What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-11 compared with 2020-03-09 · 423 added, 292 removed, 1108 unchanged (39% of the section changed)

37 unchanged sentences

Securities available-for-sale, at fair value 120,527 97,566

Securities held-to-maturity, at amortized cost (fair value of $20,480 and $21,152 at December 31, 2019 and 2018, respectively)

Securities held-to-maturity, at amortized cost (fair value of $ 20,480 at December 31, 2019)

Total investment securities 120,527 117,720

5 unchanged sentences

Federal Home Loan Bank and other restricted stock, at cost 8,447 8,345

Other real estate owned, net 1,401 —

Deferred tax assets, net 8,120 5,288

1 unchanged sentence

Operating lease assets 7,616 8,991

Accrued interest receivable and other assets

Accrued interest receivable 9,334 5,136

Other assets 3,815 5,636

Total assets $ 1,922,853 $ 1,746,328

Liabilities and Shareholders’ Equity

12 unchanged sentences

issued and outstanding 15,385,878 and 15,707,016 shares, respectively, and included 30,300 and 37,400 shares of unvested restricted stock, respectively, at December 31, 2020 and 2019

164,140 169,221

Retained earnings 67,692 57,670

Accumulated other comprehensive loss, net

Accumulated other comprehensive income (loss), net 1,956 ( 57 )

Total shareholders’ equity 233,788 226,834

5 unchanged sentences

Year Ended December 31,

Interest income:

Interest and fees on loans

Interest on tax-exempt investment securities

Interest on investment securities

Interest and dividends on other interest-earning assets

2020 2019 2018

Interest and dividend income:

Loans, including fees $ 76,546 $ 85,667 $ 76,837

Tax-exempt investment securities 150 154 159

Taxable investment securities 1,977 3,802 3,565

Other interest-earning assets 1,088 3,322 3,138

Total interest income 79,761 92,945 83,699

Interest expense:

Interest on deposits

Interest on borrowings

Deposits 12,958 23,439 17,340

Other borrowings 614 472 611

Total interest expense 13,572 23,911 17,951

7 unchanged sentences

Gain on sale of securities available-for-sale — 786 —

Other income 1,247 1,234 1,234

Total noninterest income 11,740 11,869 10,454

11 unchanged sentences

Income tax expense 6,836 10,243 10,444

Net income $ 16,175 $ 24,108 $ 24,301

Earnings per common share, basic $ 1.05 $ 1.52 $ 1.69

7 unchanged sentences

Year Ended December 31,

2020 2019 2018

Net income $ 16,175 $ 24,108 $ 24,301

Other comprehensive income (loss):

1 unchanged sentence

Reclassification adjustment for net gain included in net income — ( 786 ) —

Unrealized gain arising from the reclassification of securities held-to-maturity to securities available-for-sale 787 — —

Income tax benefit (expense) related to items of other comprehensive income (loss) ( 838 ) ( 662 ) 171

1 unchanged sentence

Total comprehensive income

$ 18,188 $ 25,698 $ 23,877

See Accompanying Notes to Consolidated Financial Statements

3 unchanged sentences

Shareholders’ Equity

Common Stock Outstanding Shares

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Common Stock Outstanding Shares Common stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total

Balance at January 1, 2018 13,417,899 $ 128,371 $ 15,036 $ ( 1,223 ) $ 142,184

Comprehensive income (loss)

Net income — — 24,301 — 24,301

Other comprehensive loss, net of tax — — — ( 424 ) ( 424 )

Stock issued under stock offering, net of expenses 2,508,234 45,037 — — 45,037

Share-based compensation expense — 648 — — 648

Stock options exercised 51,621 310 — — 310

Retirement of fractional shares

Cash dividends declared on common stock ($ 0.12 per share)

Reclassification of disproportionate tax effect

— — ( 1,760 ) — ( 1,760 )

Balance at December 31, 2018 15,977,754 174,366 37,577 ( 1,647 ) 210,296

Comprehensive income (loss)

Other comprehensive loss, net of tax

Stock issued under stock offering, net of expenses

Cumulative effect adjustment upon adoption of new lease accounting standard — — ( 53 ) — ( 53 )

Adjusted balance at December 31, 2018 15,977,754 174,366 37,524 ( 1,647 ) 210,243

Comprehensive income

Net income — — 24,108 — 24,108

Other comprehensive income, net of tax — — — 1,590 1,590

Issuance of restricted stock 37,700 — — — —

Repurchase of common stock ( 396,715 ) ( 6,480 ) — — ( 6,480 )

Share-based compensation expense — 709 — — 709

1 unchanged sentence

Cash dividends declared on common stock ($ 0.25 per share)

— — ( 3,962 ) — ( 3,962 )

Balance at December 31, 2019 15,707,016 169,221 57,670 ( 57 ) 226,834

Cumulative effect adjustment upon adoption of new lease accounting standard

Adjusted balance at December 31, 2018

Comprehensive income

Net income — — 16,175 — 16,175

Other comprehensive income, net of tax — — — 2,013 2,013

Issuance of restricted stock 1,900 — — — —

Restricted stock surrendered due to employee tax liability ( 165 ) ( 2 ) — — ( 2 )

Repurchase of common stock ( 428,474 ) ( 6,487 ) — — ( 6,487 )

2 unchanged sentences

Cash dividends declared on common stock ($ 0.40 per share)

— — ( 6,153 ) — ( 6,153 )

Balance at December 31, 2020 15,385,878 $ 164,140 $ 67,692 $ 1,956 $ 233,788

4 unchanged sentences

Year Ended December 31,

2020 2019 2018

Cash flows from operating activities

Net income $ 16,175 $ 24,108 $ 24,301

Adjustments to reconcile net income to net cash provided by operating activities:

44 unchanged sentences

Year Ended December 31,

2020 2019 2018

Supplemental disclosures of cash flow information:

5 unchanged sentences

Right-of-use assets obtained in exchange for lease obligations 950 1,616 —

Reclassification of securities held-to-maturity to securities available-for-sale 18,777 — —

See Accompanying Notes to Consolidated Financial Statements

4 unchanged sentences

PCB Bancorp is a bank holding company whose subsidiary is Pacific City Bank.

On July 1, 2019, the Company changed its corporate name to “PCB Bancorp” from “Pacific City Financial Corporation.” The Bank is a single operating segment that operates 11 full-service branches in Los Angeles and Orange counties, California, one full-service branch in each of Englewood Cliffs, New Jersey and Bayside, New York, and 10 LPOs in Irvine, Artesia and Los Angeles, California;

On July 1, 2019, the Company changed its corporate name to “PCB Bancorp” from “Pacific City Financial Corporation.” The Bank is a single operating segment that operates 11 full-service branches in Los Angeles and Orange counties, California, one full-service branch in each of Englewood Cliffs, New Jersey and Bayside, New York, and nine LPOs in Irvine, Artesia and Los Angeles, California;

Annandale, Virginia;

Chicago, Illinois;

Atlanta, Georgia;

Bellevue, Washington;

18 unchanged sentences

Cash and cash equivalents include cash on hand, cash items in transit, cash due from the Federal Reserve Bank and other financial institutions, and federal funds sold with original maturities less than 90 days.

Banking regulations require that banks maintain a percentage of their deposits as reserves in cash or on deposit with the Federal Reserve Bank.

The reserve and clearing requirement balance was $0 at December 31, 2019 and 2018 .

In response to the COVID-19 pandemic, on March 26, 2020, the Federal Reserve reduced reserve requirement ratios to 0%, eliminating the reserve requirement for all depository institutions, an action that provides liquidity in the banking system to support lending to households and businesses.

The reserve and clearing requirement balance was $ 0 at December 31, 2019.

Investment Securities

3 unchanged sentences

Securities held-to-maturity are carried at amortized cost and securities available-for-sale are carried at fair value with unrealized gains and losses, net of taxes, recorded in other comprehensive income.

On June 30, 2020, the Company transferred securities held-to-maturity to securities available-for-sale as a part of the Company’s liquidity management plan in response to the COVID-19 pandemic.

Management determined that its securities held-to-maturity no longer adhere to the Company’s current liquidity management plan and could be sold to potentially improve liquidity position.

Accordingly, the Company was no longer able to assert that it had the intent to hold these securities until maturity and the Company’s ability to assert that it has the intent and ability to hold to maturity debt securities will be limited for up to two years from the date of transfer.

The Company transferred all securities held-to-maturity of $ 18.8 million to securities available-for-sale, which resulted in a pre-tax increase to accumulated other comprehensive income of $ 787 thousand.

Gains and losses on sales of securities are determined using the specific identification method.

