PCB BANCORP 10-K

Item 8 - Financial Statements PCB Bancorp and Subsidiary Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm 71 Consolidated Balance Sheets as of December 31, 20 20 and 20 19 72 Consolidated Statements of Income for the Years Ended December 31, 20 20 , 20 19 and 201 8 73 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020, 2019 and 2018 74 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2020, 2019 and 2018 75 Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018 76 Notes to Consolidated Financial Statements 78 70 Report of Independent Registered Public Accounting Firm Shareholders and the Board of Directors of PCB Bancorp Los Angeles, California Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of PCB Bancorp and Subsidiary (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Crowe LLP We have served as the Company’s auditor since 2016. Los Angeles, California March 11, 2021 71 PCB Bancorp and Subsidiary Consolidated Balance Sheets (in thousands, except share data) December 31, 2020 2019 Assets Cash and due from banks $ 19,605 $ 17,808 Interest-bearing deposits in other financial institutions 174,493 128,420 Total cash and cash equivalents 194,098 146,228 Securities available-for-sale, at fair value 120,527 97,566 Securities held-to-maturity, at amortized cost (fair value of $ 20,480 at December 31, 2019) — 20,154 Total investment securities 120,527 117,720 Loans held-for-sale 1,979 1,975 Loans held-for-investment, net of deferred loan costs (fees) 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 Premises and equipment, net 4,048 3,760 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 Servicing assets 6,400 6,798 Operating lease assets 7,616 8,991 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 Deposits: Noninterest-bearing demand $ 538,009 $ 360,039 Savings, NOW and money market accounts 408,826 362,179 Time deposits of $250,000 or less 379,333 467,363 Time deposits of more than $250,000 268,683 289,726 Total deposits 1,594,851 1,479,307 Federal Home Loan Bank advances 80,000 20,000 Operating lease liabilities 8,455 9,990 Accrued interest payable and other liabilities 5,759 10,197 Total liabilities 1,689,065 1,519,494 Commitments and contingent liabilities Preferred stock, 10,000,000 shares authorized, no par value, no issued and outstanding shares — — Common stock, 60,000,000 shares authorized, no par value; 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 income (loss), net 1,956 ( 57 ) Total shareholders’ equity 233,788 226,834 Total liabilities and shareholders’ equity $ 1,922,853 $ 1,746,328 See Accompanying Notes to Consolidated Financial Statements 72 PCB Bancorp and Subsidiary Consolidated Statements of Income (in thousands, except share and per share data) Year Ended December 31, 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: Deposits 12,958 23,439 17,340 Other borrowings 614 472 611 Total interest expense 13,572 23,911 17,951 Net interest income 66,189 69,034 65,748 Provision for loan losses 13,219 4,237 1,231 Net interest income after provision for loan losses 52,970 64,797 64,517 Noninterest income: Service charges and fees on deposits 1,256 1,544 1,500 Loan servicing income 2,710 2,309 2,160 Gain on sale of loans 6,527 5,996 5,560 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 Noninterest expense: Salaries and employee benefits 26,147 26,139 24,473 Occupancy and equipment 5,620 5,545 4,992 Professional fees 2,256 2,730 2,176 Marketing and business promotion 1,360 1,550 2,010 Data processing 1,472 1,365 1,220 Director fees and expenses 599 751 942 Regulatory assessments 978 551 544 Other expenses 3,267 3,684 3,869 Total noninterest expense 41,699 42,315 40,226 Income before income taxes 23,011 34,351 34,745 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 Earnings per common share, diluted $ 1.04 $ 1.49 $ 1.65 Weighted-average common shares outstanding, basic 15,384,231 15,873,383 14,397,075 Weighted-average common shares outstanding, diluted 15,448,892 16,172,282 14,691,370 See Accompanying Notes to Consolidated Financial Statements 73 PCB Bancorp and Subsidiary Consolidated Statements of Comprehensive Income (in thousands) Year Ended December 31, 2020 2019 2018 Net income $ 16,175 $ 24,108 $ 24,301 Other comprehensive income (loss): Unrealized gain (loss) on securities available-for-sale arising during the year 2,064 3,038 ( 595 ) 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 Total other comprehensive income (loss), net of tax 2,013 1,590 ( 424 ) Total comprehensive income $ 18,188 $ 25,698 $ 23,877 See Accompanying Notes to Consolidated Financial Statements 74 PCB Bancorp and Subsidiary Consolidated Statements of Changes in Shareholders’ Equity (in thousands, except share data) Shareholders’ Equity 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 Cash dividends declared on common stock ($ 0.12 per share) — — ( 1,760 ) — ( 1,760 ) Balance at December 31, 2018 15,977,754 174,366 37,577 ( 1,647 ) 210,296 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 Stock options exercised 88,277 626 — — 626 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 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 ) Share-based compensation expense — 715 — — 715 Stock options exercised 105,601 693 — — 693 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 See Accompanying Notes to Consolidated Financial Statements 75 PCB Bancorp and Subsidiary Consolidated Statements of Cash Flows (in thousands) 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: Depreciation of premises and equipment 1,487 1,534 1,269 Net amortization of premiums on securities 938 883 790 Net accretion of discounts on loans ( 3,292 ) ( 4,022 ) ( 4,397 ) Net accretion of deferred loan fees ( 2,901 ) ( 452 ) ( 515 ) Amortization of servicing assets 1,948 2,382 2,765 Provision for loan losses 13,219 4,237 1,231 Deferred tax expense (benefit) ( 3,670 ) ( 2,573 ) 641 Share-based compensation 715 709 648 Gain on sale of securities available-for-sale — ( 786 ) — Gain on sale of loans ( 6,527 ) ( 5,996 ) ( 5,560 ) Originations of loans held-for-sale ( 141,215 ) ( 105,153 ) ( 99,864 ) Proceeds from sales of and principal collected on loans held-for-sale 149,388 116,544 106,282 Change in accrued interest receivable and other assets ( 2,338 ) 801 ( 1,362 ) Change in accrued interest payable and other liabilities ( 6,836 ) ( 2,096 ) 4,454 Net cash provided by operating activities 17,091 30,120 30,683 Cash flows from investing activities: Purchase of securities available-for-sale ( 39,385 ) ( 11,961 ) ( 41,965 ) Proceeds from sale of securities available-for-sale — 33,627 — Proceeds from maturities, calls, and paydowns of securities available-for-sale 37,182 30,134 23,374 Purchase of securities held-to-maturity — ( 2,150 ) ( 2,075 ) Proceeds from maturities, calls, and paydowns of securities held-to-maturity 1,309 3,600 1,289 Proceeds from sale of loans held-for-sale previously classified as held-for-investment 664 826 8,254 Net increase in loans held-for-investment ( 134,626 ) ( 113,139 ) ( 155,113 ) Purchase of loans held-for-investment — ( 1,539 ) — Purchase of Federal Home Loan Bank and other restricted stock ( 102 ) ( 912 ) ( 844 ) Proceeds from sale of other real estate owned 3,924 321 102 Purchases of premises and equipment ( 1,784 ) ( 710 ) ( 1,140 ) Net cash used in investing activities ( 132,818 ) ( 61,903 ) ( 168,118 ) Cash flows from financing activities: Net increase in deposits 115,544 35,554 192,463 Proceeds from long-term Federal Home Loan Bank advances 140,000 — — Repayment of long-term Federal Home Loan Bank advances ( 80,000 ) ( 10,000 ) ( 10,000 ) Stock options exercised 693 626 310 Stock issued under stock offering, net of expenses — — 45,037 Repurchase of common stock ( 6,487 ) ( 6,480 ) — Cash dividends paid on common stock ( 6,153 ) ( 3,962 ) ( 1,760 ) Net cash provided by financing activities 163,597 15,738 226,050 Net increase (decrease) in cash and cash equivalents 47,870 ( 16,045 ) 88,615 Cash and cash equivalents at beginning of year 146,228 162,273 73,658 Cash and cash equivalents at end of year $ 194,098 $ 146,228 $ 162,273 See Accompanying Notes to Consolidated Financial Statements 76 PCB Bancorp and Subsidiary Consolidated Statements of Cash Flows (Continued) (in thousands) Year Ended December 31, 2020 2019 2018 Supplemental disclosures of cash flow information: Interest paid $ 17,350 $ 24,130 $ 13,979 Income taxes paid 10,051 13,379 7,568 Supplemental disclosures of non-cash investment activities: Loans transferred to loans held-for-sale $ 1,355 $ 824 $ 8,062 Loans transferred to other real estate owned 3,079 50 — 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 77 PCB Bancorp and Subsidiary Notes to Consolidated Financial Statements Note 1. Basis of Presentation and Significant Accounting Policies Nature of Operations 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 nine LPOs in Irvine, Artesia and Los Angeles, California; Annandale, Virginia; Chicago, Illinois; Bellevue, Washington; Aurora, Colorado; Carrollton, Texas; and New York, New York. The Bank offers a broad range of loans, deposits, and other products and services predominantly to small and middle market businesses and individuals. Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018. Significant inter-company accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, all references to the Company include its wholly owned subsidiaries. The accounting and reporting polices of the Company are based upon GAAP and conform to predominant practices within the financial services industry. Significant accounting policies followed by the Company are presented below. Certain prior period amounts have been reclassified to conform to the current year’s presentation. These reclassifications had no impact on the Company’s consolidated statements of financial condition or operations. Use of Estimates in the Preparation of Financial Statements The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates are subject to change and such change could have a material effect on the consolidated financial statements. Actual results may differ from those estimates. Significant Accounting Policies Cash and Cash Equivalents 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. 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 Investment securities are classified as held-to-maturity or available-for-sale at the time of purchase based upon the intent of management, liquidity and capital requirements, regulatory limitations and other relevant factors. Debt securities are classified as held-to-maturity when management has the positive intent and ability to hold to maturity. Debt securities are classified as available-for-sale when they might be sold before maturity. 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. 78 Gains and losses on sales of securities are determined using the specific identification method. Net realized gains or losses on available-for-sale securities are included in noninterest income and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income. Amortization of premiums and accretion of discounts are included in interest income using the effective interest method. 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. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: OTTI related to credit loss, which is recognized as a charge against earnings, and OTTI related to other factors, which is recognized in other comprehensive income, net of tax. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. Loans Held-For-Sale The Company originates SBA loans, and certain residential property and commercial property loans with the intention for sale in the secondary market. The Company records the guaranteed portion of SBA loans and these residential property and commercial property loans held-for-sale at the lower of cost or fair value on an aggregate basis. Fair value is based on commitments on hand from investors or prevailing market prices. A valuation allowance is established if the fair value of such loans is lower than their cost, with a corresponding charge to noninterest income. When the Company changes its intent to hold loans for investment, the loans are transferred to held-for-sale at lower of cost or fair value at the time of transfer, as determined on an individual loan level with charges made to allowance for loan losses when the fair value is lower than the cost. Deferred fees and cost on transferred loans are included in the determination of gains or losses on sale of the related loans. Subsequent decreases in fair value, if any, are recognized through a valuation allowance with charges made to noninterest income. If a determination is made that a loan held-for-sale cannot be sold in the foreseeable future, it is transferred to loans held-for-investment at lower of cost or fair value on the transfer date with a charge made to noninterest income when the fair value is lower than the cost. Realized gains and losses from sales of loans included in noninterest income. For sales of guaranteed portion of SBA and certain residential property loans, the loan servicing rights are retained. Loans Held-For-Investment Loans held-for-investment that management has the intent and ability to hold for the foreseeable future are reported at their outstanding unpaid principal balances, net of any charge-offs, deferred fees or costs on originated loans, or unamortized premiums or discounts on purchased loans. Loan origination fees and certain direct origination costs are deferred and recognized in interest income using the effective interest method over the life of the loan. Interest is accrued and credited to income as earned only if deemed collectible. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is discontinued when principal or interest payment is 90 days past due based on the contractual terms of the loan or when, in the opinion of management, there is reasonable doubt as to collectability. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Past-due status is based on the contractual terms of the loan. Interest payments that are subsequently received are applied as a reduction to the remaining principal balance as long as concern exists as to the collectability of the principal. Interest accruals are resumed on such loans only when the loans are brought current with respect to interest and principal and when, in the judgment of management, all principal and interest on the loans are expected to be fully collectable. Loan portfolio segments identified by the Company include: real estate (commercial property, residential property, SBA property and construction), commercial and industrial (commercial term, commercial lines of credit, and SBA commercial term), and other consumer loans. 79 Risks associated with the Company’s real estate loans include a decline in the economy and a reduction in real estate values in the Company’s primary markets, an increase in market interest rates, increased competition in pricing and loan structure, and environmental risks. Risks associated with the Company’s commercial and industrial loans include a decline in the economy in the primary markets, an increase in market interest rates, and deterioration of a borrower’s or guarantor’s financial capabilities. Risk associated with the Company’s other consumer loans include the same risks associated with the commercial and industrial loans, but also includes risks related to consumer bankruptcy laws which allow consumers to discharge certain debts. The Company classifies loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans in regards to credit risk. This analysis typically includes non-homogeneous loans, such as commercial property and commercial and industrial loans, and is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings: • Pass - Loans classified as pass include non-homogeneous loans not meeting the risk ratings defined below and smaller, homogeneous loans not assessed on an individual basis. • Special Mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of repayment prospects for the loan or of the institution’s credit position at some future date. • Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. • 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 : U.S. 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. 80 Allowance for Loan Losses Allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the loan is uncollectible. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. Amounts are charged-off when available information confirms that specific loans or portions thereof, are uncollectible. Generally, loans are charged off immediately when it is determined that advances to the borrower are in excess of the calculated current fair value of the collateral and if a borrower is deemed incapable of repayment of unsecured debt, there is little or no prospect for near term improvement and no realized strengthening action of significance pending. Other consumer loans are charged off based on delinquency, typically 120 days for closed loans and 180 days for open-end loans, or earlier when it is determined that the loan is uncollectible due to a triggering event, such as bankruptcy, fraud, or death. This methodology for determining charge-offs is consistently applied to each segment. The allowance consists of general reserves (collectively evaluated for impairment) and specific reserves (individually evaluated for impairment). General reserves cover non-impaired loans and are based on historical loss rates over the most recent four years for each portfolio segment, adjusted for the effects of qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment’s historical loss experience. The Company utilizes a migration analysis to measure actual historical loss experience, with the resulting historical loss rate adjusted for any applicable loss emergence period factors serving as the base loss rate to estimate the amount of appropriate loss reserve. Qualitative factors include consideration of the following: changes in lending policies and procedures; changes in economic conditions; changes in the nature and volume of the portfolio; changes in the experience, ability, and depth of lending management and other relevant staff; changes in the volume and severity of past due, nonaccrual, and other adversely graded loans; changes in the loan review system; changes in the value of the underlying collateral for collateral-dependent loans; concentrations of credit and the effect of other external factors such as competition and legal and regulatory requirements. Specific reserves relate to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Factors considered in determining impairment include payment status, collateral value, and the probability of collecting all amounts when due. Measurement of impairment is based on the expected future cash flows of an impaired loan, which are to be discounted at the loan’s effective interest rate, or measured by reference to an observable market value, if one exists, or the fair value of the collateral for a collateral-dependent loan. The Company selects the measurement method on a loan-by-loan basis, with the exception of collateral-dependent loans for which the most viable source of repayment is the continued operation of the collateral or liquidation of the collateral. The impairment for these loans are measured at the fair value of the collateral, less estimated selling cost. If a loan is impaired, the loan is reported, net of the allocated allowance, at the present value of estimated future cash flows using the loan’s effective interest rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments received on impaired loans are first applied to principal, then recognized as income based on existing methods to recognize income on nonaccrual loans. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered TDRs and classified as impaired with measurement of impairment as described above. Premises and Equipment Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives, which ranges from three to seven years for furniture and equipment. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the improvements or the remaining lease term, whichever is shorter. 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. 81 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 The Bank is a member of the FHLB and Pacific Coast Bankers’ Bancshares (“PCBB”) system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB and PCBB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on the ultimate recovery of par value. Both cash and stock dividends are reported as income. Other Real Estate Owned OREO represents properties acquired through foreclosure or other proceedings. The Company initially records OREO at fair value at the time of foreclosure. Thereafter, OREO is recorded at the lower of cost or fair value based on their subsequent changes in fair value. The fair value of OREO is generally based on recent real estate appraisals adjusted for estimated selling costs. Any write-down to fair value at the time of transfer to OREO is charged to allowance for loan losses. Property is evaluated regularly to ensure the recorded amount is supported by its current fair value and valuation allowances to reduce the carrying amounts to fair value less estimated costs to dispose are recorded as necessary. Additions to or reductions from valuation allowances are recorded in noninterest expense. Servicing Assets Servicing assets are recognized when servicing rights are retained from the sale of loans, such as sales of guaranteed portion of SBA and certain residential property loans, and are initially recorded at fair value. Fair value is calculated as the present value of estimated future cash flows from the servicing rights based on current market sources, such as the cost to service, discount rates, and prepayment speeds. Servicing assets are amortized into noninterest income over the expected life of the underlying loans. Servicing assets are evaluated for impairment based on the fair value of the servicing rights as compared to the carrying amount. Impairment is determined by stratifying servicing rights into groupings based on predominant risk characteristics, such as collateral type. For purposes of measuring impairment, the Company has identified each servicing asset with the underlying loan being serviced. A valuation allowance is recorded when the fair value is below the carrying amount of the asset. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the valuation allowance may be recorded as an increase to income. The fair values of servicing assets are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and changes in discount rates. Servicing income as reported on the income statement consists of fees earned for servicing loans, net of the amortization of servicing assets and changes in the valuation allowance. The servicing fees are based on a contractual percentage of the outstanding principal and recorded as income when earned. Investment in Qualified Affordable Housing Projects The Company has invested in a limited partnership that operates qualified affordable housing projects for lower income tenants in California. The Company accounts for this investment under the proportional amortization method and the amortization expense is presented as a component of current tax expense. Return of this investment is generated primarily through allocated federal tax credits and other tax benefits. The recorded investment amount was $ 1.9 million and $ 2.1 million, respectively, and unfunded commitments were $ 57 thousand and $ 85 thousand, respectively, at December 31, 2020 and 2019. The recorded investment amount is included in Accrued Interest Receivable and Other Assets and unfunded commitment is included in Accrued Interest Payable and Other Liabilities on the Consolidated Statements of Financial Condition. As components of income tax expense, the Company recognized amortizations of $ 240 thousand, $ 261 thousand and $ 283 thousand, respectively, and federal tax credits and other benefits of $ 300 thousand, $ 304 thousand and $ 290 thousand, respectively, for the years ended December 31, 2020, 2019 and 2018. The Company determined that there were no events or changes in circumstances indicating that it is more likely than not that the carrying amount of the investment will not be realized. Therefore, no impairment was recorded at December 31, 2020 and 2019. 82 Earnings Per Share Earnings per share (“EPS”) is computed under the two-class method. Net income allocated to common stock is computed by subtracting income allocated to unvested restricted stock from net income. Income allocated to unvested restricted stock includes cash dividend paid and undistributed income available to holders of unvested restricted stock, if any. Basic EPS is computed by dividing net income allocated to common stock by the weighted-average common shares outstanding excluding the weighted-average unvested restricted stock. Diluted EPS is computed by dividing net income allocated to common stock by the weighted-average common stock outstanding, excluding the weighted-average unvested restricted stock, adjusted for the dilutive effect of the stock options. Diluted EPS reflects the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted into common stock, or resulted in the issuance of common stock that then shared in the earnings of the entity. Transfer of Financial Assets Transfers of financial assets are accounted for sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Share-Based Compensation The Company recognizes the cost of employee services received in exchange for stock options and restricted stock awards (“RSAs”), based on the grant date fair value of those awards. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company's common stock at the date of grant is used for RSAs. This cost is recognized in income over the period which an employee is required to provide services in exchange for the award, generally the vesting period. See Note 12 for additional information on the Company’s stock option plan. Income Taxes 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 carryforwards. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. 