What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-03-11 compared with 2021-03-09 · 292 added, 332 removed, 990 unchanged (39% of the section changed)

4 unchanged sentences

Prior to that, there was no public market for our common stock.

As of March 2, 2021, the Company had approximately 1,061 common stock shareholders of record, and the closing price of the Company’s common stock was $19.11 per share.

As of March 9, 2022, the Company had approximately 177 common stock shareholders of record, and the closing price of the Company’s common stock was $24.11 per share.

The number of holders of record does not represent the actual number of beneficial owners of our common stock because securities dealers and others frequently hold shares in “street name”

4 unchanged sentences

Any future determination to pay dividends to holders of our common stock will depend on our results of operations, financial condition, capital requirements, banking regulations, contractual restrictions and any other factors that our board of directors may deem relevant.

Under the terms of our subordinated notes issued in March 2016 and November 2018, and the related subordinated note purchase agreements, we are not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the subordinated notes.

Under the terms of our subordinated notes issued in March 2016, November 2018 and March 2021, and the related subordinated note purchase agreements, we are not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the subordinated notes.

Additionally, under the terms of such notes, we are not permitted to declare or pay any dividends on our capital stock if we are not “well capitalized”

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Russell 2000 Index

SNL Bank $1B-$5B Index

S&P Global Market Intelligence ©

KBW Nasdaq Regional Banking Index

S&P Global Market Intelligence

Unregistered Sales and Issuer Purchases of Equity Securities

On June 24, 2019, the Board of Directors approved a stock repurchase program to buy back up to an aggregate of 1.0 million shares of our common stock.

As of December 31, 2020, the Company may repurchase up to 308,772 shares under the June 2019 repurchase program. 

The Company has made 173,359 repurchases of shares of its outstanding common stock during the fourth quarter of 2020.

On April 22, 2021, the Board of Directors approved a stock repurchase program to buy back up to an aggregate of 500,000 shares of our common stock. 

As of December 31, 2021, the Company may repurchase up to 335,650 shares under the repurchase program. 

The Company has repurchased 75,849 shares of its outstanding common stock during the fourth quarter of 2021.

Issuer Purchases of Equity Securities

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Maximum Number of Shares that May Yet Be Purchased Under the Plan

October 1, 2020 -- October 31, 2020

November 1, 2020 -- November 30, 2020

December 1, 2020 -- December 31, 2020

October 1, 2021 to October 31, 2021

November 1, 2021 to November 30, 2021

December 1, 2021 to December 31, 2021

Selected Financial Data.

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Loan to deposit ratio (6)

Adjusted loan to deposit ratio (6)

Core deposits / total deposits (7)

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For purposes of computing book value per common share, book value equals total common shareholders’

Tangible book value per share, return on average tangible common equity, tangible common equity to tangible assets and efficiency ratio are non-GAAP financial measures.

Tangible book value per share, return on average tangible common equity and tangible common equity to tangible assets are non-GAAP financial measures.

See “Non-GAAP Financial Measures”

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Loans available for sale

Allowance for loan losses (ALLL)

Goodwill and other intangible assets

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For the year 2021, we reported net earnings of $56.9 million, compared with $32.9 million for the year 2020.

This represented a decrease of $6.3 million or 16.0% over the prior year.

The decrease in net earnings reflected a $9.4 million increase in the provision for credit losses, a $4.3 million decrease in non-interest income and a $2.0 million increase in non-interest expenses, which was partially offset by a $7.9 million increase in net interest income and a $1.6 million decrease in income tax expense.

At December 31, 2020, total assets were $3.4 billion, an increase of  $561.5 million, or 20.1%, from total assets of $2.8 billion at December 31, 2019.

Interest-earning assets were $3.2 billion as of December 31, 2020, an increase of $555.4 million, or 21.3%, compared to $2.6 billion at December 31, 2019.

The increase in interest-earning assets was primarily due to net HFI loan growth of $499.3 million, and investment securities growth of $83.6 million, partially offset by a decrease of $58.2 million in mortgage loans available for sale. 

The increase in interest-earning assets was due to $212.6 million from the purchase of PGBH and the remainder from organic growth.

At December 31, 2020, available for sale (“AFS”) investment securities totaled $210.9 million inclusive of a pre-tax net unrealized gain of $1.6 million, compared to $126.1 million inclusive of a pre-tax net unrealized gain of $340,000 at December 31, 2019.

At December 31, 2020, held to maturity (“HTM”) investment securities totaled $7.2 million, compared to $8.3 million as of December 31, 2019.

Net loans and leases (held for investment, net of deferred fees, discounts, and the allowance for loan losses) were $2.7 billion at December 31, 2020, compared to $2.2 billion at December 31, 2019.

This represented an increase of $24.0 million, or 72.8%, over the prior year.