1 unchanged sentence

Amortization of premiums and accretion of discounts are included in interest income using the effective interest method.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

Management evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer.

41 unchanged sentences

• Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loan Modifications Related to the COVID-19 Pandemic :

As a part of the CARES Act, the temporal relief from TDRs provided an option for financial institutions to suspend the GAAP requirements and regulatory determinations for loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a TDR from March 1, 2020, through the earlier of 60 days after the date of the COVID-19 National Emergency comes to an end or December 31, 2020.

On April 7, 2020, the federal banking regulators also issued the Interagency Statement to encourage banks to work prudently with borrowers and describe the banking regulators’ interpretation of how accounting rules for TDR apply to certain modifications related to the COVID-19 pandemic.

On December 27, 2020, the Economic Aid Act was signed into law, which extended the applicable period of the temporary relief from TDRs under the CARES Act to the earlier of 60 days after the date of the COVID-19 National Emergency comes to an end or January 1, 2022.

As of December 31, 2020, the Company’s loans under modified terms related to the COVID-19 pandemic, including payment deferments and interest only payments, totaled $ 36.1 million.

All of these loans under modified terms related to the COVID-19 pandemic were accounted for under section 4013 of the CARES Act and not considered TDRs.

All types of modifications have initial modification terms of 6 -months or less and loans that are granted modifications related to the COVID-19 pandemic in excess of 6 months, on a cumulative basis, are classified as special mention or substandard.

In addition, all loans under modified terms related to the COVID-19 pandemic were current and accrual status as of December 31, 2020;

however, all of these loans are monitored on an ongoing basis in accordance with each loan’s covenants and conditions for potential downgrade or change in accrual status.

Small Business Administration Paycheck Protection Program :

SBA launched the PPP to provide a direct incentive for small businesses to keep their workers on the payroll in response to the COVID-19 pandemic.

The SBA guarantees 100% of the PPP loans made to eligible borrowers, and the loans are eligible to be forgiven if certain conditions are met, at which point the SBA will make payments to the Bank for the forgiven amounts.

These loans are included in the C&I portfolio and have an interest rate of 1%.

The substantial majority of the PPP loans in our portfolio have a maturity of two years .

As of December 31, 2020, the Company had 1,585 SBA PPP loans totaling $ 135.7 million, net of unamortized deferred fees and costs.

The Company deferred loan origination fees of $ 5.7 million and direct origination costs of $ 1.1 million on SBA PPP loans.

The Company amortizes these deferred fees and costs without prepayment assumption using the contractual lives of SBA PPP loans.

The SBA guarantee on PPP loans cannot be separated from the loan and therefore is not a separate unit of account.

The Company considered the SBA guarantee in the allowance for loan losses evaluation and determined that it is not required to reserve an allowance on SBA PPP loans at December 31, 2020.

Allowance for Loan Losses

34 unchanged sentences

Expenditures for betterments or major repairs are capitalized and those for ordinary repairs and maintenance are charged to operations as part of occupancy and equipment expense as incurred.

Operating Leases

The Company’s operating leases are for its headquarters office spaces, and retail branch and LPO locations.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years.

The exercise of lease renewal option is at the Company’s sole discretion.

Certain leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expenses for these leases are recognized on a straight-line basis over the lease term.

None of the Company’s lease agreements contain any material residual value guarantees or material restrictive covenants.

The Company also leases certain equipment, such as copy machines and scanners, but they are determined to be immaterial.

Federal Home Loan Bank and Other Restricted Stock

48 unchanged sentences

Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

3 unchanged sentences

Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Interest and penalties related to uncertain tax positions are recorded as part of income tax expense.

Interest and penalties related to unrecognized tax benefits are recorded as part of income tax expense.

A valuation allowance is established to reduce the deferred tax asset to the level at which it is more likely than not that the tax benefits will be realized.

Realization of tax benefits of deductible temporary differences and carry-forwards depends on having sufficient taxable income of an appropriate character and in the appropriate periods.

The Company has adopted FASB ASC 740-10, Income Taxes - Overall that clarifies the accounting for uncertainty in tax positions taken or expected to be taken on a tax return and provides that the tax effects from an uncertain tax position can be recognized in the consolidated financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by taxing authorities.

Interest and penalties related to uncertain tax positions are recorded as part of income tax expense.

The Company elected to early adopt FASB Accounting Standard Update (“ASU”) 2018-02, Income Statement - Reporting Comprehensive Income as of and for the year ended December 31, 2017, which allows entities to reclassify the stranded tax effects as a result of applying the Tax Cuts and Jobs Act from accumulated other comprehensive income (loss) to retained earnings.

As a result of the adoption, the Company recorded a decrease in accumulated other comprehensive income of $242 thousand and an increase in retained earnings for the same amount to eliminate the stranded tax effects at that date from the reduction in the federal statutory tax rate that was enacted in December 22, 2017 and became effective January 1, 2018.

Realization of tax benefits of deductible temporary differences and carryforwards depends on having sufficient taxable income of an appropriate character and in the appropriate periods.

Commitments and Contingencies

1 unchanged sentence

Such financial instruments are recorded in the consolidated financial statements when they are funded or related fees are incurred or received.

Revenue Recognition

Topic 606, “Revenue from Contracts with Customers,” does not apply to revenue associated with financial instruments, including revenue from loans and securities.

In addition, certain noninterest income streams such as gain or loss associated with mortgage servicing assets and financial guarantees are also not within the scope.

Topic 606 is applicable to noninterest income such as deposit related fees, interchange fees, and merchant related income.

Noninterest income considered to be within the scope of Topic 606 is discussed below.

Service charges and fees on deposits :

Deposit account service charges consist of monthly service fees, account analysis fees, non-sufficient funds (“NSF”) charges and other deposit related fees.

The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided.

NSF charges, and other deposit account service charges are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time as incurred.

Debit card fees :

When customers use their debit cards to pay merchants for goods or services, the Company retains a fee from the funds collected from the related deposit account and transfers the remaining funds to the payment network for remittance to the merchant.

The performance obligation to the merchant is satisfied and the fee is recognized at the point in time when the funds are collected and transferred to the payment network.

Gain (loss) on sale of other real estate owned :

The Company’s performance obligation for sale of OREO is the transfer of title and ownership rights of the OREO to the buyer, which occurs at the settlement date when the sale proceeds are received and income is recognized.

Wire transfer fees and other service charges :

Wire transfer fees and other service charges are transaction based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time as incurred.

Fair Value Measurement

9 unchanged sentences

Adopted Accounting Pronouncements

During the year ended December 31, 2019 , the following accounting pronouncements applicable to the Company were adopted:

In February 2016, the FASB issued Accounting Standard Update (“ASU”) 2016-02, “Leases (Topic 842).” In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases,” and ASU 2018-11, “Leases Topic 842, Targeted Improvements,” to provide additional clarification, implementation, and transition guidance on certain aspects of ASU 2016-02.

The amendments in ASU 2016-02 require lessees to recognize lease assets and lease liabilities for both leases classified as operating leases and finance leases, except leases with a term of 12 months or less where lessees are permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities.

For leases with a term of greater than 12 months, lessees are required to recognize a liability to make lease payments and a right-of-use assets representing its right to use the underlying asset for the lease term measured at the present value of the lease payments.

ASU 2016-02 and ASU 2018-10 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for a public business entity.

Under ASU 2018-11, an additional transition option was provided that would allow entities to not apply the new guidance in the comparative periods they present in their financial statements in the year of adoption.

Under this optional transition method, entities will be allowed to continue using and presenting leases under Accounting Standard Codification (“ASC”) 840 for prior years’ comparative periods and then prospectively adopt ASC 842 on January 1, 2019, recognizing a cumulative-effect adjustment to the opening balance of retained earnings.

The Company adopted this guidance in the first quarter of 2019 using the optional transition method with a cumulative effect adjustment to retained earnings without restating prior period financial statements for comparable amounts.

The Company elected the package of practical expedients permitted under the transition guidance within this ASU, which allowed the Company to carry forward the historical lease classification.

The Company completed its review of its existing lease contracts and service contracts that may include embedded leases, and updated processes and internal controls for leasing activities.

The Company recognized right-of-use lease assets and liabilities of $9.6 million and $10.6 million , respectively, with a cumulative effect adjustment of $53 thousand to retained earnings at the date of adoption.

Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements other than the recognition of right-of-use lease assets and liabilities.

See Note 6 for additional information.

In March 2017, the FASB issued ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20):

Premium Amortization on Purchased Callable Debt Securities.” The amendments in this ASU shorten the amortization period for certain callable debt securities acquired at a premium.

