank holding companies and their nonbank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations.
−Removed: Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.
−Removed: In addition, under the Capital Rules, institutions that seek to pay dividends must maintain a capital conservation buffer of 2.5% in common equity Tier 1 capital.
−Removed: See “—Regulatory Capital Requirements” above.
−Removed: Bank holding companies must consult with the Federal Reserve before redeeming any equity or other capital instrument included in Tier 1 or Tier 2 capital prior to its stated maturity, if applicable, if such redemption could have a material effect on the level or composition of the organization’s capital base.
−Removed: Bank holding companies experiencing financial weaknesses, or that are at significant risk of developing financial weaknesses, must consult with and inform the Federal Reserve before redeeming or repurchasing common stock or other regulatory capital instruments.
−Removed: As a California corporation, the Company is subject to the limitations of California law, which allows a corporation to distribute cash or property to shareholders, including a dividend or repurchase or redemption of shares, if the corporation meets either a “retained earnings” test or a “balance sheet” test.
−Removed: Under the “retained earnings” test, the Company may make a distribution from retained earnings to the extent that its retained earnings exceed the sum of (a) the amount of the distribution plus (b) the amount, if any, of dividends in arrears on shares with preferential dividend rights.
−Removed: The Company may also make a distribution under the “balance sheet” test if, immediately after the distribution, the value of its assets equals or exceeds the sum of (a) its total liabilities plus (b) the liquidation preference of any shares which have a preference upon dissolution over the rights of shareholders receiving the distribution.
−Removed: Indebtedness is not considered a liability if the terms of such indebtedness provide that payment of principal and interest thereon are to be made only if, and to the extent that, a distribution to shareholders could be made under the balance sheet test.
−Removed: In addition, the Company may not make distributions if it is, or as a result of the distribution would be, likely to be unable to meet its liabilities (except those whose payment is otherwise adequately provided for) as they mature.
−Removed: A California corporation may specify in its articles of incorporation that distributions under the retained earnings test or balance sheet test can be made without regard to the preferential rights amount.
−Removed: The Company’s articles of incorporation do not address distributions under either the retained earnings test or the balance sheet test.
−Removed: The Bank is a California-chartered bank.
−Removed: The Bank’s deposit accounts are insured by the FDIC’s Deposit Insurance Fund (“DIF”) to the maximum extent provided under federal law and FDIC regulations.
−Removed: The Bank is not a member of the Federal Reserve System.
−Removed: As a California-chartered non-member bank, the Bank is subject to the examination, supervision and regulation by the DFPI, the chartering authority for California banks, and by the FDIC.
−Removed: Depositor Preference .
−Removed: In the event of the “liquidation or other resolution” of an insured depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution.
−Removed: If an insured depository institution fails, insured and uninsured depositors along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including the parent bank holding company, with respect to any extensions of credit they have made to such insured depository institution.
+Added: In addition to the requirements of the California Corporations Code, which imposes certain solvency tests and board-level approval requirements, the Federal Reserve may require a bank holding company to eliminate, defer or significantly reduce dividends to shareholders if:
+Added: (i) the bank holding company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends;
+Added: (ii) the prospective rate of earnings retention is inconsistent with the bank holding company’s capital needs and overall current and prospective financial condition;
+Added: or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
+Added: The Capital Rules also require that a holding company seeking to pay dividends must maintain 2.5% in common equity Tier 1 capital attributable to the capital conservation buffer.
+Added: See “Supervision and Regulation—Regulatory Capital Requirements,” above.
+Added: Acquisitions, Activities and Change in Control .
+Added: The BHCA and the California Financial Code also substantially govern an institution’s ability to grow by acquisition.
+Added: These regulations include extensive application filing and approval requirements as well as substantive regulation over the projected operations and financial performance of institutions proposing to merge or to be acquired.
+Added: These laws and regulations afford regulators, including the Federal Reserve, the FDIC and the DFPI with expansive authority and discretion and may affect the availability, timing and cost of initiatives that financial institutions might take as a means to effectuate strategic growth.
+Added: Regulation and Supervision of The Bank
+Added: The Bank is a California state-chartered commercial bank that is a member of the Federal Reserve System and whose deposits are insured by the FDIC.