The increase in net earnings reflected a $19.6 million increase in net interest income, a $4.7 million increase in non-interest income, $7.9 million decrease in the provision for loan losses and a $1.3 million 

decrease in non-interest expenses, which was partially offset by a $9.5 million increase in income tax expense.

At December 31, 2021, total assets were $4.2 billion, an increase of $878.1 million, or 26.2%, from total assets of $3.4 billion at December 31, 2020.

Interest-earning assets were $4.0 billion as of December 31, 2021, an increase of $831.3 million, or 26.3%, compared to $3.2 billion at December 31, 2020.

The increase in interest-earning assets was primarily due to net HFI loan growth of $224.6 million and investment securities growth of $156.5 million, partially offset by a decrease of $44.0 million in mortgage loans available for sale.

At December 31, 2021, available for sale (“AFS”) investment securities totaled $368.3 million inclusive of a pre-tax net unrealized loss of $2.4 million, compared to $210.9 million inclusive of a pre-tax net unrealized gain of $1.6 million at December 31, 2020.

At December 31, 2021, held to maturity (“HTM”) investment securities totaled $6.3 million, compared to $7.2 million as of December 31, 2020.

Net loans and leases (held for investment, net of deferred fees, discounts, and the allowance for loan losses) were $2.9 billion at December 31, 2021, compared to $2.7 billion at December 31, 2020.

Net loans and leases increased $221.0 million, or 8.3%, from December 31, 2020.

The increase in net loans was primarily due to the acquisition of PGBH with loan balances of $173.1 million and the remainder from organic growth. 

The increase in net loans included approximately $167.1 million in SFR mortgage loans, $210.4 million in CRE loans, $15.6 million in C&I loans, $90.7 million in construction loans, and $22.8 million in SBA loans.

Total deposits were $2.6 billion at December 31, 2020, an increase of $386.2 million, or 17.2%, compared to $2.2 billion at December 31, 2019. The increase is due to the acquisition of $188.4 million of deposits from PGBH, a net increase of $9.0 million from wholesale and brokered deposits, and the remainder from organic growth.

Noninterest-bearing deposits were $617.2 billion at December 31, 2020, an increase of $158.4 million, or 34.5%, from $458.8 million at December 31, 2019.

The increase in net loans was due to organic growth. 

The increase in net loans included approximately $244.4 million in CRE loans, $116.4 million in construction loans and $26.7 million in other loans, partially offset by a $119.8 million decrease in SFR mortgage loans, $21.4 million in C&I loans and $21.7 million in SBA loans.

Total deposits were $3.4 billion at December 31, 2021, an increase of $750.4 million, or 28.5%, compared to $2.6 billion at December 31, 2020. The increase is due to an increase of $870.8 million in non-maturity deposits, partially offset by a net decrease of $120.4 million from time 

deposits, and the remainder from organic growth.

Noninterest-bearing deposits were $1.3 billion at December 31, 2021, an increase of $674.3 million, or 109.2%, from $617.2 million at December 31, 2020. 

At December 31, 2021, noninterest-bearing deposits were 38.1% of total deposits, compared to 23.4% at December 31, 2020.

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The decrease is due to a 73 basis point decrease in the average rate paid on interest bearing deposits.

Borrowings, consisting of FHLB long-term advances, long-term debt and subordinated debt, increased $155.0 million to $268.7 million as of December 31, 2020 compared to $113.7 million as of December 31, 2019.

The Company had no short-term FHLB advances and $150.0 million in long-term advances at December 31, 2020, compared to none at December 31, 2019.

The allowance for loan losses was $29.3 million at December 31, 2020, an increase of $10.5 million or 55.9%, from $18.8 million at December 31, 2019.

During 2020, there was a $11.8 million provision for loan losses compared to $2.4 million for 2019.

Borrowings, consisting of FHLB long-term advances, long-term debt and subordinated debt, increased $68.8 million to $337.5 million as of December 31, 2021 compared to $268.7 million as of December 31, 2020.

The Company had no short-term FHLB advances, and $150.0 million in long-term advances at December 31, 2021 and at December 31, 2020.

The allowance for loan losses was $32.9 million at December 31, 2021, an increase of $3.6 million or 12.2%, from $29.3 million at December 31, 2020. 

During 2021, there was a $4.0 million provision for loan losses compared to $11.8 million for 2020.

The ALLL to HFI loans and leases outstanding was 1.12% and 1.08% as of December 31, 2021 and December 31, 2020, respectively.

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Years Ended December 31,

2019 Variance

2018 Variance

2020 Variance Increase (Decrease)

2019 Variance Increase (Decrease)

December 31, 2019

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Provision for loan losses

Net interest income after provision (recapture) for credit losses

Net interest income after provision (recapture) for loan losses

Noninterest income

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Earnings per common share:

Return on average assets

Performance Ratios

Return on average assets, annualized

Return on average shareholders’

equity, annualized

Efficiency ratio

Tangible common equity to tangible assets (2)

Tangible comon equity to tangible assets (2)

Return on average tangible common equity, annualized (2)

Tangible book value per share (2)

Return on average tangible common equity (2)

Earnings per share are calculated utilizing the two-class method.

