What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-03-04 compared with 2021-03-11 · 52 added, 26 removed, 421 unchanged (16% of the section changed)

125 unchanged sentences

Furthermore, the public perception that a cyber-attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with customers and third-parties with whom we do business.

On August 30, 2021, the Bank identified unusual activity on its network.

The Bank responded promptly to disable the activity, investigate its source and monitor the Bank’s network.

The Bank subsequently became aware of claims that it had been the target of a ransomware attack.

On September 7, 2021, the Bank determined that an external actor had illegally accessed and/or acquired certain data on its network.

The Bank has been working with third-party forensic investigators to understand the nature and scope of the incident and determine what information may have been accessed and/or acquired and who may have been impacted.

The investigation revealed that this incident impacted certain files containing certain Bank customer information.

Some of these files contained documents related to loan applications, such as tax returns, Form W-2 information of their employees, and payroll records.

The Bank has notified all individuals identified as impacted, consistent with applicable laws.

All impacted individuals were offered free Equifax Complete Premier credit monitoring and identify theft protection services.

The Bank has notified law enforcement and appropriate authorities of the incident.

On December 16, 2021, Plaintiff Min Woo Bae, individually and on behalf of all others similarly situated, filed in the Los Angeles County Superior Court a complaint based on the incident for damages, injunctive relief, and equitable relief, styled Min Woo Bae v.

Pacific City Bank , Case Number 21STCV45922 (“the Matter”).

In the Matter, Plaintiff seeks to form a class action and alleges causes of action for:

(1) negligence;

(2) unjust enrichment;

(3) violations of California’s Consumer Privacy Act, Civil Code § 1798.150(a);

and (4) violations of California’s unfair competition law (Cal.

Code § 17200, et seq.).

The summons and complaint have been served on the Bank as of the date of this submission.

On January 7, 2022, the Court entered a minute order staying the Matter at least until March 4, 2022, when the Court will hold an initial status conference.

The Bank expresses no opinion on the merits of the Matter and intends to answer, respond, and/or otherwise defend itself from the claims and causes of action asserted in the complaint to the fullest extent permitted by applicable law.

The Company continues to monitor and evaluate the data incident for its magnitude and concomitant financial, legal or reputational consequences.

To date, such consequences are not material, however the data incident is still recent and notices to affected individuals only recently began and the lawsuit mentioned above is in its very early stages.

During the year ended December 31, 2021, expenses associated with the data incident, all of which are included in Other Expense in Consolidated Statements of Income (Unaudited), totaled $100 thousand, which represents the retention amount on its insurance claims.

The Company anticipates additional expenses will be incurred in future periods;

however, the Company does have a cyber-liability insurance policy that should provide insurance coverage for this incident.

We have a continuing need for technological change, and we may not have the resources to effectively implement new technology or we may experience operational challenges when implementing new technology.

62 unchanged sentences

In addition, if repurchase and indemnity demands increase on loans that we sell from our portfolios, our liquidity, results of operations and financial condition could be adversely affected.

The non-guaranteed portion of SBA loans that we retain on our balance sheet as well as the guaranteed portion of SBA loans that we sell could expose us to various credit and default risks.

We originated $194.4 million and $106.2 million, respectively, of SBA loans (total commitment basis) during the years ended December 31, 2021 and 2020.

During the same time periods, we sold $126.8 million and $89.8 million, respectively, of the guaranteed portion of our SBA loans.

As of December 31, 2021, we held $184.3 million of SBA loans on our balance sheet, $143.2 million of which consisted of the non-guaranteed portion of SBA loans and $41.2 million or 22.3% consisted of the guaranteed portion of SBA loans.

The non-guaranteed portion of SBA loans have a higher degree of risk of loss as compared to the guaranteed portion of such loans, and these non-guaranteed loans make up a substantial majority of our remaining SBA loans.

When we sell the guaranteed portion of SBA loans in the ordinary course of business, we are required to make certain representations and warranties to the purchaser about the SBA loan and the manner in which they were originated.

Under these agreements, we may be required to repurchase the guaranteed portion of the SBA loan if we have breached any of these representations or warranties, in which case we may record a loss.

In addition, if repurchase and indemnity demands increase on loans that we sell from our portfolios, our liquidity, results of operations and financial condition could be adversely affected.

Further, we generally retain the non-guaranteed portions of the SBA loans that we originate and sell, and to the extent the borrowers of such loans experience financial difficulties, our financial condition and results of operations could be adversely impacted.

Many of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans.

At December 31, 2020 we had $1.36 billion of commercial loans, consisting of $880.7 million of commercial property loans, $126.6 million of SBA property loans, $15.2 million of construction loans, and $340.9 million of C&I loans, including $135.7 million of SBA PPP loans, for which real estate is not the primary source of collateral.