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 carryforwards depends on having sufficient taxable income of an appropriate character and in the appropriate periods. Commitments and Contingencies In the ordinary course of business, the Company enters into off-balance sheet financial instruments consisting of commitments to extend credit, commercial letters of credit, and standby letters of credit as described in Note 16. 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. 83 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 Fair value is the exchange price that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Current accounting guidance establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value: • Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. • Level 2: Significant observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. • Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. See Note 2 for more information and disclosures relating to the Company’s fair value measurements. Adopted Accounting Pronouncements 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 The following are recently issued accounting pronouncements applicable to the Company that have not yet been adopted: In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326).” The amendments in this ASU require that entities change the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. It includes financial assets such as loan receivables, held-to-maturity debt securities, net investment in leases that are not accounted for at fair value through net income, and certain off-balance sheet credit exposures. This ASU is effective for public business entities that are SEC filers for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. 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 January 1, 2023. 84 Note 2. Fair Value Measurements ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value including a three-level valuation hierarchy, and expands disclosures about fair value measurements. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (i.e. an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three-level fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are defined as follows: • Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. • Level 2: Significant observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. • Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. Fair value is measured on a recurring basis for certain assets and liabilities in which fair value is the primary basis of accounting. Additionally, fair value is used on a non-recurring basis to evaluate certain assets or liabilities for impairment or for disclosure purposes. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company records securities available-for-sale at fair value on a recurring basis. Certain other assets, such as loans held-for-sale, impaired loans, servicing assets and OREO are recorded at fair value on a non-recurring basis. Non-recurring fair value measurements typically involve assets that are periodically evaluated for impairment and for which any impairment is recorded in the period in which the re-measurement is performed. The following is a description of valuation methodologies used for assets and liabilities recorded at fair value: Investment securities : The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1) or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2). Management reviews the valuation techniques and assumptions used by the provider and determines that the provider uses widely accepted valuation techniques based on observable market inputs appropriate for the type of security being measured. Securities held-to-maturity are not measured at fair value on a recurring basis. Loans held-for-sale : The Company records SBA loans held-for-sale, residential property loans held-for-sale and certain non-residential real estate loans held-for-sale at the lower of cost or fair value, on an aggregate basis. The Company obtains fair values from a third-party independent valuation service provider. Loans held-for-sale accounted for at the lower of cost or fair value are considered to be recognized at fair value when they are recorded at below cost, on an aggregate basis, and are classified as Level 2. Impaired loans : The Company records fair value adjustments on certain loans that reflect (i) partial write-downs, through charge-offs or specific reserve allowances, that are based on the current appraised or market-quoted value of the underlying collateral or (ii) the full charge-off of the loan carrying value. In some cases, the properties for which market quotes or appraised values have been obtained are located in areas where comparable sales data is limited, outdated, or unavailable. Fair value estimates for collateral-dependent impaired loans are obtained from real estate brokers or other third-party consultants, and are classified as Level 3. Other real estate owned : The Company initially records OREO at fair value at the time of foreclosure. Thereafter, OREO is recorded at the lower of cost or fair value based on their subsequent changes in fair value. The fair value of OREO is generally based on recent real estate appraisals adjusted for estimated selling costs. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and result in a Level 3 classification due to the unobservable inputs used for determining fair value. Only OREO with a valuation allowance are considered to be carried at fair value. Servicing Assets: Servicing assets represent the value of servicing rights associated with servicing loans that have been sold. The fair value for servicing assets is determined through discounted cash flow analysis and utilizes discount rates and prepayment speed assumptions as inputs. All of these assumptions require a significant degree of management estimation and judgment. The fair market valuation is performed on a quarterly basis for servicing assets. Servicing assets are accounted for at the lower of cost or market value and considered to be recognized at fair value when they are recorded at below cost and are classified as Level 3. 85 Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of dates indicated: Fair Value Measurement Level ($ 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 Securities available-for-sale: U.S. government agency and U.S. government sponsored enterprise securities: Mortgage-backed securities $ — $ 76,154 $ — $ 76,154 Collateralized mortgage obligations — 26,467 — 26,467 SBA loan pool securities — 12,080 — 12,080 Municipal bonds — 5,826 — 5,826 Total securities available-for-sale — 120,527 — 120,527 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 Securities available-for-sale: U.S. government agency and U.S. government sponsored enterprise securities: Mortgage-backed securities $ — $ 38,738 $ — $ 38,738 Collateralized mortgage obligations — 43,894 — 43,894 SBA loan pool securities — 14,152 — 14,152 Municipal bonds — 782 — 782 Total securities available-for-sale — 97,566 — 97,566 Total assets measured at fair value on a recurring basis $ — $ 97,566 $ — $ 97,566 Total liabilities measured at fair value on a recurring basis $ — $ — $ — $ — 86 Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis The following table presents the Company’s assets and liabilities measured at fair value on a non-recurring basis as of dates indicated: Fair Value Measurement Level ($ 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 Total assets measured at fair value on a non-recurring basis $ — $ — $ 1,377 $ 1,377 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 Total assets measured at fair value on a non-recurring basis $ — $ — $ 1,678 $ 1,678 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) Fair Value Valuation Technique(s) Unobservable Input(s) Range (Weighted-Average) December 31, 2020 Impaired loans: 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: 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% 87 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: Year Ended December 31, ($ in thousands) 2020 2019 2018 Collateral dependent impaired loans: Commercial property $ — $ — $ ( 53 ) SBA property ( 138 ) ( 31 ) ( 238 ) Commercial lines of credit ( 720 ) ( 2,475 ) — SBA commercial property ( 221 ) — — Other real estate owned 9 ( 18 ) 3 Net losses recognized $ ( 1,070 ) $ ( 2,524 ) $ ( 288 ) Fair Value of Financial Instruments The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on financial instruments both on and off the consolidated balance sheet without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Additionally, tax consequences related to the realization of the unrealized gains and losses can have a potential effect on fair value estimates and have not been considered in many of the estimates. The following methods and assumptions were used to estimate the fair value of significant financial instruments. Financial assets : The carrying amounts of interest-bearing deposits with other financial