+Added: The Bank is thus subject to regulation, supervision, and regular examination by the DFPI and the Federal Reserve as the Bank’s primary federal regulator.
+Added: The regulations of these agencies govern most aspects of a bank’s business.
+Added: The federal bank regulatory agencies have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver for financial institutions.
+Added: Failure to comply with applicable laws and regulations could subject us and our officers and directors to administrative sanctions and potentially substantial civil money penalties.
+Added: DFPI also has broad enforcement powers over us, including the power to impose orders, remove officers and directors, impose fines and appoint supervisors and conservators.
Brokered Deposit Restrictions .
−Removed: 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.
+Added: Well capitalized institutions are not subject to limitations on brokered deposits, while an adequately capitalized institutions is able to accept, renew or roll over brokered deposits only with a waiver from
+Added: 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.
−Removed: As of December 31, 2023, the Bank was eligible to accept brokered deposits without a waiver from FDIC.
+Added: As of December 31, 2024, the Bank was eligible to accept brokered deposits without limitations.
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 credit 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 and related persons 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.
+Added: We generally do not have banking relationships that approach these limitations.
+Added: Tie in Arrangements .
+Added: 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.
+Added: For example, the Bank may not extend credit, lease or sell property, furnish any services, fix or vary the consideration for any of the foregoing on the condition that:
+Added: (i) the client must obtain or provide some additional credit, property or services from or to the Bank other than a loan, discount, deposit or trust services;
+Added: (ii) the client must obtain or provide some additional credit, property or service from or to HCC or the Bank;
+Added: or (iii) the client must not obtain some other credit, property or services from competitors, except reasonable requirements to assure soundness of credit extended.
Deposit Insurance .
−Removed: As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC.
−Removed: The FDIC has adopted a risk-based assessment system whereby FDIC-insured depository institutions pay insurance premiums at rates based on their risk classification.
−Removed: An institution’s risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to the regulators.
−Removed: For deposit insurance assessment purposes, an insured depository institution is placed in one of four risk categories each quarter.
−Removed: An institution’s assessment is determined by multiplying its assessment rate by its assessment base.
−Removed: The total base assessment rates range from 1.5 basis points to 40 basis points.
−Removed: 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
−Removed: dividends to depository institutions when the reserve ratio exceeds certain thresholds.
−Removed: 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.
−Removed: 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, 2023, the Bank paid $1.1 million in aggregate FDIC deposit insurance premiums.
−Removed: Supervisory Assessments .
−Removed: California-chartered banks are required to pay supervisory assessments to the DFPI to fund its operations.
−Removed: The amount of the assessment paid by a California bank to the DFPI is calculated on the basis of the institution’s total assets, including consolidated subsidiaries, as reported to the DFPI.
−Removed: During the year ended December 31, 2023, the Bank paid supervisory assessments to the DFPI totaling $208 thousand.
−Removed: Capital Requirements .
−Removed: Banks are generally required to maintain capital levels in excess of other businesses.
−Removed: For a discussion of capital requirements, see “—Regulatory Capital Requirements” above.
+Added: The Bank is a member of the Deposit Insurance Fund (“DIF”) administered by the FDIC, which insures client deposit accounts.
+Added: The amount of federal deposit insurance coverage is $250,000 per depositor, for each account ownership category at each depository institution.
+Added: The $250,000 amount is subject to periodic adjustments.
+Added: In order to maintain the DIF, member institutions are assessed insurance premiums based on an insured institution’s average consolidated total assets less its average tangible equity capital.
+Added: Each institution is provided an assessment rate, which is generally based on the risk that the institution presents to the DIF.
+Added: Institutions with less than $10 billion in assets generally have an assessment rate that can range from 2.5 to 32 basis points per annum.
+Added: However, the FDIC has flexibility to adopt assessment rates without additional rule-making provided that the total base assessment rate increase or decrease does not exceed 2 basis points.
Dividend Payments .
−Removed: The primary source of funds for the Company is dividends from the Bank.
+Added: Heritage Commerce Corp has paid a quarterly dividend to our shareholders every quarter since 2013.