At December 31, 2021 we had $1.50 billion of commercial loans, consisting of $1.11 billion of commercial property loans, $129.7 million of SBA property loans, $8.3 million of construction loans, and $257.3 million of C&I loans, including $65.3 million of SBA PPP loans, for which real estate is not the primary source of collateral.

Commercial loans represented 86.7% of our total loan portfolio at December 31, 2021.

12 unchanged sentences

The FDIC may become concerned about our CRE loan concentrations, and they may inhibit our organic growth by restricting our ability to execute on our strategic plan.

Our residential property loan product consists primarily of non-qualified residential mortgage loans which may be considered less liquid and riskier than qualified residential mortgage loans.

Our residential property loan product consists primarily of non-qualified residential mortgage loans which may be considered riskier and less liquid than qualified residential mortgage loans.

As of December 31, 2021, our residential property loan portfolio amounted to $209.5 million or 12.1% of our total loans held-for-investment portfolio.

17 unchanged sentences

Consequently, when interest rates increase further, our mortgage production may not continue at current levels.

The non-guaranteed portion of SBA loans that we retain on our balance sheet as well as the guaranteed portion of SBA loans that we sell could expose us to various credit and default risks.

We originated $106.2 million and $95.1 million, respectively, of SBA loans (total commitment basis) during the years ended December 31, 2020 and 2019.

During the same time periods, we sold $89.8 million and $99.6 million, respectively, of the guaranteed portion of our SBA loans.

As of December 31, 2020, we held $150.1 million of SBA loans on our balance sheet, $147.1 million of which consisted of the non-guaranteed portion of SBA loans and $3.0 million or 2.0% consisted of the guaranteed portion of SBA loans.

Under these agreements, we may be required to repurchase the guaranteed portion of the SBA loan if we have breached any of these representations or warranties, in which case we may record a loss.

In addition, if repurchase and indemnity demands increase on loans that we sell from our portfolios, our liquidity, results of operations and financial condition could be adversely affected.

Curtailment of government guaranteed loan programs could affect a segment of our business.

29 unchanged sentences

Nonperforming assets take significant time to resolve and adversely affect our results of operations and financial condition, and could result in further losses in the future.

As of December 31, 2020, our nonperforming loans (“NPLs”) totaled $3.2 million, or 0.20% of our loans held-for-investment portfolio.

Our NPAs, which include NPLs and other real estate owned (“OREO”), totaled $4.6 million, or 0.24% of total assets.

As of December 31, 2021, our nonperforming loans (“NPLs”) totaled $994 thousand, or 0.06% of our loans held-for-investment portfolio.

Our NPAs, which include NPLs and other real estate owned (“OREO”), totaled $994 thousand, or 0.05% of total assets.

A loan is placed on nonaccrual status if:

8 unchanged sentences

Real estate market volatility and future changes in our disposition strategies could result in net proceeds that differ significantly from our other real estate owned fair value appraisals.

As of December 31, 2020, we had OREO of $1.4 million on our books.

As of December 31, 2021, we had no OREO on our books.

OREO typically consists of properties that we obtain through foreclosure or through an in-substance foreclosure in satisfaction of an outstanding loan.

49 unchanged sentences

Allowance for loan losses, expressed as a percentage of loans held-for-investment, was 1.29%, 1.67% and 0.99%, respectively, at December 31, 2021, 2020 and 2019.

Allowance for loan losses is funded from a provision for loan losses, which is a charge to our income statement.

Our provision for loan losses, was $13.2 million, $4.2 million and $1.2 million, respectively, for the years ended December 31, 2020, 2019 and 2018.

Allowance for loan losses is funded from a provision (reversal) for loan losses, which is a charge to our income statement.

Our provision (reversal) for loan losses, was $(4.6) million, $13.2 million and $4.2 million, respectively, for the years ended December 31, 2021, 2020 and 2019.

The determination of an appropriate level of allowance for loan losses is an inherently difficult process and is based on numerous assumptions.

31 unchanged sentences

We maintain 10 LPOs that primarily originate SBA loans.

During 2020, these LPOs accounted for approximately 19.9% of new loans originated by the Bank.

During the year ended December 31, 2021, these LPOs accounted for approximately 18.6% of new loans originated by the Bank.

Sustaining the expansion of loan production through use of these out of state LPOs depends on a number of factors, including the continued strength of the markets in which our offices are located and identifying, hiring and retaining critical personnel.

51 unchanged sentences

Negative developments in the financial industry and the impact of new legislation and regulation in response to those developments could negatively impact our business operations and adversely impact our financial performance.

Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve.

An important function of the Federal Reserve is to regulate the money supply and credit conditions.

Among the instruments used by the Federal Reserve to implement these objectives are open market purchases and sales of U.S.

government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits.

These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits.

Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.

The effects of such policies upon our business, financial condition and results of operations cannot be predicted.

We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.

7 unchanged sentences

They increase our cost of doing business and, ultimately, may prevent us from making certain loans and cause us to reduce the average percentage rate or the points and fees on loans that we do make.