institutions and accrued interest receivable are considered to approximate fair value. The fair values of investment securities are generally based on matrix pricing (Level 2). The fair value of loans is estimated based on a discounted cash flow approach under an exit price notion. The fair value reflects the estimated yield that would be negotiated with a willing market participant. Because sale transactions of such loans are not readily observable, as many of the loans have unique risk characteristics, the valuation is based on significant unobservable inputs (Level 3). It is not practical to determine the fair value of FHLB and other restricted stock due to restrictions placed on its transferability. Financial liabilities : The carrying amounts of accrued interest payable are considered to approximate fair value. The fair value of deposits is estimated based on discounted cash flows. The discount rate is derived from the interest rates currently being offered for similar remaining maturities. Non-maturity deposits are estimated based on their historical decaying experiences (Level 3). The fair value of FHLB advances is estimated based on discounted cash flows. The discount rate is derived from the current market rates for borrowings with similar remaining maturities (Level 2). Off-balance-sheet financial instruments : The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. The fair value of these financial instruments is not material and is excluded from the table below. 88 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 Fair Value Measurements ($ in thousands) Level 1 Level 2 Level 3 December 31, 2020 Financial assets: Interest-bearing deposits in other financial institutions $ 174,493 $ 174,493 $ 174,493 $ — $ — Securities available-for-sale 120,527 120,527 — 120,527 — 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 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 — Accrued interest payable 2,226 2,226 — 2 2,224 December 31, 2019 Financial assets: Interest-bearing deposits in other financial institutions $ 128,420 $ 128,420 $ 128,420 $ — $ — Securities available-for-sale 97,566 97,566 — 97,566 — Securities held-to-maturity 20,154 20,480 — 20,480 — Loans held-for-sale 1,975 2,102 — 2,102 — Net loans held-for-investment 1,436,451 1,449,383 — — 1,449,383 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 — Accrued interest payable 6,004 6,004 — 1 6,003 89 Note 3. Investment Securities 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. 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. 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 Fair Value December 31, 2020 Securities available-for-sale: U.S. government agency and U.S. government sponsored enterprise securities: Mortgage-backed securities $ 74,622 $ 1,558 $ ( 26 ) $ 76,154 Collateralized mortgage obligations 26,216 294 ( 43 ) 26,467 SBA loan pool securities 11,753 349 ( 22 ) 12,080 Municipal bonds 5,370 456 — 5,826 Total securities available-for-sale $ 117,961 $ 2,657 $ ( 91 ) $ 120,527 December 31, 2019 Securities available-for-sale: U.S. government agency and U.S. government sponsored enterprise securities: Mortgage-backed securities $ 38,793 $ 96 $ ( 151 ) $ 38,738 Collateralized mortgage obligations 44,115 36 ( 257 ) 43,894 SBA loan pool securities 14,179 34 ( 61 ) 14,152 Municipal bonds 764 18 — 782 Total securities available-for-sale $ 97,851 $ 184 $ ( 469 ) $ 97,566 Securities held-to-maturity: U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities $ 15,215 $ 70 $ ( 81 ) $ 15,204 Municipal bonds 4,939 337 — 5,276 Total securities held-to-maturity $ 20,154 $ 407 $ ( 81 ) $ 20,480 As of December 31, 2020 and 2019, pledged securities were $ 117.8 million and $ 99.3 million, respectively. These securities were pledged for the State Deposit from the California State Treasurer. 90 The following table presents the amortized cost and fair value of the investment securities by contractual maturity as of December 31, 2020. Expected maturities may differ from contractual maturities, if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately. Securities Available-For-Sale ($ in thousands) Amortized Cost Fair Value Within one year $ — $ — One to five years 2,191 2,284 Five to ten years 845 881 Greater than ten years 2,334 2,661 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: Year Ended December 31, ($ in thousands) 2020 2019 2018 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 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 $ — 91 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 Total ($ in thousands) Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities December 31, 2020 Securities available-for-sale: U.S. government agency and U.S. government sponsored enterprise securities: Mortgage-backed securities $ 5,773 $ ( 26 ) 4 $ — $ — — $ 5,773 $ ( 26 ) 4 Collateralized mortgage obligations 2,424 ( 4 ) 3 5,127 ( 39 ) 6 7,551 ( 43 ) 9 SBA loan pool securities 1,677 ( 4 ) 2 1,869 ( 18 ) 4 3,546 ( 22 ) 6 Total securities available-for-sale $ 9,874 $ ( 34 ) 9 $ 6,996 $ ( 57 ) 10 $ 16,870 $ ( 91 ) 19 December 31, 2019 Securities available-for-sale: U.S. government agency and U.S. government sponsored enterprise securities: Mortgage-backed securities $ 5,401 $ ( 28 ) 5 $ 15,772 $ ( 123 ) 23 $ 21,173 $ ( 151 ) 28 Collateralized mortgage obligations 15,392 ( 52 ) 13 19,834 ( 205 ) 23 35,226 ( 257 ) 36 SBA loan pool securities 4,787 ( 38 ) 5 2,308 ( 23 ) 4 7,095 ( 61 ) 9 Total securities available-for-sale $ 25,580 $ ( 118 ) 23 $ 37,914 $ ( 351 ) 50 $ 63,494 $ ( 469 ) 73 Securities held-to-maturity: U.S. government agency and U.S. government sponsored enterprise mortgage-backed securities $ — $ — — $ 6,842 $ ( 81 ) 7 $ 6,842 $ ( 81 ) 7 Total securities held-to-maturity $ — $ — — $ 6,842 $ ( 81 ) 7 $ 6,842 $ ( 81 ) 7 In accordance with FASB ASC 320, Investments - Debt and Equity Securities , the Company performs an OTTI assessment at least on a quarterly basis. OTTI is recognized when fair value is below the amortized cost where: (i) an entity has the intent to sell the security; (ii) it is more likely than not that an entity will be required to sell the security before recovery of its amortized cost basis; or (iii) an entity does not expect to recover the entire amortized cost basis of the security. All individual securities in a continuous unrealized loss position for 12 months or more as of December 31, 2020 and 2019 had an investment grade rating upon purchase. The issuers of these securities have not established any cause for default on these securities and various rating agencies have reaffirmed their long-term investment grade status as of December 31, 2020 and 2019. These securities have fluctuated in value since their purchase dates as market interest rates fluctuated. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell before the recovery of its amortized cost basis. The Company determined that the investment securities with unrealized losses for twelve months or more are not other-than-temporary impaired, and, therefore, no impairment was recognized during the years ended December 31, 2020, 2019 and 2018. 92 Note 4. Loans and Allowance for Loan Losses Loans Held-For-Investment The following table presents, by recorded investment, the composition of the Company’s loans held-for-investment (net of deferred fees and costs) as of the dates indicated: December 31, ($ in thousands) 2020 2019 Real estate loans: Commercial property $ 880,736 $ 803,014 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 Commercial and industrial loans: Commercial term 87,250 103,380 Commercial lines of credit 96,087 111,768 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 Loan 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 93 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 94 Allowance for Loan Losses 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 Charge-offs ( 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 Charge-offs ( 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 Charge-offs ( 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) Real Estate Commercial and Industrial Consumer Total December 31, 2020 Allowance for loan losses: Individually evaluated for impairment $ 3 $ 2 $ — $ 5 Collectively evaluated for impairment 18,891 7,220 394 26,505 Total $ 18,894 $ 7,222 $ 394 $ 26,510 Loans receivable: Individually evaluated for impairment $ 2,200 $ 1,531 $ — $ 3,731 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 Allowance for loan losses: Individually evaluated for impairment $ 4 $ 15 $ — $ 19 Collectively evaluated for impairment 9,850 4,339 172 14,361 Total $ 9,854 $ 4,354 $ 172 $ 14,380 Loans receivable: Individually evaluated for impairment $ 2,158 $ 2,401 $ — $ 4,559 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 95 Credit Quality