+Added: The primary source of funds for HCC is dividends from the Bank.
Under the California Financial Code, the Bank is permitted to pay a dividend in the following circumstances:
5 unchanged sentences
or (c) the net income for the Bank for its current fiscal year;
−Removed: and (iii) with the prior approval of the DFPI and the Bank’s shareholders (i.e., the Company) in connection with a reduction of its contributed capital.
−Removed: The payment of dividends by any financial institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized.
−Removed: In addition, in order to pay a dividend, the Capital Rules generally require that an institution maintains 2.5% in common equity Tier 1 capital.
−Removed: See “—Regulatory Capital Requirements” above.
−Removed: As described above, the Bank exceeded its minimum capital requirements under applicable regulatory guidelines as of December 31, 2023.
−Removed: Transactions with Affiliates .
−Removed: The Bank is subject to certain restrictions imposed by federal law on “covered transactions” between the Bank and its “affiliates.” The Company is an affiliate of the Bank for purposes of these restrictions.
−Removed: Covered transactions subject to the restrictions include extensions of credit to the Company, investments in the stock or other securities of the Company and the acceptance of the stock or other securities of the Company as collateral for loans made by the Bank.
−Removed: The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including by expanding the definition of “covered transactions” and increasing the amount of time for which collateral requirements regarding covered transactions must be maintained.
−Removed: Loans to Directors, Executive Officers and Principal Shareholders .
−Removed: 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.
−Removed: These statutes and regulations impose limits on the amount of loans the Bank may make to directors and other insiders and require that:
−Removed: (i) the loans must be made on substantially the same terms, including interest rates and collateral, as prevailing at the time for comparable transactions with persons not affiliated with the Company or the Bank;
−Removed: (ii) the Bank must follow credit underwriting procedures at least as stringent as those applicable to comparable transactions with persons who are not affiliated with the Company or the Bank;
−Removed: and (iii) the loans must not involve a greater than normal risk of non-payment or include other features not favorable to the Bank.
−Removed: Furthermore, the Bank must periodically report all loans made to directors and other insiders to the bank regulators.
−Removed: Safety and Soundness Standards/Risk Management .
−Removed: The federal banking agencies have adopted guidelines establishing operational and managerial standards to promote the safety and soundness of federally insured depository institutions.
−Removed: 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.
−Removed: 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.
−Removed: 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
−Removed: 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.
−Removed: 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.
−Removed: Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the financial institution’s rate of growth, require the financial institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances.
−Removed: Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments.
−Removed: During the past decade, the bank regulatory agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the financial institutions they supervise.
+Added: and (iii) with the prior approval of the DFPI and the Bank’s shareholders (i.e., HCC) in connection with a reduction of its contributed capital.
+Added: Risk Management .
+Added: Bank regulatory agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the financial institutions they supervise.
Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more important as new technologies, product innovation, and the size and speed of financial transactions have changed the nature of banking markets.
6 unchanged sentences
and comprehensive internal controls.
−Removed: Financial institutions also must comply with rules designed to improve information-sharing about cyber incidents that may affect the U.S.
−Removed: banking system.
−Removed: 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.
−Removed: 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.
−Removed: We do not anticipate this rule to have a material impact on the operations of HCC and HBC at this time.
−Removed: 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.
−Removed: As a smaller reporting company, we are not required to comply with the Form 8-K disclosure requirements until June 15, 2024;
−Removed: however, we anticipate that we would disclose any material cybersecurity incident promptly after its discovery.
−Removed: 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.
−Removed: This Report describes those risks herein and in the sections below entitled “Item 1A.
−Removed: Risk Factors” and “Item 1C.
−Removed: Cybersecurity.”
−Removed: State regulators also have been increasingly focused on privacy and cybersecurity standards and regulations.
−Removed: 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.
−Removed: Many such states (including California) have also recently implemented or modified their data breach notification and data privacy requirements.
−Removed: 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.
−Removed: Branching Authority .
−Removed: California law permits California banks, such as the Bank, to establish an additional banking office with notice to the DFPI.
−Removed: Deposit-taking banking offices must also be approved by the FDIC, which considers a number of factors, including financial history, capital adequacy, earnings prospects, character of management, needs of the community and consistency with corporate power.