Specifically, the amendments require the premium to be amortized to the earliest call date.

The amendments do not require an accounting change for securities held at a discount, which continue to be amortized to maturity.

Public business entities must prospectively apply the amendments in this ASU to annual periods beginning after December 15, 2018, including interim periods.

Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

During the year ended December 31, 2020, there were no significant accounting pronouncements applicable to the Company that became effective.

Recent Accounting Pronouncements Not Yet Adopted

5 unchanged sentences

In 2019, the FASB amended this ASU, which delays the effective date to 2023 for certain SEC filers that are Smaller Reporting Companies, which would apply to the Company.

The Company plans to adopt this ASU at the delayed effective date of 2023.

The Company plans to adopt this ASU at the delayed effective date of January 1, 2023.

Fair Value Measurements

45 unchanged sentences

Fair Value Measurement Level

($ in thousands)

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Unobservable Inputs

($ in thousands) Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

(Level 3) Total

December 31, 2020

8 unchanged sentences

Total assets measured at fair value on a recurring basis

$ — $ 120,527 $ — $ 120,527

Total liabilities measured at fair value on a recurring basis

$ — $ — $ — $ —

December 31, 2019

8 unchanged sentences

Total assets measured at fair value on a recurring basis

$ — $ 97,566 $ — $ 97,566

Total liabilities measured at fair value on a recurring basis

$ — $ — $ — $ —

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

1 unchanged sentence

Fair Value Measurement Level

($ in thousands)

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Unobservable Inputs

($ in thousands) Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

(Level 3) Total

December 31, 2020

Impaired loans:

SBA property $ — $ — $ 218 $ 218

Commercial lines of credit — — 904 904

SBA commercial term — — 255 255

Total impaired loans — — 1,377 1,377

1 unchanged sentence

Total liabilities measured at fair value on a non-recurring basis

$ — $ — $ — $ —

December 31, 2019

Impaired loans:

SBA property $ — $ — $ 116 $ 116

Commercial lines of credit — — 1,562 1,562

Total impaired loans — — 1,678 1,678

1 unchanged sentence

Total liabilities measured at fair value on a non-recurring basis

$ — $ — $ — $ —

The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value on a non-recurring basis as of the dates indicated:

($ in thousands)

Valuation Technique(s)

Unobservable Input(s)

Range (Weighted-Average)

($ in thousands) Fair Value Valuation Technique(s) Unobservable Input(s) Range (Weighted-Average)

December 31, 2020

Impaired loans:

Fair value of collateral

Commercial lines of credit

Sales comparison approach

Adjustment for differences between the comparable estate sales

-4% to 26% (0.86%)

Income approach

Adjustment for differences in net operating income expectations

-4% to -11% (-6.20%)

Capitalization rate

SBA property $ 218 Fair value of collateral NM NM

Commercial lines of credit $ 904 Sales comparison approach Adjustment for differences between the comparable estate sales 5% to 9% (7.6%)

SBA commercial term $ 255 Fair value of collateral NM NM

December 31, 2019

Impaired loans:

Fair value of collateral

SBA property $ 116 Fair value of collateral NM NM

Commercial lines of credit $ 1,562 Sales comparison approach Adjustment for differences between the comparable estate sales -4% to 26% (0.86%)

Income approach Adjustment for differences in net operating income expectations -11% to -4% (-6.20%)

Capitalization rate 5%

For assets measured at fair value, the following table presents the total net losses, which include charge-offs, recoveries, specific reserves, impairment on servicing assets, gain (loss) on sale of OREO, and OREO valuation write-downs recorded for the periods indicated:

3 unchanged sentences

Commercial property $ — $ — $ ( 53 )

SBA property ( 138 ) ( 31 ) ( 238 )

Commercial lines of credit ( 720 ) ( 2,475 ) —

SBA commercial property ( 221 ) — —

Other real estate owned

28 unchanged sentences

The following table presents the carrying value and estimated fair values of financial assets and liabilities as of the dates indicated:

Carrying Value

Fair Value Measurements

($ in thousands)

Carrying Value Fair Value Fair Value Measurements

($ in thousands) Level 1 Level 2 Level 3

December 31, 2020

2 unchanged sentences

Securities available-for-sale 120,527 120,527 — 120,527 —

Securities held-to-maturity

Loans held-for-sale 1,979 2,112 — 2,112 —

Net loans held-for-investment 1,557,068 1,574,063 — — 1,574,063

FHLB and other restricted stock

FHLB and other restricted stock 8,447 N/A N/A N/A N/A

Accrued interest receivable 9,334 9,334 1 322 9,011

Financial liabilities:

Deposits $ 1,594,851 $ 1,594,112 $ — $ — $ 1,594,112

FHLB advances 80,000 80,321 — 80,321 —

7 unchanged sentences

Net loans held-for-investment 1,436,451 1,449,383 — — 1,449,383

FHLB and other restricted stock

FHLB and other restricted stock 8,345 N/A N/A N/A N/A

Accrued interest receivable 5,136 5,136 78 375 4,683

Financial liabilities:

Deposits $ 1,479,307 $ 1,468,540 $ — $ — $ 1,468,540

FHLB advances 20,000 20,092 — 20,092 —

1 unchanged sentence

Investment Securities

Debt securities have been classified as available-for-sale or held-to-maturity in the consolidated balance sheet according to management’s intent.

Debt securities have been classified as available-for-sale or held-to-maturity in the consolidated balance sheets according to management’s intent.

On June 30, 2020, the Company transferred securities held-to-maturity to securities available-for-sale as a part of the Company’s liquidity management plan in response to the COVID-19 pandemic.

Management determined that its securities held-to-maturity no longer adhere to the Company’s current liquidity management plan and could be sold to potentially improve liquidity position.

The following table presents the amortized cost and fair value of the investment securities as of the dates indicated:

($ in thousands)

Amortized Cost

Gross Unrealized Gain

Gross Unrealized Loss

($ in thousands) Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value

December 31, 2020

7 unchanged sentences

Total securities available-for-sale $ 117,961 $ 2,657 $ ( 91 ) $ 120,527

Securities held-to-maturity:

government agency and U.S.

government sponsored enterprise mortgage-backed securities

Municipal bonds

Total securities held-to-maturity

December 31, 2019

18 unchanged sentences

Securities Available-For-Sale

Securities Held-To-Maturity

($ in thousands)

Amortized Cost

($ in thousands) Amortized Cost Fair Value

Within one year

3 unchanged sentences

Mortgage-backed securities, collateralized mortgage obligations and SBA loan pool securities

112,591 114,701

Total $ 117,961 $ 120,527

The following table presents proceeds from sales and calls of securities available-for-sale and the associated gross gains and losses realized through earnings upon the sales and calls of securities available-for-sale for the periods indicated:

2 unchanged sentences

Gross realized gains on sales and calls of securities available-for-sale

$ — $ 786 $ —

Gross realized losses on sales and calls of securities available-for-sale

Net realized gains (losses) on sales and calls of securities available-for-sale

Net realized gains on sales and calls of securities available-for-sale $ — $ 786 $ —

Proceeds from sales and calls of securities available-for-sale

$ 185 $ 33,627 $ 1,075

Tax expense on sales and calls of securities available-for-sale

$ — $ 234 $ —

The following table summarizes the investment securities with unrealized losses by security type and length of time in a continuous unrealized loss position as of the dates indicated:

Length of Time That Individual Securities Have Been In a Continuous Unrealized Loss Position

Less Than 12 Months

12 Months or Longer

($ in thousands)

Gross Unrealized Losses

Number of Securities

Gross Unrealized Losses

Number of Securities

Gross Unrealized Losses

Number of Securities

Less Than 12 Months 12 Months or Longer Total

($ in thousands) Fair Value

Gross Unrealized Losses Number of Securities

December 31, 2020

6 unchanged sentences

Total securities available-for-sale $ 9,874 $ ( 34 ) 9 $ 6,996 $ ( 57 ) 10 $ 16,870 $ ( 91 ) 19

Securities held-to-maturity:

government agency and U.S.

government sponsored enterprise mortgage-backed securities

Total securities held-to-maturity

December 31, 2019

9 unchanged sentences

government sponsored enterprise mortgage-backed securities $ — $ — — $ 6,842 $ ( 81 ) 7 $ 6,842 $ ( 81 ) 7

Municipal bonds

Total securities held-to-maturity $ — $ — — $ 6,842 $ ( 81 ) 7 $ 6,842 $ ( 81 ) 7

16 unchanged sentences

Residential property 198,431 235,046

SBA property 126,570 129,837

Construction 15,199 19,164

Total real estate loans 1,220,936 1,187,061

3 unchanged sentences

SBA commercial term 21,878 25,332

SBA PPP 135,654 —

Total commercial and industrial loans 340,869 240,480

Other consumer loans

21,773 23,290

Loans held-for-investment

1,583,578 1,450,831

Allowance for loan losses

( 26,510 ) ( 14,380 )

Net loans held-for-investment

$ 1,557,068 $ 1,436,451

In the ordinary course of business, the Company may grant loans to certain officers and directors, and the companies with which they are associated.