Indicators 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 Real estate loans: Commercial property $ 866,508 $ 10,268 $ 3,960 $ — $ 880,736 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: Commercial term 81,724 4,362 1,164 — 87,250 Commercial lines of credit 93,884 1,299 904 — 96,087 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 Real estate loans: Commercial property $ 802,373 $ — $ 641 $ — $ 803,014 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: Commercial term 103,380 — — — 103,380 Commercial lines of credit 109,880 — 1,888 — 111,768 SBA commercial term 24,677 — 655 — 25,332 Other consumer loans 23,242 — 48 — 23,290 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 96 Past Due and Nonaccrual Loans The following table presents the aging of past due recorded investment in accruing loans and nonaccrual loans by portfolio segment as of dates indicated: Still Accruing ($ 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: Commercial lines of credit — — — 904 904 SBA commercial term — — — 595 595 Other consumer loans 120 36 — 66 222 Total $ 302 $ 36 $ — $ 3,163 $ 3,501 December 31, 2019 Real estate loans: 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 97 Impaired Loans The following table presents loans individually evaluated for impairment by portfolio segment as of the dates indicated. 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 December 31, 2020 Real estate loans: Commercial property $ 856 $ 855 $ — $ — $ — Residential property 189 189 — — — SBA property 1,108 1,198 47 45 3 Commercial and industrial loans: Commercial term 18 18 — — — Commercial lines of credit 904 904 — — — SBA commercial term 593 633 16 18 2 Total $ 3,668 $ 3,797 $ 63 $ 63 $ 5 December 31, 2019 Real estate loans: 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, 2020 2019 2018 ($ in thousands) Average Recorded Investment Interest Income Average Recorded Investment Interest Income Average Recorded Investment Interest Income Real estate loans: Commercial property $ 467 $ 23 $ 170 $ 12 $ 199 $ — Residential property 47 — 38 — 281 — SBA property 1,459 17 1,685 41 1,245 22 Commercial and industrial loans: Commercial term 24 1 47 3 112 8 Commercial lines of credit 1,869 — 921 — 5 — 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: Year Ended December 31, ($ in thousands) 2020 2019 2018 Interest income that would have been recognized had impaired loans performed in accordance with their original terms $ 256 $ 213 $ 191 Less: interest income recognized on impaired loans on a cash basis ( 42 ) ( 65 ) ( 38 ) Interest income foregone on impaired loans $ 214 $ 148 $ 153 98 Troubled Debt Restructurings A TDR is a restructuring in which the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. The restructuring of a loan includes, but is not limited to: (i) the transfer from the borrower to the Company of real estate, receivables from third parties, other assets, or an equity interest in full or partial satisfaction of the loan, (ii) a modification of the loan terms, such as a reduction of the stated interest rate, principal, or accrued interest or an extension of the maturity date at a stated interest rate lower than the current market rate for new debt with similar risk, or (iii) a combination of the above. A loan extended or renewed at a stated interest rate equal to the current interest rate for new debt with similar risk is not to be reported as a restructured loan. The following table presents the composition of loans that were modified as TDRs by portfolio segment as of the dates indicated: December 31, 2020 2019 ($ 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: Commercial term 18 — 18 28 — 28 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 $ 0 and $ 4 thousand of allowance for loan losses as of December 31, 2020 and 2019, respectively. 99 The following table presents new loans that were modified as TDRs by portfolio segment for the periods indicated: Year Ended December 31, 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: Principal (1) Principal and Interest (2) Total ($ in thousands) Number of Loans Pre-Modification Recorded Investment Number of Loans Pre-Modification Recorded Investment Number of Loans Pre-Modification Recorded Investment Year ended December 31, 2020: Commercial and industrial loans: SBA commercial term 2 $ 37 — $ — 2 $ 37 Total 2 $ 37 — $ — 2 $ 37 Year ended December 31, 2019: Real estate loans: 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 was one SBA commercial term loan of $26 thousand that was modified as a TDR for which there was a payment default within twelve months following the modification for the year ended December 31, 2020. There were no loans that were modified as TDRs for which there was a payment default within twelve months following the modification for the years ended December 31, 2019 and 2018. 100 Purchases, Sales, and Transfers The following table presents a summary of loans held-for-investment transferred to loans held-for-sale for the periods indicated: Year Ended December 31, ($ in thousands) 2020 2019 2018 Real estate loans: Commercial property $ — $ — $ 2,112 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: Year Ended December 31, ($ in thousands) 2020 2019 2018 Real estate loans: 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. When the Company changes its intent to hold loans for investment, the loans are transferred to held-for-sale. Loans Held-For-Sale The following table presents a composition of loans held-for-sale as of the dates indicated: December 31, ($ in thousands) 2020 2019 Real estate loans: Residential property $ 300 $ 760 SBA property 1,411 150 Commercial and industrial loans: SBA commercial term 268 1,065 Total $ 1,979 $ 1,975 101 Note 5. Premises and Equipment The following table presents a composition of premises and equipment as of the dates indicated: December 31, ($ in thousands) 2020 2019 Leasehold improvements $ 7,848 $ 6,791 Furniture, fixtures and equipment 3,772 3,305 Computer equipment 2,288 2,207 Computer software 1,385 1,360 Total premises and equipment 15,293 13,663 Less: accumulated depreciation ( 11,245 ) ( 9,903 ) Premises and equipment, net $ 4,048 $ 3,760 The Company recognized depreciation expense of $ 1.5 million, $ 1.5 million and $ 1.3 million for the years ended December 31, 2020, 2019 and 2018, respectively . Note 6. Operating Leases The following table presents operating lease cost and supplemental cash flow information related to leases for the periods indicated: 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: Operating cash flows from operating leases 2,776 2,705 Right-of-use assets obtained in exchange for lease obligations 950 1,616 (1) Included in Occupancy and Equipment on the Consolidated Statements of Income. 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: December 31, ($ in thousands) 2020 2019 Operating leases: Operating lease assets $ 7,616 $ 8,991 Operating lease liabilities 8,455 9,990 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) December 31, 2020 Maturities: 2021 $ 2,494 2022 2,340 2023 2,002 2024 726 2025 687 After 2025 818 Total lease payment 9,067 Imputed interest ( 612 ) Present value of operating lease liabilities $ 8,455 102 Note 7. Servicing Assets 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. Loan servicing income was $ 2.7 million, $ 2.3 million and $ 2.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. The following table presents the composition of servicing assets with key assumptions used to estimate the fair value: December 31, 2020 2019 ($ 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 Fair value $ 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 Property SBA Commercial Term Total Balance at January 1, 2018 $ 308 $ 7,369 $ 1,296 $ 8,973 Additions 22 1,166 270 1,458 Amortization ( 86 ) ( 2,186 ) ( 493 ) ( 2,765 ) Balance at December 31, 2018 244 6,349 1,073 7,666 Additions — 1,329 185 1,514 Amortization ( 73 ) ( 1,873 ) ( 436 ) ( 2,382 ) Balance at December 31, 2019 171 5,805 822 6,798 Additions — 1,408 142 1,550 Amortization ( 62 ) ( 1,571 ) ( 315 ) ( 1,948 ) Balance at December 31, 2020 $ 109 $ 5,642 $ 649 $ 6,400 103 Note 8. Other Real Estate Owned The following table presents activity in OREO for the periods indicated: Year Ended December 31, ($ in thousands) 2020 2019 2018 Balance at beginning of year $ — $ — $ 99 Additions 5,316 395 — Sales ( 3,915 ) ( 329 ) ( 210 ) Net change in valuation allowance — ( 66 ) 111 Balance at end of year $ 1,401 $ — $ — The following table presents activity in OREO valuation allowance for the periods indicated: Year Ended December 31, ($ in thousands) 2020 2019 2018 Balance at beginning of year — — 111 Additions — 66 — Net direct write-downs and removal from sale — ( 66 ) ( 111 ) Balance at end of year $ — $ — $ — The following