−Removed: The Dodd-Frank Act permits insured state banks to engage in interstate branching if the laws of the state where the new banking office is to be established would permit the establishment of the banking office if it were chartered by a bank in such state.
−Removed: Finally, we may also establish banking offices in other states by merging with banks or by purchasing banking offices of other banks in other states, subject to certain restrictions.
−Removed: Community Reinvestment Act .
−Removed: The CRA is intended to encourage insured depository institutions, while operating safely and soundly, to help meet the credit needs of their communities.
−Removed: The CRA specifically directs the federal bank regulatory agencies, in examining insured depository institutions, to assess their record of helping to meet the credit needs of their entire community, including low and moderate income neighborhoods, consistent with safe and sound banking practices.
−Removed: The CRA further requires the agencies to take a financial institution’s record of meeting its community credit needs into account when evaluating applications for, among other things, domestic branches, consummating mergers or acquisitions or holding company formations.
−Removed: The federal banking agencies have adopted regulations which measure a bank’s compliance with its CRA obligations on a performance based evaluation system.
−Removed: 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.
−Removed: 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 October 2023, the FDIC and other federal banking regulators adopted final rules that significantly expand the Bank’s responsibilities under the CRA.
−Removed: The revised rules increase the emphasis on the Bank’s lending in low- to moderate-income areas, including support for small businesses.
−Removed: 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.
−Removed: 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 .
We are subject to federal laws aiming to counter money laundering and terrorist financing, as well as transactions with persons, companies and foreign governments sanctioned by the United States.
−Removed: These laws include, among others, the USA PATRIOT Act, the Bank Secrecy Act (“BSA”), and the Anti-Money Laundering Act (“AMLA”).
−Removed: These laws prohibit financial institutions from entering into specified financial transactions and account relationships and require them to use enhanced due diligence procedures in their dealings with certain types of high risk customers and implement a written customer identification program.
−Removed: Financial institutions must take certain steps to assist government agencies in detecting and preventing money laundering and report certain types of suspicious transactions.
−Removed: Regulatory authorities routinely examine financial institutions for compliance with these obligations, and failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.
+Added: These laws and regulations are intended to detect, identify, track and prevent money-laundering, money transfers to prohibited nations and entities, and certain types of financial crimes.
+Added: These laws and regulations impose strict reporting and compliance obligations on financial institutions, and violations can carry substantial fines, civil money penalties and other sanctions, as well as restrictions on an institution’s business.
+Added: Regulatory authorities routinely examine financial institutions for compliance with these obligations, and failure of a financial institution to
+Added: maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.
Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.
−Removed: A comprehensive reform and modernization to U.S.
−Removed: bank secrecy and anti-money laundering laws was adopted in January 2021.
−Removed: 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.
−Removed: Adopted as part of the 2021 reform, the Corporate Transparency Act (the “CTA”) requires the creation of a national registry of beneficial ownership information.
−Removed: When the final CTA rules go into effect in 2024, they may impact the AMLA/BSA procedures and reporting requirements of financial institutions.
−Removed: The Bank has established policies and procedures that it believes comply with these requirements.
−Removed: Treasury’s Office of Foreign Assets Control (“OFAC”) administers and enforces economic and trade sanctions against targeted foreign countries and regimes under authority of various laws, including designated foreign countries, nationals and others.
−Removed: OFAC publishes lists of specially designated targets and countries.
−Removed: Financial institutions are responsible for, among other things, blocking accounts of and transactions with such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence.
−Removed: Failure of a financial institution to maintain and implement adequate anti-money laundering and OFAC programs, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution.
−Removed: The Bank has in place policies and procedures that are believed to comply with these laws.
Concentrations in Commercial Real Estate .
−Removed: 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 ("CRE") is one area of regulatory concern.
−Removed: The CRE Concentration Guidance provides supervisory criteria, including the following numerical indicators, to assist bank
−Removed: examiners in identifying banks with potentially significant CRE loan concentrations that may warrant greater supervisory scrutiny:
+Added: 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 the financial institution’s health.
+Added: Concentration stemming from CRE is one area of regulatory concern.