As of December 31, 2020 and 2019, the Company had $ 3.9 million and $ 3.8 million, respectively, of such loans outstanding.

SBA PPP Loans

The following table presents a summary of SBA PPP loans as of December 31, 2020:

December 31, 2020

($ in thousands) Number of Loans Amount

$50,000 or less 1,017 $ 20,518

Over $50,000 and less than $350,000 496 60,692

Over $350,000 and less than $2,000,000 69 46,054

$2,000,000 or more 3 8,390

Total 1,585 $ 135,654

Loan Modifications Related to the COVID-19 Pandemic

The following table presents a summary of loans under modified terms related to the COVID-19 pandemic by portfolio segment as of December 31, 2020:

December 31, 2020

Modification Type

($ in thousands) Payment Deferment Interest Only Payment Total

Real estate loans:

Commercial property $ 9,688 $ 14,444 $ 24,132

Residential property 425 — 425

SBA property — 4,192 4,192

Commercial and industrial loans:

Commercial term 2,462 3,065 5,527

SBA commercial term — 1,841 1,841

Total $ 12,575 $ 23,542 $ 36,117

Allowance for Loan Losses

The following table presents the activities in allowance for loan losses by portfolio segment, which is consistent with the Company’s methodology for determining allowance for loan losses, for the periods indicated:

($ in thousands)

Commercial and Industrial

T he following table presents the activities in allowance for loan losses by portfolio segment, which is consistent with the Company’s methodology for determining allowance for loan losses, for the periods indicated:

($ in thousands) Real Estate Commercial and Industrial Consumer Total

Balance at January 1, 2018 $ 8,507 $ 3,548 $ 169 $ 12,224

( 381 ) ( 272 ) ( 356 ) ( 1,009 )

Recoveries on loans previously charged off

213 356 152 721

Provision (reversal) for loan losses

765 245 221 1,231

Balance at December 31, 2018 9,104 3,877 186 13,167

( 31 ) ( 3,350 ) ( 198 ) ( 3,579 )

Recoveries on loans previously charged off

6 378 171 555

Provision for loan losses

775 3,449 13 4,237

Balance at December 31, 2019 9,854 4,354 172 14,380

( 175 ) ( 1,104 ) ( 250 ) ( 1,529 )

Recoveries on loans previously charged off

58 236 146 440

Provision for loan losses

9,157 3,736 326 13,219

Balance at December 31, 2020 $ 18,894 $ 7,222 $ 394 $ 26,510

The following tables present the information on allowance for loan losses and recorded investments by portfolio segment and impairment methodology as of the dates indicated:

($ in thousands)

Commercial and Industrial

($ in thousands) Real Estate Commercial and Industrial Consumer Total

December 31, 2020

2 unchanged sentences

Collectively evaluated for impairment 18,891 7,220 394 26,505

Total $ 18,894 $ 7,222 $ 394 $ 26,510

Loans receivable:

1 unchanged sentence

Collectively evaluated for impairment 1,218,736 339,338 21,773 1,579,847

Total $ 1,220,936 $ 340,869 $ 21,773 $ 1,583,578

December 31, 2019

2 unchanged sentences

Collectively evaluated for impairment 9,850 4,339 172 14,361

Total $ 9,854 $ 4,354 $ 172 $ 14,380

Loans receivable:

1 unchanged sentence

Collectively evaluated for impairment 1,184,903 238,079 23,290 1,446,272

Total $ 1,187,061 $ 240,480 $ 23,290 $ 1,450,831

Credit Quality Indicators

The following table presents the risk categories for the recoded investment in loans by portfolio segment as of dates indicated:

($ in thousands)

Special Mention

The following table presents the risk categories for the recorded investment in loans by portfolio segment as of dates indicated:

($ in thousands) Pass Special Mention Substandard Doubtful Total

December 31, 2020

2 unchanged sentences

Residential property 198,242 — 189 — 198,431

SBA property 123,147 251 3,172 — 126,570

Construction 15,199 — — — 15,199

Commercial and industrial loans:

2 unchanged sentences

SBA commercial term 20,922 281 675 — 21,878

SBA PPP 135,654 — — — 135,654

Other consumer loans

21,707 — 66 — 21,773

Total $ 1,556,987 $ 16,461 $ 10,130 $ — $ 1,583,578

December 31, 2019

2 unchanged sentences

Residential property 235,046 — — — 235,046

SBA property 124,135 72 5,630 — 129,837

Construction 17,453 1,711 — — 19,164

Commercial and industrial loans:

3 unchanged sentences

Other consumer loans 23,242 — 48 — 23,290

Substandard SBA property loans included $2.4 million and $2.3 million of guaranteed portion by the U.S.

Total $ 1,440,186 $ 1,783 $ 8,862 $ — $ 1,450,831

Substandard SBA property loans included $ 113 thousand and $ 2.4 million of guaranteed portion by the U.S.

government agency at December 31, 2020 and 2019, respectively.

The following table presents the risk categories for the recorded investment in loans under modified terms related to the COVID-19 pandemic by portfolio segment as of dates indicated:

($ in thousands) Pass Special Mention Substandard Doubtful Total

December 31, 2020

Real estate loans:

Commercial property $ 13,158 $ 10,268 $ 706 $ — $ 24,132

Residential property 425 — — — 425

SBA property 3,941 251 — — 4,192

Commercial and industrial loans:

Commercial term — 4,362 1,165 — 5,527

SBA commercial term 1,769 — 72 — 1,841

Total $ 19,293 $ 14,881 $ 1,943 $ — $ 36,117

Past Due and Nonaccrual Loans

1 unchanged sentence

Still Accruing

($ in thousands)

30 to 59 Days Past Due

60 to 89 Days Past Due

90 or More Days Past Due

Total Past Due and Nonaccrual

($ in thousands) 30 to 59 Days Past Due 60 to 89 Days Past Due 90 or More Days Past Due Nonaccrual Total Past Due and Nonaccrual

December 31, 2020

Real estate loans:

Commercial property $ — $ — $ — $ 524 $ 524

Residential property 182 — — 189 371

SBA property — — — 885 885

Commercial and industrial loans:

2 unchanged sentences

Other consumer loans 120 36 — 66 222

Total $ 302 $ 36 $ — $ 3,163 $ 3,501

December 31, 2019

1 unchanged sentence

Residential property $ — $ 697 $ — $ — $ 697

SBA property 794 — — 442 1,236

Commercial and industrial loans:

Commercial lines of credit — — — 1,888 1,888

SBA commercial term — 189 287 159 635

Other consumer loans 99 39 — 48 186

Total $ 893 $ 925 $ 287 $ 2,537 $ 4,642

There were no nonaccrual loans guaranteed by the U.S.

government agency at December 31, 2020 and 2019.

All loans under modified terms related to the COVID-19 pandemic were on accrual status and current at December 31, 2020

Impaired Loans

1 unchanged sentence

The recorded investment presents customer balances net of any partial charge-offs recognized on the loans and net of any deferred fees and costs.