table presents expenses related to OREO for the periods indicated: Year Ended December 31, ($ in thousands) 2020 2019 2018 Net (gain) loss on sales ( 9 ) 1 ( 3 ) Operating expenses, net of rental income 60 — — 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. Note 9. Deposits 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. The aggregate amount of deposits reclassified as loans, such as overdrafts, was $ 98 thousand and $ 121 thousand at December 31, 2020 and 2019, respectively. The Company had California State Treasurer’s deposits of $ 100.0 million and $ 90.0 million in time deposits of more than $250,000 at December 31, 2020 and 2019, respectively. The California State Treasurer’s deposits are subject to withdrawal based on the State’s periodic evaluations. At December 31, 2020 and 2019, the Company pledged securities with amortized cost of $ 117.8 million and $ 99.3 million, respectively, for the California State Treasurer’s deposits. At December 31, 2020 and 2019, the Company had brokered deposits of $ 80.0 million and $ 92.4 million, respectively. Deposits from certain officers, directors and their related interests with which they are associated held by the Company were $ 2.7 million and $ 5.4 million at December 31, 2020 and 2019, respectively. The following table presents scheduled maturities of time deposits as of December 31, 2020: ($ 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 $ — $ 648,016 104 Note 10. Federal Home Loan Bank Advances and Other Borrowings FHLB Advances 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 one to five years at December 31, 2020. The following table presents scheduled maturities of FHLB advances as of December 31, 2020: ($ in thousands) 2021 2022 2023 2024 Thereafter Total Fixed Rate $ 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: As of or For the Year Ended December 31, ($ in thousands) 2020 2019 2018 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. At December 31, 2020 and 2019, loans pledged to secure from FHLB advances were $ 834.4 million and $ 621.7 million, respectively. The Company’s investment in capital stock of the FHLB of San Francisco totaled $ 8.3 million and $ 8.2 million, respectively, at December 31, 2020 and 2019. The Company had additional borrowing capacity of $ 425.3 million and $ 404.8 million, respectively, from the FHLB as of December 31, 2020 and 2019. Other Borrowing Arrangements At December 31, 2020, the Company had $ 35.8 million of unused borrowing capacity from the Federal Reserve Discount Window, to which the Company pledged loans with a carrying value of $ 44.1 million with no outstanding borrowings. In addition, the Company may borrow up to approximately $ 65.0 million overnight federal funds lines on an unsecured basis with correspondent banks at December 31, 2020. Note 11. Shareholders’ Equity Common Stock Initial Public Offering On August 14, 2018, the Company issued and sold 2,385,000 shares of its common stock at an offering price of $ 20.00 in an underwritten IPO, for gross proceeds of $ 47.7 million. The underwriters were granted a 30 -day option to purchase up to an additional 357,750 shares of common stock at the IPO price less the underwriting discount. Concurrently with the IPO, the Company’s common stock began trading on the Nasdaq Global Select Market under the symbol “PCB.” On September 5, 2018, the Company issued an additional 123,234 shares of its common stock upon the exercise by the underwriters of a portion of their 30 -day option, for additional gross proceeds of $ 2.5 million. Aggregate net proceeds from the IPO were $ 45.0 million after deducting underwriting discounts, commissions and offering expenses. Stock Repurchase 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 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. 105 Note 12. Share-Based Compensation On July 25, 2013, the Company adopted the Equity Based Stock Compensation Plan (“2013 EBSC Plan”) approved by its shareholders to replace the 2003 Stock Option Plan. The 2013 EBSC Plan provided for options to purchase 1,114,446 shares of common stock for equity-based compensation awards including incentive and non-qualified stock options and restricted stock awards. As of December 31, 2020, there were 542,454 shares available for future grants. Share-Based Compensation Expense The following table presents share-based compensation expense and the related tax benefits for the periods indicated: Year Ended December 31, ($ in thousands) 2020 2019 2018 Share-based compensation expense related to: Stock options $ 562 $ 650 $ 648 Restricted stock awards 153 59 — Total share-based compensation expense $ 715 $ 709 $ 648 Related tax benefits $ 76 $ 44 $ 50 The following table presents unrecognized share-based compensation expense as of December 31, 2020: ($ in thousands) Unrecognized Expense Weighted-Average Remaining Expected Recognition Period Unrecognized share-based compensation expense related to: 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 The Company has issued stock options to certain employees, officers and directors. Stock options are issued at the closing market price on the grant date, and generally have a three -to five-year vesting period and contractual terms of ten years . The Company recognizes an income tax deduction upon exercise of the stock option by the option holder in an amount equal to the taxable income reported by the option holders. The option holder recognizes taxable income based on the closing market price immediately before the exercise date less the exercise price stated in the grant agreement. The following table presents the weighted-average assumptions used to determine the fair value of options granted for the periods indicated: 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: Year Ended December 31, ($ in thousands, except per share data) 2020 2019 2018 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 $ — $ 5.76 $ 5.71 106 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 Outstanding at beginning of year 829,376 $ 10.32 5.80 years $ 5,776 Exercised ( 105,601 ) $ 6.56 2.98 years Forfeited ( 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 Outstanding at beginning of year 246,317 $ 13.31 Vested ( 120,278 ) $ 11.05 Forfeited ( 4,840 ) $ 10.33 Balance at end of year 121,199 $ 15.68 Restricted Stock Awards 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. The following table represents RSAs activity for the year ended December 31, 2020: Year Ended December 31, 2020 Number of Shares Weighted-Average Grant Date Fair Value Per Share Outstanding at beginning of period 37,400 $ 16.60 Granted 1,900 $ 11.64 Vested ( 9,000 ) $ 16.69 Outstanding at end of period 30,300 $ 16.27 Note 13. Employee Benefit Plans The Company has adopted a defined contribution 401(k) plan for the benefit of its employees. The Company matches 75 % of an employee’s contribution up to 8 % of the employee’s salary each year. The Board of Directors may make a discretionary contribution to the plan annually. 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. 107 Note 14. Income Taxes The following table presents the components of income tax expense for the periods indicated: Year Ended December 31, ($ in thousands) 2020 2019 2018 Current: 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 Deferred: 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 — — — Total $ 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 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: December 31, ($ in thousands) 2020 2019 Deferred tax assets: Allowance for loan losses $ 7,790 $ 4,219 Share-based compensation 335 299 Unrealized loss on investment securities — 84 Loans held-for-sale market adjustment 419 99 Operating lease liabilities 2,485 2,931 State tax benefit 822 947 Other 447 312 Total deferred tax assets 12,298 8,891 Deferred tax liabilities: Depreciation on premises and equipment 394 308 Unrealized gain on investment securities 754 — Deferred loan origination costs 732 597 Operating lease assets 2,238 2,638 Other 60 60 Total deferred tax liabilities 4,178 3,603 Deferred tax assets, net $ 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. 108 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. federal and various state jurisdictions income tax examinations. 