+Added: Regulatory guidance provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant CRE loan concentrations that may warrant greater supervisory scrutiny:
(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 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.
−Removed: 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.
−Removed: The Bank continues to further enhance the monitoring and review process of the real estate loan portfolio.
−Removed: Consumer Financial Services .
−Removed: We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our customers.
−Removed: 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 practices.
−Removed: 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.
−Removed: 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.
−Removed: The CFPB has significant authority to implement and enforce federal consumer protection laws and new requirements for financial services products provided for in the Dodd-Frank Act, as well as the authority to identify and prohibit UDAAP.
−Removed: The review of products and practices to prevent UDAAP is a continuing focus of the CFPB, and of banking regulators more broadly.
−Removed: The ultimate impact of this heightened scrutiny is uncertain but could result in changes to pricing, practices, products and procedures.
−Removed: It could also result in increased costs related to regulatory oversight, supervision and examination, additional remediation efforts and possible penalties.
−Removed: In addition, the Dodd-Frank Act provides the CFPB with broad supervisory, examination and enforcement authority over various consumer financial products and services, including the ability to require reimbursements and other payments to customers for alleged legal violations and to impose significant penalties, as well as injunctive relief that prohibits lenders from engaging in allegedly unlawful practices.
−Removed: The CFPB also has the authority to obtain cease and desist orders providing for affirmative relief or monetary penalties.
−Removed: The CFPB has examination and enforcement authority over financial institutions with more than $10 billion in total consolidated assets.
−Removed: Banks and savings institutions with $10 billion or less in total consolidated assets, like the Bank, will continue to be examined by their applicable federal bank regulators.
−Removed: The Dodd-Frank Act does not prevent states from adopting stricter consumer protection standards.
−Removed: Many states and local jurisdictions have consumer protection laws analogous, and in addition, to those listed above.
−Removed: State regulation of financial products and potential enforcement actions could also adversely affect our business, financial condition and results of operations.
−Removed: For example, on January 1, 2021, the DFPI was given broad jurisdiction and sweeping new authorities that closely resemble those of the CFPB.
−Removed: The DFPI stated that it intends to exercise its powers to protect consumers from unlawful, unfair, deceptive, and abusive practices in connection with consumer financial products or services.
−Removed: The DFPI also as a matter of state law can now enforce the Dodd-Frank Act’s UDAAP provisions against any person offering or providing consumer financial products in the state of California.
−Removed: Going forward, financial institutions in California are likely to be faced with a powerful state financial services regulatory regime with expansive enforcement authority, and it is unclear how the DFPI and its enforcement activities will affect the Bank in the future.
−Removed: Violations of applicable consumer protection laws can result in significant potential liability from litigation brought by customers, including actual and statutory damages, restitution and attorneys’ fees.
−Removed: Federal bank regulators, state and local attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain additional remedies, including regulatory sanctions, customer rescission rights, and civil money penalties.
−Removed: Non-compliance with consumer protection requirements may also result in failure to obtain any required bank regulatory approval for merger or acquisition transactions we may wish to pursue or prohibition from engaging in such transactions even if approval is not required.
−Removed: Mortgage and Mortgage-Related Products .
−Removed: 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
−Removed: augmented federal law combating predatory lending practices.
−Removed: 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.
−Removed: The risk retention requirement generally is 5%, but could be increased or decreased by regulation.
−Removed: The Bank does not currently expect the CFPB’s rules to have a significant impact on its operations, except for higher compliance costs.
−Removed: Home Mortgage Servicing .
−Removed: Pursuant to the Dodd-Frank Act, the CFPB has implemented certain provisions of the Dodd-Frank Act relating to mortgage servicing through rulemaking.
−Removed: The servicing rules require servicers to meet certain benchmarks for loan servicing and customer service in general.
−Removed: 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.
−Removed: Servicers also are required to take additional steps before purchasing insurance to protect the lender’s interest in the property.
−Removed: The servicing rules call for additional notice, review and timing requirements with respect to delinquent borrowers, including early intervention, ongoing access to servicer personnel and specific loss mitigation and foreclosure procedures.