With No Allowance Recorded

With an Allowance Recorded

($ in thousands)

Recorded Investment

Unpaid Principal Balance

Recorded Investment

Unpaid Principal Balance

Related Allowance

With No Allowance Recorded With an Allowance Recorded

($ in thousands) Recorded Investment Unpaid Principal Balance Recorded Investment Unpaid Principal Balance Related Allowance

December 31, 2020

1 unchanged sentence

Commercial property $ 856 $ 855 $ — $ — $ —

Residential property 189 189 — — —

SBA property 1,108 1,198 47 45 3

Commercial and industrial loans:

2 unchanged sentences

SBA commercial term 593 633 16 18 2

Total $ 3,668 $ 3,797 $ 63 $ 63 $ 5

December 31, 2019

Real estate loans:

Residential property

Commercial property $ 339 $ 338 $ — $ — $ —

SBA property 1,699 1,828 120 154 4

Commercial and industrial loans:

Commercial term 28 28 — — —

Commercial lines of credit 1,888 1,888 — — —

SBA commercial term 457 495 28 28 15

Total $ 4,411 $ 4,577 $ 148 $ 182 $ 19

The following table presents information on the recorded investment in impaired loans by portfolio segment for the periods indicated:

Year Ended December 31,

($ in thousands)

Average Recorded Investment

Interest Income

Average Recorded Investment

Interest Income

Average Recorded Investment

Interest Income

2020 2019 2018

($ in thousands) Average Recorded Investment Interest Income Average Recorded Investment Interest Income Average Recorded Investment Interest Income

Real estate loans:

1 unchanged sentence

Residential property 47 — 38 — 281 —

SBA property 1,459 17 1,685 41 1,245 22

Commercial and industrial loans:

2 unchanged sentences

SBA commercial term 499 1 224 9 382 8

Total $ 4,365 $ 42 $ 3,085 $ 65 $ 2,224 $ 38

The following presents a summary of interest foregone on impaired loans for the periods indicated:

2 unchanged sentences

Interest income that would have been recognized had impaired loans performed in accordance with their original terms

$ 256 $ 213 $ 191

interest income recognized on impaired loans on a cash basis

( 42 ) ( 65 ) ( 38 )

Interest income foregone on impaired loans $ 214 $ 148 $ 153

5 unchanged sentences

The following table presents the composition of loans that were modified as TDRs by portfolio segment as of the dates indicated:

($ in thousands)

($ in thousands) Accruing Nonaccrual Total Accruing Nonaccrual Total

Real estate loans:

Commercial property $ 333 $ — $ 333 $ 339 $ — $ 339

SBA property 270 5 275 294 121 415

Commercial and industrial loans:

1 unchanged sentence

SBA commercial term 13 — 13 39 — 39

Total $ 634 $ 5 $ 639 $ 700 $ 121 $ 821

The Company had no commitments to lend to customers with outstanding loans that were classified as TDRs as of December 31, 2020 and 2019.

The determination of the allowance for loan losses related to TDRs depends on the collectability of principal and interest, according to the modified repayment terms.

Loans that were modified as TDRs were individually evaluated for impairment and the Company allocated $4 thousand and $86 thousand of allowance for loan losses as of December 31, 2019 and 2018 , respectively.

Loans that were modified as TDRs were individually evaluated for impairment and the Company allocated $ 0 and $ 4 thousand of allowance for loan losses as of December 31, 2020 and 2019, respectively.

The following table presents new loans that were modified as TDRs by portfolio segment for the periods indicated:

Year Ended December 31,

($ in thousands)

Number of Loans

Pre-Modification Recorded Investment

Post-Modification Recorded Investment

Number of Loans

Pre-Modification Recorded Investment

Post-Modification Recorded Investment

Number of Loans

Pre-Modification Recorded Investment

Post-Modification Recorded Investment

2020 2019 2018

($ in thousands) Number of Loans Pre-Modification Recorded Investment Post-Modification Recorded Investment Number of Loans Pre-Modification Recorded Investment Post-Modification Recorded Investment Number of Loans Pre-Modification Recorded Investment Post-Modification Recorded Investment

Real estate loans:

Commercial property — $ — $ — 1 $ 341 $ 341 — $ — $ —

SBA property — — — 2 254 254 — — —

Commercial and industrial loans:

SBA commercial term 2 37 37 2 15 15 — — —

Total 2 $ 37 $ 37 5 $ 610 $ 610 — $ — $ —

The following table summarized the TDRs by modification type for the periods indicated:

1 unchanged sentence

Principal and Interest (2)

($ in thousands)

Number of Loans

Pre-Modification Recorded Investment

Number of Loans

Pre-Modification Recorded Investment

Number of Loans

($ in thousands) Number of Loans

Pre-Modification Recorded Investment Number of Loans

Pre-Modification Recorded Investment

Year ended December 31, 2020:

Real estate loans:

Commercial property

Commercial and industrial loans:

SBA commercial term 2 $ 37 — $ — 2 $ 37

Total 2 $ 37 — $ — 2 $ 37

Year ended December 31, 2019:

1 unchanged sentence

Commercial property — $ — 1 $ 341 1 $ 341

SBA property 2 254 — — 2 254

Commercial and industrial loans:

SBA commercial term 2 15 — — 2 15

Total 4 $ 269 1 $ 341 5 $ 610

(1) Includes forbearance payments, term extensions and principal deferments that modify the terms of the loan from principal and interest payment to interest only payment.

(2) Includes principal and interest deferments or reductions.

There were no loans that were modified as TDRs for which there was a payment default within twelve months following the modification for the years ended December 31, 2019, 2018 or 2017.

There was one SBA commercial term loan of $26 thousand that was modified as a TDR for which there was a payment default within twelve months following the modification for the year ended December 31, 2020.

There were no loans that were modified as TDRs for which there was a payment default within twelve months following the modification for the years ended December 31, 2019 and 2018.

Purchases, Sales, and Transfers

5 unchanged sentences

Residential property 1,125 824 5,950

Commercial and industrial loans:

SBA commercial term 230 — —

Total $ 1,355 $ 824 $ 8,062

The following table presents a summary of loans held-for-sale transferred to loans held-for-investment for the periods indicated:

Year Ended December 31,

($ in thousands) 2020 2019 2018

Real estate loans:

Residential property $ 697 $ — $ —

Total $ 697 $ — $ —

The following table presents a summary of purchases of loans held-for-investment for the periods indicated:

3 unchanged sentences

Residential property $ — $ 1,539 $ —

Total $ — $ 1,539 $ —

The Company had no sales of loans held-for-investment during the years ended December 31, 2020, 2019 and 2018.

5 unchanged sentences

Residential property $ 300 $ 760

SBA property 1,411 150

Commercial and industrial loans:

SBA commercial term 268 1,065

Total $ 1,979 $ 1,975

Premises and Equipment

2 unchanged sentences

Leasehold improvements

$ 7,848 $ 6,791

Furniture, fixtures and equipment

3 unchanged sentences

accumulated depreciation

( 11,245 ) ( 9,903 )

Premises and equipment, net $ 4,048 $ 3,760

1 unchanged sentence

Operating Leases

The Company’s operating leases are for its headquarters office spaces, and retail branch and LPO locations.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years .

The exercise of lease renewal option is at the Company’s sole discretion.

Certain leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expenses for these leases are recognized on a straight-line basis over the lease term.

None of the Company’s lease agreements contain any material residual value guarantees or material restrictive covenants.

The Company also leases certain equipment, such as copy machines and scanners, but they are determined to be immaterial.

The following table presents operating lease cost and supplemental cash flow information related to leases for the periods indicated:

($ in thousands)

Year Ended December 31,

($ in thousands) 2020 2019

Operating lease cost (1)

$ 2,617 $ 2,632

Cash paid for amounts included in the measurement of lease liabilities:

2 unchanged sentences

(1) Included in Occupancy and Equipment on the Consolidated Statements of Income.

Operating lease cost for the years ended December 31, 2018 and 2017 was under Topic 840.

The Company used the incremental borrowing rate based on the information available at the date of adoption in determining the present value of lease payment.

Operating lease cost for the year ended December 31, 2018 was under Topic 840.

The Company used the incremental borrowing rate based on the information available in determining the present value of lease payment.

The following table presents supplemental balance sheet information related to leases as of December 31, 2020:

($ in thousands) 2020 2019

December 31, 2019

Operating leases:

1 unchanged sentence

Operating lease liabilities 8,455 9,990

Weighted-average remaining lease term

Weighted-average remaining lease term 4.3 years 5.0 years

Weighted-average discount rate 2.60 % 2.81 %

The following table presets maturities of operating lease liabilities as of December 31, 2020:

($ in thousands)

($ in thousands) December 31, 2020

After 2025 818

Total lease payment

3 unchanged sentences

At December 31, 2020 and 2019, total servicing assets were $ 6.4 million and $ 6.8 million, respectively.

The Company sells SBA loans and certain residential property loans with servicing retained.

The Company sold loans of $ 89.5 million, $ 99.6 million and $ 97.7 million, respectively, with the servicing rights retained and recognized a net gain on sale of $ 6.0 million, $ 5.9 million and $ 5.4 million, respectively, during the years ended December 31, 2020, 2019 and 2018.