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 immaterial to the Company’s financial results. N o te 15. Earnings Per Share The following is a reconciliation of net income and shares outstanding to the income and number of share used to compute earnings per share for the periods indicated: Year Ended December 31, ($ in thousands, except per share) 2020 2019 2018 Basic earnings per share: Net income $ 16,175 $ 24,108 $ 24,301 Less: income allocated to unvested restricted stock ( 37 ) ( 22 ) — Net income allocated to common stock $ 16,138 $ 24,086 $ 24,301 Weighted-average total common shares outstanding 15,419,455 15,887,566 14,397,075 Less: weighted-average unvested restricted stock ( 35,224 ) ( 14,183 ) — Weighted-average common shares outstanding, basic 15,384,231 15,873,383 14,397,075 Basic earnings per share $ 1.05 $ 1.52 $ 1.69 Diluted earnings per share: Net income allocated to common stock $ 16,138 $ 24,086 $ 24,301 Weighted-average commons shares outstanding 15,384,231 15,873,383 14,397,075 Diluted effect of stock options 64,661 298,899 294,295 Diluted weighted-average common shares outstanding 15,448,892 16,172,282 14,691,370 Diluted earnings per share $ 1.04 $ 1.49 $ 1.65 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. 109 Note 16. Commitments and Contingencies In the ordinary course of business, the Company enters into financial commitments to meet the financing needs of its customers. These financial commitments include commitments to extend credit and letters of credit. Those instruments involve to varying degrees, elements of credit, and interest rate risk not recognized in the Company’s consolidated financial statements. The following table presents outstanding financial commitments whose contractual amount represents credit risk as of the dates indicated: December 31, ($ in thousands) 2020 2019 Commitments to extend credit $ 193,496 $ 171,608 Standby letters of credit 4,785 3,300 Commercial letters of credit — 292 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. The Company uses the same credit policies in making commitments as it does for the loans reflected in the consolidated financial statements. The Company maintained reserve for off-balance sheet items of $ 238 thousand and $ 301 thousand, respectively, at December 31, 2020 and 2019. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. The Company evaluates each client’s credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company is based on management’s credit evaluation of the customer. Litigation The Company is involved in various matters of litigation, which have arisen in the ordinary course of business. 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. 110 Note 17. Regulatory Matters Under the Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer was fully phased in from 0.0% in 2015 to 2.50% by 2019. Management believes as of December 31, 2020 and 2019, the Bank met all capital adequacy requirements to which they are subject to. Based on changes to the Federal Reserve’s definition of a “Small Bank Holding Company” in 2018, which increased the threshold to $3 billion in assets, the Company is not currently subject to separate minimum capital measurements. At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank. For comparison purposes, the Company’s ratios are included in following discussion as well, all of which would have exceeded the “well-capitalized” level had the Company been subject to separate capital minimums. The Company and the Bank’s capital conservation buffer was 9.22 % and 8.95 %, respectively, as of December 31, 2020, and 8.90 % and 8.71 %, respectively, as of December 31, 2019. Unrealized gain or loss on securities available-for-sale is not included in computing regulatory capital. The following table presents the regulatory capital amounts and ratios for the Company and the Bank as of dates indicated: Actual Minimum Capital Requirement To Be Well Capitalized Under Prompt Corrective Provisions ($ in thousands) Amount Ratio Amount Ratio Amount Ratio December 31, 2020 PCB Bancorp 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 Common tier 1 capital (to risk-weighted assets) $ 227,268 15.70 % $ 65,160 4.5 % $ 94,120 6.5 % Total capital (to risk-weighted assets) 245,474 16.95 % 115,840 8.0 % 144,800 10.0 % Tier 1 capital (to risk-weighted assets) 227,268 15.70 % 86,880 6.0 % 115,840 8.0 % Tier 1 capital (to average assets) 227,268 11.74 % 77,450 4.0 % 96,813 5.0 % December 31, 2019 PCB Bancorp 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 Common tier 1 capital (to risk-weighted assets) $ 223,241 15.68 % $ 64,084 4.5 % $ 92,566 6.5 % Total capital (to risk-weighted assets) 237,922 16.71 % 113,928 8.0 % 142,410 10.0 % Tier 1 capital (to risk-weighted assets) 223,241 15.68 % 85,446 6.0 % 113,928 8.0 % Tier 1 capital (to average assets) 223,241 13.06 % 68,354 4.0 % 85,442 5.0 % 111 The California Financial Code provides that a bank may not make a cash distribution to its shareholders in excess of the lesser of the bank’s undivided profits or the bank’s net income for its last three fiscal years less the amount of any distribution made to the bank’s shareholder during the same period. 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. 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. The Company may also make a distribution 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. 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 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 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. Note 18. Revenue Recognition The following table presents revenue from contracts with customers within the scope of ASC 606 for the periods indicated: Year Ended December 31, ($ in thousands) 2020 2019 2018 Noninterest income in-scope of Topic 606 Service charges and fees on deposits: Monthly service fees $ 91 $ 113 $ 108 Account analysis fees 860 972 975 Non-sufficient funds charges 228 364 326 Other deposit related fees 77 95 91 Total service charges and fees on deposits 1,256 1,544 1,500 Debit card fees 252 272 221 Gain (loss) on sale of other real estate owned 9 ( 1 ) 3 Wire transfer fees 530 515 472 Other service charges 184 221 243 Total $ 2,231 $ 2,551 $ 2,439 112 Note 19. Condensed Financial Statements for Parent Company The parent company’s condensed statements of financial condition as of December 31, 2020 and 2019, and the related condensed statements of income and comprehensive income, and condensed statements of cash flows for the years ended December 31, 2020, 2019, and 2018 are presented below: Condensed Balance Sheets December 31, ($ in thousands) 2020 2019 Assets Cash $ 3,873 $ 2,739 Investment in Pacific City Bank 229,871 224,006 Other assets 44 89 Total assets $ 233,788 $ 226,834 Liabilities and Shareholders’ Equity Other liabilities $ — $ — Total liabilities — — Total shareholders’ equity 233,788 226,834 Total liabilities and shareholders’ equity $ 233,788 $ 226,834 Condensed Statements of Income and Comprehensive Income Year Ended December 31, ($ in thousands) 2020 2019 2018 Income: Dividends from subsidiary $ 13,600 $ 11,950 $ 1,694 Other income — — — Total income 13,600 11,950 1,694 Expense: Other expense 798 835 923 Total expense 798 835 923 Income before taxes and equity in undistributed subsidiary income 12,802 11,115 771 Income tax benefit ( 234 ) ( 245 ) ( 277 ) Income before equity in undistributed subsidiary income 13,036 11,360 1,048 Equity in undistributed subsidiary income 3,139 12,748 23,253 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 $ 23,877 113 Condensed Statements of Cash Flows Year Ended December 31, ($ in thousands) 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: Equity in undistributed subsidiary income ( 3,139 ) ( 12,748 ) ( 23,253 ) Change in other assets 45 ( 40 ) ( 29 ) Change in other liabilities — ( 19 ) 19 Net cash provided by operating activities 13,081 11,301 1,038 Cash flows from investing activities: Capital contribution to subsidiary — — ( 44,361 ) Net cash used in investing activities — — ( 44,361 ) Cash flows from financing activities: Stock issued under stock offering, net of expenses — — 45,037 Repurchase of common stock ( 6,487 ) ( 6,480 ) — Stock options exercised 693 626 310 Cash dividends paid on common stock ( 6,153 ) ( 3,962 ) ( 1,760 ) Net cash provided by (used in) financing activities ( 11,947 ) ( 9,816 ) 43,587 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 Cash and cash equivalents at end of year $ 3,873 $ 2,739 $ 1,254 114 Note 20. Quarterly Results of Operations (Unaudited) The following table presents the unaudited quarterly results of operations for the year ended December 31, 2020: Three Months Ended ($ in thousands, except per share) March 31, 2020 June 30, 2020 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 Net income $ 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: Three Months Ended ($ in thousands, except per share) March 31, 2019 June 30, 2019 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 Net income $ 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 Note 21. Subsequent Events 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 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 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. 115 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.