−Removed: The rules provide for an exemption from most of these requirements for “small servicers” that service 5,000 or fewer mortgage loans which they or an affiliate originated or own.
−Removed: Incentive Compensation Guidance .
−Removed: 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.
−Removed: 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.
−Removed: The incentive compensation guidance sets expectations for banking organizations concerning their incentive compensation arrangements and related risk-management, control and governance processes.
−Removed: The incentive compensation guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon three primary principles:
−Removed: (i) balanced risk-taking incentives;
−Removed: (ii) compatibility with effective controls and risk management;
−Removed: and (iii) strong corporate governance.
−Removed: Any deficiencies in compensation practices that are identified may be incorporated into the organization’s supervisory ratings, which can affect its ability to make acquisitions or take other actions.
−Removed: In addition, under the incentive compensation guidance, a banking organization’s federal supervisor may initiate enforcement action if the organization’s incentive compensation arrangements pose a risk to the safety and soundness of the organization.
−Removed: Further, the Capital Rules limit discretionary bonus payments to bank executives if the institution’s regulatory capital ratios fail to exceed certain thresholds.
−Removed: The scope and content of the U.S.
−Removed: banking regulators’ policies on executive compensation are continuing to develop and may continue evolving in the near future.
−Removed: 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.
−Removed: Smaller reporting companies are subject to scaled reporting mechanism, and certain companies are exempt from the regulations.
−Removed: 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.
−Removed: 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.
−Removed: The rules apply to compensation paid in the three years leading up to restatement.
−Removed: 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.
−Removed: Financial Privacy .
−Removed: The federal bank regulatory agencies have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties.
−Removed: These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party.
−Removed: 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
−Removed: applications.
−Removed: 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.
−Removed: The CFPB has recently announced its intention to embark on rulemaking about how much control consumers have over their financial data.
−Removed: California is also enacting legislation relating to data privacy and data protection, such as the California Consumer Privacy Act (the “CCPA”).
−Removed: 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 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.
+Added: The 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: As of December 31, 2024, using regulatory definitions in the CRE Concentration Guidance, our CRE loans represented 311% of the Bank total risk-based capital, as compared to 306% as of December 31, 2023.
+Added: If the regulatory agencies become concerned about our CRE loan concentrations, they could limit our ability to grow by restricting approvals for the establishment or acquisition of branches, or approvals of mergers or other acquisition opportunities.
+Added: Readers also should note that in addition to the formal concentration guidance, a substantial portion of our business activities, operations and assets are located in or heavily dependent upon the Los Angeles, California, metropolitan area, which suffered an unprecedented series of wildfires in January 2025 that heavily damaged certain parts of the area and that can be expected to have a significant impact upon our customer base and on the collateral values protecting certain of our loans.
+Added: This area is subject to a wide variety of other natural disasters, including earthquakes and flooding, as well as being the home of various potential geopolitical targets that may give rise to an elevated risk of civil unrest or terrorist activity.
+Added: Accordingly, we are subject to geographic concentration risks that are described in greater detail in “Item 1A, Risk Factors.”
+Added: Consumer Protection .
+Added: We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our clients.
+Added: These laws include, among others, 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 Service Members Civil Relief Act, the Military Lending Act, and these laws’ respective state law counterparts, as well as state usury laws and laws regarding unfair, deceptive or abusive acts and practices (“UDAAP”).
+Added: 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 UDAAP practices, restrict our ability to raise interest rates and subject us to substantial regulatory oversight.
+Added: Many states and local jurisdictions have consumer protection laws analogous to those listed above.
+Added: Violations of applicable consumer protection laws can result in significant potential liability from litigation brought by clients, including actual and statutory damages, restitution and attorneys’ fees.
+Added: Federal bank regulators, state attorneys general, and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, client rescission rights, and civil money penalties.
+Added: Non-compliance with consumer protection requirements may also result in our failure to obtain any required bank regulatory approval for merger or acquisition transactions we may wish to pursue or prohibition from engaging in such transactions even if approval is not required.
Cybersecurity .
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The management of a financial institution is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of operations in the event of a cyber-attack.
−Removed: A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to a cyber-attack.
+Added: A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to
+Added: a cyber-attack.
If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.