1 unchanged sentence

The following table presents the composition of servicing assets with key assumptions used to estimate the fair value:

($ in thousands)

Residential Property

SBA Commercial Term

Residential Property

SBA Commercial Term

($ in thousands) Residential Property SBA Property SBA Commercial Term Residential Property SBA Property SBA Commercial Term

Carrying amount

$ 109 $ 5,642 $ 649 $ 171 $ 5,805 $ 822

$ 133 $ 8,498 $ 888 $ 200 $ 6,693 $ 976

Discount rates

11.25 % 13.25 % 12.75 % 11.25 % 13.25 % 12.75 %

Prepayment speeds

27.20 % 9.99 % 11.01 % 26.60 % 16.28 % 16.03 %

Weighted average remaining life

23.1 years 21.1 years 6.6 years 24.2 years 21.3 years 7.0 years

Underlying loans being serviced

$ 22,299 $ 400,982 $ 75,514 $ 32,428 $ 384,007 $ 82,181

The following table presents activity in servicing assets for the periods indicated:

($ in thousands)

Residential Property

SBA Commercial Term

($ in thousands) Residential Property SBA Property SBA Commercial Term Total

Balance at January 1, 2018 $ 308 $ 7,369 $ 1,296 $ 8,973

22 1,166 270 1,458

( 86 ) ( 2,186 ) ( 493 ) ( 2,765 )

Balance at December 31, 2018 244 6,349 1,073 7,666

— 1,329 185 1,514

( 73 ) ( 1,873 ) ( 436 ) ( 2,382 )

Balance at December 31, 2019 171 5,805 822 6,798

— 1,408 142 1,550

( 62 ) ( 1,571 ) ( 315 ) ( 1,948 )

Balance at December 31, 2020 $ 109 $ 5,642 $ 649 $ 6,400

4 unchanged sentences

Balance at beginning of year

( 3,915 ) ( 329 ) ( 210 )

Net change in valuation allowance

5 unchanged sentences

Net direct write-downs and removal from sale

— ( 66 ) ( 111 )

Balance at end of year $ — $ — $ —

The following table presents expenses related to OREOs for the periods indicated:

The following table presents expenses related to OREO for the periods indicated:

Year Ended December 31,

1 unchanged sentence

Net (gain) loss on sales

( 9 ) 1 ( 3 )

Operating expenses, net of rental income

The Company did not provide loans to finance the purchase of its OREO properties during the years ended December 31, 2019 , 2018 or 2017 .

Total $ 51 $ 1 $ ( 3 )

The Company provided a loan of $ 1.5 million to finance the sale of its OREO property during the year ended December 31, 2020.

The Company did no t provide loans to finance the sale of its OREO properties during the years ended December 31, 2019 or 2018.

At December 31, 2020 and 2019, total deposits were $ 1.59 billion and $ 1.48 billion, respectively, and total interest-bearing deposits were $ 1.06 billion and $ 1.12 billion, respectively.

6 unchanged sentences

The following table presents scheduled maturities of time deposits as of December 31, 2020:

($ in thousands)

($ in thousands) 2021 2022 2023 2024 2025 Thereafter Total

Time deposits of $250,000 or less

$ 365,409 $ 10,609 $ 1,787 $ 1,394 $ 134 $ — $ 379,333

Time deposits of more than $250,000

264,060 2,310 2,313 — — — 268,683

Total time deposits $ 629,469 $ 12,919 $ 4,100 $ 1,394 $ 134 $ — $ 648,016

2 unchanged sentences

The Company had $ 80.0 million and $ 20.0 million in FHLB advances at December 31, 2020 and 2019, respectively.

FHLB advances consisted of fixed interest rates with original maturity terms ranging from three to five years at December 31, 2019 .

FHLB advances consisted of fixed interest rates with original maturity terms ranging from one to five years at December 31, 2020.

The following table presents scheduled maturities of FHLB advances as of December 31, 2020:

($ in thousands)

($ in thousands) 2021 2022 2023 2024 Thereafter Total

$ 70,000 $ 10,000 $ — $ — $ — $ 80,000

Variable Rate

Total $ 70,000 $ 10,000 $ — $ — $ — $ 80,000

The following table presents financial data of FHLB advances as of the dates or for the periods indicated:

2 unchanged sentences

Weighted-average interest rate at end of year

0.67 % 1.92 % 1.81 %

Average interest rate during the year

0.65 % 1.86 % 1.75 %

Average balance

$ 94,303 $ 25,370 $ 34,904

Maximum amount outstanding at any month-end

$ 170,000 $ 35,000 $ 40,000

Balance at end of year

$ 80,000 $ 20,000 $ 30,000

Advances paid early are subject to a prepayment penalty.

14 unchanged sentences

On March 28, 2019, the Company’s Board of Directors approved the repurchase of up to $ 6.5 million of the Company’s common stock through March 27, 2020.

During the year ended December 31, 2019 , the Company completed the repurchase program, and repurchased and retired 396,715 shares of common stock.

Change in Accumulated Other Comprehensive Loss

Components of accumulated other comprehensive loss consisted solely of the change in unrealized gains or losses on securities available-for-sale, net of taxes.

Reclassifications from accumulated other comprehensive loss are recorded in the Consolidated Statements of Income either as a gain or loss.

The following table presents changes to accumulated other comprehensive loss for the periods indicated:

Year Ended December 31,

($ in thousands)

Unrealized loss on securities available-for-sale:

Balance at beginning of year

Other comprehensive loss

Unrealized gain (loss) arising during the year

Reclassification adjustment from other comprehensive income

Tax effect of current period changes

Total other comprehensive income (loss)

Reclassification of disproportionate tax effect to retained earnings

Balance at end of year

During the year ended December 31, 2019, the Company completed the repurchase program, and repurchased and retired 396,715 shares of common stock at a weighted-average price of $ 16.33 per share.

On January 23, 2020, the Company announced that on November 22, 2019, its Board of Directors approved a $ 6.5 million stock repurchase program to commence upon the opening of the Company’s trading window for the first quarter of 2020 and continue through November 20, 2021.

The Company completed the repurchase program in March 2020.

The Company repurchased and retired 428,474 shares of common stock at a weighted-average price of $ 15.14 per share.

Share-Based Compensation

12 unchanged sentences

The following table presents unrecognized share-based compensation expense as of December 31, 2020:

($ in thousands)

Unrecognized Expense

Weighted-Average Remaining Expected Recognition Period

($ in thousands) Unrecognized Expense Weighted-Average Remaining Expected Recognition Period

Unrecognized share-based compensation expense related to:

Stock options

Restricted stock awards

Total unrecognized share-based compensation expense

Stock options $ 435 3.4 years

Restricted stock awards 402 2.4 years

Total unrecognized share-based compensation expense $ 837 2.9 years

Stock Options

5 unchanged sentences

Year Ended December 31,

2020 2019 2018

Risk-free interest rate

— % 2.06 % 2.58 %

Expected term

N/A 5.00 years 6.18 years

Expected stock price volatility

— % 36.10 % 37.10 %

Dividend yield

— % 1.33 % 0.78 %

The following table presents information related to the stock option plan for the periods indicated:

2 unchanged sentences

Intrinsic value of options exercised

$ 789 $ 851 $ 601

Cash received from options exercised

$ 693 $ 627 $ 310

Tax benefit from options exercised

$ 70 $ 31 $ 21

Weighted-average estimated fair value per share of options granted

The following table represents stock option activity as of and for year ended December 31, 2019 :

$ — $ 5.76 $ 5.71

The following table represents stock option activity as of and for the year ended December 31, 2020:

Year Ended December 31, 2020

($ in thousands except per share data)

Number of Shares

Weighted-Average Exercise Price Per Share

Weighted-Average Contractual Term

Aggregated Intrinsic Value

Number of Shares Weighted-Average Exercise Price Per Share Weighted-Average Contractual Term Aggregated Intrinsic Value

Outstanding at beginning of year

Balance at end of year

Exercisable at end of year

829,376 $ 10.32 5.80 years $ 5,776

( 105,601 ) $ 6.56 2.98 years

( 4,840 ) $ 10.33 5.58 years

Balance at end of year 718,935 $ 10.87 5.07 years $ —

Exercisable at end of year 597,736 $ 9.89 4.58 years $ 131

The following table represents information regarding unvested stock options for the year ended December 31, 2020:

Year Ended December 31, 2020

Number of Shares

Weighted-Average Exercise Price Per Share

Number of Shares Weighted-Average Exercise Price Per Share

Outstanding at beginning of year

246,317 $ 13.31

( 120,278 ) $ 11.05

( 4,840 ) $ 10.33

Balance at end of year 121,199 $ 15.68

Restricted Stock Awards

The Company also has granted restricted stock awards (“RSAs”) to certain employees and officers.

The Company also has granted RSAs to certain employees and officers.

The RSAs are valued at the closing market price of the Company's stock on the grant date and generally have a three -to five-year vesting period.

1 unchanged sentence

Year Ended December 31, 2020

Number of Shares

Weighted-Average Grant Date Fair Value Per Share

Number of Shares Weighted-Average Grant Date Fair Value Per Share

Outstanding at beginning of period

37,400 $ 16.60

1,900 $ 11.64

( 9,000 ) $ 16.69

Outstanding at end of period 30,300 $ 16.27

3 unchanged sentences

The Board of Directors may make a discretionary contribution to the plan annually.

The Company’s contribution to the plan for was $831 thousand , $739 thousand and $629 thousand for the years ended December 31, 2019 , 2018 and 2017 .

The Company’s contribution to the plan was $ 807 thousand, $ 831 thousand and $ 739 thousand for the years ended December 31, 2020, 2019 and 2018.

The following table presents the components of income tax expense for the periods indicated:

1 unchanged sentence

($ in thousands) 2020 2019 2018

Federal $ 6,596 $ 8,317 $ 6,322

State 3,910 4,499 3,481

Total current income tax expense 10,506 12,816 9,803

Federal ( 2,223 ) ( 1,747 ) 369

Adjustment of deferred tax assets for enacted changes in tax rate — — 25

State ( 1,447 ) ( 826 ) 247

Total deferred income tax expense (benefit) ( 3,670 ) ( 2,573 ) 641

Change in valuation allowance

$ 6,836 $ 10,243 $ 10,444

The following table presents a reconciliation of the recorded income tax expense to the amount of taxes computed by applying the applicable statutory Federal income tax rate for the periods indicated:

Year Ended December 31,

2020 2019 2018

Statutory federal tax rate

21.00 % 21.00 % 21.00 %

State franchise tax, net of federal tax benefit

8.45 % 8.45 % 8.48 %

Share-based compensation

0.39 % 0.10 % 0.24 %

Remeasurement from the Tax Cuts and Jobs Act

— % — % 0.07 %

Other items, net

( 0.13 ) % 0.27 % 0.27 %

Effective income tax rate

On December 22, 2017, the Tax Cuts and Jobs Act was enacted which included a number of changes to existing U.S.

tax laws, most notably a reduction of the U.S.

corporate tax rate from 35% to 21% , for tax years beginning in 2018.

As a result of the Tax Cuts and Jobs Act, the Company revalued its deferred tax assets and liabilities and recorded a reduction of its net deferred tax assets in the amount of $25 thousand and $1.6 million in deferred income tax expense for the years ended December 31, 2018 and 2017, respectively.

The Tax Cuts and Jobs Act also places limits on certain tax deductions beginning in 2018.

29.71 % 29.82 % 30.06 %

The following table presents the components of the net deferred tax assets recognized in the accompanying consolidated balance sheets as of the dates indicated:

6 unchanged sentences

Operating lease liabilities 2,485 2,931

Deferred rent payable

State tax benefit 822 947

Other 447 312

Total deferred tax assets 12,298 8,891

1 unchanged sentence

Depreciation on premises and equipment 394 308

Loans held-for-sale market adjustment

Unrealized gain on investment securities 754 —

Deferred loan origination costs 732 597

2 unchanged sentences

Deferred tax assets, net

The Company adopted ASU 2016-02 “Leases (Topic 842)” on January 1, 2019, but this new standard did not change the treatment of leases for income tax purposes.

The right-of-use assets and related leases liabilities are not required to be capitalized for income tax purposes, and this difference between the GAAP and income tax basis resulted in temporary differences.

Accordingly, the Company recognized deferred tax assets and liabilities associated with right-of-use assets and related leases liabilities for the year ended December 31, 2019 .

The Company had no valuation allowances for deferred tax assets as of December 31, 2019 and 2018 .

Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, and a valuation allowance was not necessary as of December 31, 2019 and 2018 .

At December 31, 2019 and 2018 , the Company had no unrecognized tax benefits, or related accrued interest or penalties.

In the event the Company is assessed interest and/or penalties by federal or state tax authorities, such amounts will be classified in the consolidated financial statements as income tax expense.

$ 8,120 $ 5,288

The Company had no valuation allowance for deferred tax assets as of December 31, 2020 and 2019.

Based upon the level of historical taxable income and projections for future taxable income over the periods in which the temporary differences become deductible, management believes it is more likely than not that the Company will realize the benefits of these deferred tax assets, and a valuation allowance was not necessary as of December 31, 2020 and 2019.

At December 31, 2020 and 2019, the Company had no unrecognized tax benefits or related accrued interest.

In the event the Company is assessed interest and/or penalties by federal or state tax authorities, such amounts will be classified in the consolidated financial statements as income taxes.

The Company does not expect the total amount of unrecognized tax benefit to significantly increase or decrease in the next twelve months.

The Company and its subsidiaries are subject to U.S.

1 unchanged sentence

As of December 31, 2020, the Company is no longer subject to examination by taxing authorities for tax years before 2017 for federal taxes and before 2016 for various state jurisdictions.

The statute of limitations vary by state, and state taxes other than California have been minimal and immaterial to the Company’s financial results.

The statute of limitations vary by state, and state taxes other than California have been immaterial to the Company’s financial results.

Earnings Per Share

2 unchanged sentences

($ in thousands, except per share)

2020 2019 2018

Basic earnings per share:

Net income $ 16,175 $ 24,108 $ 24,301

income allocated to unvested restricted stock ( 37 ) ( 22 ) —

10 unchanged sentences

Diluted earnings per share $ 1.04 $ 1.49 $ 1.65

There were 155,000 , 5,000 , and 0 stock options excluded in computing diluted earnings per share because they were anti-dilutive for years ended December 31, 2019 , December 31, 2018 , and 2017 , respectively.

There were 601,019 , 155,000 , and 5,000 stock options excluded in computing diluted earnings per share because they were anti-dilutive for years ended December 31, 2020, 2019, and 2018, respectively.

Commitments and Contingencies

5 unchanged sentences

Commitments to extend credit

$ 193,496 $ 171,608

Standby letters of credit

Commercial letters of credit

Total $ 198,281 $ 175,200

The Company’s exposure to loan loss in the event of nonperformance on commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments.

7 unchanged sentences

In the opinion of management, the disposition of pending matters of litigation will not have a material effect on the Company’s consolidated financial statements.

COVID-19 Pandemic

The ongoing COVID-19 pandemic, and governmental and societal responses thereto, have had a severe impact on global economic and market conditions, including significant disruption of, and volatility in, financial markets;

global supply chain disruptions;

and the institution of social distancing and shelter-in-place requirements that have resulted in temporary closures of many businesses, lost revenues, and increased unemployment throughout the U.S., but also specifically in California, where most of the Company’s operations and a large majority of its customers are located.

These conditions have impacted and may in the future impact its business, results of operations, and financial condition negatively.

Regulatory Matters

8 unchanged sentences

The following table presents the regulatory capital amounts and ratios for the Company and the Bank as of dates indicated:

Minimum Capital Requirement

To Be Well Capitalized Under Prompt Corrective Provisions

($ in thousands)

Actual Minimum Capital Requirement To Be Well Capitalized Under Prompt Corrective Provisions

($ in thousands) Amount Ratio Amount Ratio Amount Ratio

December 31, 2020

Common tier 1 capital (to risk-weighted assets)

Total capital (to risk-weighted assets)

Tier 1 capital (to risk-weighted assets)

Tier 1 capital (to average assets)

Common tier 1 capital (to risk-weighted assets) $ 231,183 15.97 % $ 65,162 4.5 % N/A N/A

Total capital (to risk-weighted assets) 249,391 17.22 % 115,843 8.0 % N/A N/A

Tier 1 capital (to risk-weighted assets) 231,183 15.97 % 86,882 6.0 % N/A N/A

Tier 1 capital (to average assets) 231,183 11.94 % 77,452 4.0 % N/A N/A

Pacific City Bank

4 unchanged sentences

December 31, 2019

Common tier 1 capital (to risk-weighted assets)

Total capital (to risk-weighted assets)

Tier 1 capital (to risk-weighted assets)

Tier 1 capital (to average assets)

Common tier 1 capital (to risk-weighted assets) $ 226,069 15.87 % $ 64,087 4.5 % N/A N/A

Total capital (to risk-weighted assets) 240,750 16.90 % 113,933 8.0 % N/A N/A

Tier 1 capital (to risk-weighted assets) 226,069 15.87 % 85,450 6.0 % N/A N/A

Tier 1 capital (to average assets) 226,069 13.23 % 68,355 4.0 % N/A N/A

Pacific City Bank

8 unchanged sentences

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.

The Federal Reserve, the FDIC and CDBO periodically examine the Company’s business, including compliance with laws and regulations.

The Federal Reserve, the FDIC and CDFPI periodically examine the Company’s business, including compliance with laws and regulations.

If, as a result of an examination, a banking agency were to determine that the Company’s financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of the Company’s operations had become unsatisfactory, or that the Company was in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate.

These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in Company’s capital, to restrict growth, to assess civil money penalties, to fine or remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate the Company’s deposit insurance and place the Company into receivership or conservatorship.

On April 30, 2019, the FDIC, the CDBO and the Bank entered into a stipulation consenting to the issuance of a consent order (the “Order”) relating to the Bank’s BSA/AML.

The Order requires, among other things, that the Bank correct all violations found in the prior examination and to improve its process to better identify and monitor accounts and transactions that pose a greater than normal risk for compliance with BSA/AML.

The Order also requires the Board of Directors of the Bank to increase its oversight of the Bank’s compliance with BSA/AML rules and regulations.

In addition, the Bank is to ensure that the BSA/AML compliance program is managed by a qualified officer with sufficient experience and resources necessary to administer an effective BSA/AML compliance program, and to seek prior FDIC and CDBO non-objection to a change in such officer or the officer in charge of Office of Foreign Assets Control compliance matters, or material changes to their responsibilities.

Further, the Order requires that the Bank develop and maintain an effective BSA/AML compliance program, monitoring mechanisms, validation of risk rating and suspicious activity monitoring, and training programs for staff.

Further, the Bank must review and enhance its BSA/AML risk assessment and customer due diligence, complete a BSA/AML staffing assessment and conduct a “look back” to more highly scrutinize certain transactions that occurred during a six-month period in 2018 to determine if any suspicious activity requiring reporting went undetected.

Finally, the Bank must provide periodic reports of progress to the FDIC and CDBO and provide for independent testing of the overall compliance program to ensure continued compliance, and seek prior FDIC and CDBO non-objection to the establishment of any new branches or other offices, or introduction of new delivery channels, products, services, or lines of business.

Subsequent to the Order, the Bank implemented many actions to respond to the requirements of the Order and submitted all required reports to the FDIC and CDBO.

Recently, the FDIC and CDBO have raised concerns with the depth of the “look back” and continued turnover in the Bank's BSA department, and management is reviewing both concerns in detail and intends to address them.

Even though the Company believes that the Bank has addressed many of items under the Order, it will take some time to address, to the satisfaction of the regulators, the specific issues unique to the Bank’s operation and it is still uncertain whether acceptable progress towards compliance with the Order, as determined in the sole discretion of the FDIC and CDBO, will ultimately be achieved in the future.

On April 30, 2019, the FDIC, the CDFPI and the Bank entered into a stipulation consenting to the issuance of a consent order (the “Order”) relating to the Bank’s BSA/AML.

Subsequent to the Order, the Bank implemented many actions to respond to the requirements of the Order and submitted all required reports to the FDIC and CDFPI.

On September 30, 2020, the FDIC and CDFPI terminated the Order upon the Bank’s satisfaction of the terms and requirements of the Order to their satisfaction.

Revenue Recognition

On January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” and all subsequent ASUs that are related to Topic 606.

The implementation of the new standard did not have a material impact on the measurement, timing, or recognition of revenue.

Accordingly, no cumulative effect adjustment to opening retained earnings was deemed necessary.

Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with the historic accounting under Topic 605.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities.

In addition, certain noninterest income streams such as gain or loss associated with mortgage servicing assets and financial guarantees are also not within the scope of the new guidance.

Topic 606 is applicable to noninterest income such as deposit related fees, interchange fees, and merchant related income.

However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606.

Noninterest income considered to be within the scope of Topic 606 is discussed below.

Service charges and fees on deposits :

Deposit account service charges consist of monthly service fees, account analysis fees, non-sufficient funds (“NSF”) charges and other deposit related fees.

The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided.

Debit card fees :

The performance obligation to the merchant is satisfied and the fee is recognized at the point in time when the funds are collected and transferred to the payment network.

Gain (loss) on sale of other real estate owned :

Wire transfer fees and other service charges :

Wire transfer fees and other service charges are transaction based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time as incurred.

The following table presents revenue from contracts with customers within the scope of ASC 606 for the periods indicated:

12 unchanged sentences

Other service charges 184 221 243

Total noninterest income in-scope of Topic 606

Total $ 2,231 $ 2,551 $ 2,439

Condensed Financial Statements for Parent Company

2 unchanged sentences

($ in thousands) 2020 2019

$ 3,873 $ 2,739

Investment in Pacific City Bank

229,871 224,006

Total assets $ 233,788 $ 226,834

Liabilities and Shareholders’ Equity

7 unchanged sentences

Dividends from subsidiary $ 13,600 $ 11,950 $ 1,694

Other income — — —

Total income 13,600 11,950 1,694

Other expense 798 835 923

Total expense 798 835 923

Income (loss) before taxes and equity in undistributed subsidiary income

Income before taxes and equity in undistributed subsidiary income 12,802 11,115 771

Income tax benefit ( 234 ) ( 245 ) ( 277 )

Income (loss) before equity in undistributed subsidiary income

Income before equity in undistributed subsidiary income 13,036 11,360 1,048

Equity in undistributed subsidiary income 3,139 12,748 23,253

Other comprehensive loss, net of tax

Net income 16,175 24,108 24,301

Other comprehensive income (loss), net of tax 2,013 1,590 ( 424 )

Comprehensive income $ 18,188 $ 25,698 $ 23,877

3 unchanged sentences

Cash flows from operating activities

Net income $ 16,175 $ 24,108 $ 24,301

Adjustments to reconcile net income to net cash provided by operating activities:

2 unchanged sentences

Change in other liabilities — ( 19 ) 19

Net cash provided by (used in) operating activities

Net cash provided by operating activities 13,081 11,301 1,038

Cash flows from investing activities:

7 unchanged sentences

Net cash provided by (used in) financing activities ( 11,947 ) ( 9,816 ) 43,587

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents 1,134 1,485 264

Cash and cash equivalents at beginning of year 2,739 1,254 990

6 unchanged sentences

June 30, 2020

September 30, 2019

December 31, 2019

September 30, 2020 December 31, 2020

Interest income

$ 21,660 $ 18,973 $ 19,620 $ 19,508

Interest expense

5,094 3,610 2,767 2,101

Net interest income 16,566 15,363 16,853 17,407

Provision for loan losses

2,896 3,855 4,326 2,142

Noninterest income

2,026 2,918 2,272 4,524

Noninterest expense

10,567 9,696 9,886 11,550

Income before income taxes 5,129 4,730 4,913 8,239

Income tax expense

1,557 1,363 1,464 2,452

$ 3,572 $ 3,367 $ 3,449 $ 5,787

Earnings per common share, basic

$ 0.23 $ 0.22 $ 0.22 $ 0.38

Earnings per common share, diluted

$ 0.23 $ 0.22 $ 0.22 $ 0.38

The following table presents the unaudited quarterly results of operations for the year ended December 31, 2019:

3 unchanged sentences

June 30, 2019

September 30, 2018

December 31, 2018

September 30, 2019 December 31, 2019

Interest income

$ 22,952 $ 24,030 $ 23,687 $ 22,276

Interest expense

5,799 6,338 6,158 5,616

Net interest income 17,153 17,692 17,529 16,660

Provision (reversal) for loan losses

( 85 ) 394 ( 102 ) 4,030

Noninterest income

2,409 3,054 2,802 3,604

Noninterest expense

10,289 10,984 10,777 10,265

Income before income taxes 9,358 9,368 9,656 5,969

Income tax expense

2,794 2,767 2,871 1,811

$ 6,564 $ 6,601 $ 6,785 $ 4,158

Earnings per common share, basic

$ 0.41 $ 0.41 $ 0.43 $ 0.26

Earnings per common share, diluted

$ 0.40 $ 0.40 $ 0.42 $ 0.26

Subsequent Events

Announcement of Stock Repurchase Plan.

On January 23, 2020 , the Company announced that on November 22, 2019 , its Board of Directors approved a $6.5 million stock repurchase program to commence upon the opening of the Company’s trading window for the first quarter of 2020 and continue through November 20, 2021.

Dividend Declared on Common Stock.

On January 28, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $ 0.10 per common share for the first quarter of 2021.

The dividend will be paid on or about March 13, 2020 , to shareholders of record as of the close of business on February 28, 2020 .

The dividend was paid on February 19, 2021, to shareholders of record as of the close of business on February 10, 2021.

The Company has evaluated the effects of events that have occurred subsequent to December 31, 2020 through the issuance date of these consolidated financial statements.

Other than the events described above, there have been no material events that would require disclosure in the consolidated financial statements or in the notes to the consolidated financial statements.

Other than the event described above, there have been no material events that would require disclosure in the consolidated financial statements or in the notes to the consolidated financial statements.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data