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Diluted earnings per share are calculated by dividing earnings by the weighted average number of shares adjusted for the dilutive effect of outstanding stock options using the treasury stock method.

Efficiency ratio, tangible book value per share, return on average tangible common equity, tangible common equity to tangible assets, and the efficiency ratio are non-GAAP financial measures.

Tangible book value per share, return on average tangible common equity, and tangible common equity to tangible assets are non-GAAP financial measures.

See "Non-GAAP Financial Measures" for a reconciliation of these measures to their most comparable GAAP measures.

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Net Interest Income/Average Balance Sheet

In 2020, we generated fully-taxable equivalent net interest income of $104.8 million, an increase of $7.9 million, or 8.1%, from the net interest income produced in 2019.

This increase was largely due to a 11.7% increase in the average balance of interest-earning assets, in part due to the PGBH acquisition and organic loan growth, partially offset by an 11 basis point decrease in the net interest margin.

In 2021, we generated fully-taxable equivalent net interest income of $124.4 million, an increase of $19.6 million, or 18.7%, from the net interest income produced in 2020.

This increase was largely due to a 20.7% increase in the average balance of interest-earning assets, in part due to organic loan growth, partially offset by an 6 basis point decrease in the net interest margin.

For the years ended December 31, 2021 and 2020 our reported net interest margin was 3.46% and 3.52%, respectively.

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Interest Income .

Total interest income was $139.1 million in 2020 compared to $141.7 million in 2019.

The $2.6 million, or 1.8%, decrease in total interest income was mainly due to a decrease in the average loan yield of 37 basis points.

This was partially offset by increases in the average balance of total loans of $147.5 million, average balance of securities of $88.2 million, and average balance of Federal funds sold, cash equivalents and other investments of $77.5 million.

Total fully-taxable equivalent interest income was $147.1 million in 2021 compared to $139.2 million in 2020.

The $8.0 million, or 5.7%, increase in total interest income was mainly due to increases in the average balance of total loans of $180.9 million, average balance of securities of $144.1 million, and average balance of Federal funds sold, cash equivalents and other investments of $292.2 million.

This was partially offset by a decrease in the average total loan yield of 6 basis points.

Interest and fees on loans was $141.6 million in 2021 compared to $133.9 million in 2020.

The $1.3 million, or 0.94%, decrease in interest income on loans was primarily due to a 46 basis point decrease in the average yield on loans held for investment and 51 basis point decrease in the average yield on loans held for sale, partially offset by a $147.5 million increase in the average balance of held for investment and held for sale loans outstanding.

The increase in the average balance of loans outstanding was primarily due to the PGBH acquisition in January 2020 plus organic growth in commercial real estate and single-family residential mortgage loans during 2020.

The $7.7 million, or 5.7%, increase in interest income on loans was primarily due to a $180.9 million increase in the average balance of total loans outstanding, partially offset by 6 basis point decrease in the average yield on total loans.

The increase in the average balance of loans outstanding was primarily due to organic growth in commercial real estate and single-family residential mortgage loans during 2021.

The yield on the loan portfolio benefited from accretion income associated with purchase accounting discounts established on loans acquired in prior acquisitions.

For the years 2021 and 2020, the reported yield on total loans was 5.12% and 5.18%, respectively.

The impact of accretion income on our yield on total loans for the years 2020 and 2019 was to increase our reported yield on total loans by 0.08% and 0.11%, respectively.

The impact of accretion income on our yield on total loans for the years 2021 and 2020 was to increase our reported yield on total loans by 0.03% and 0.08%, respectively. 

A substantial portion of our acquired loan portfolio that is subject to discount accretion consists of commercial real estate loans and single family residential mortgages.

The table below illustrates by loan type the accretion income for the years 2021, 2020 and 2019:

Years Ended December 31,

(dollars in thousands)

2 unchanged sentences

Commercial and industrial

Construction and land development

Commercial real estate

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The increase in interest income on securities was primarily due to an increased average balance of $144.1 million, or 78.8%, partially offset by a 58 basis point decrease in the average yield of securities.

Interest income on our federal funds sold, cash equivalents and other investments decreased $1.7 million, or 42.3%, to $2.3 million in 2020.

The decrease in interest income on these earning assets was primarily due to by an 184 basis point decrease in average yield of cash equivalents, partially offset by a $77.5 million increase in the average balance.

Interest income on our federal funds sold, cash equivalents and other investments decreased $143,000, or 6.3%, to $2.1 million in 2021.

The decrease in interest income on these earning assets was primarily due to a 64 basis point decrease in average yield of cash equivalents, partially offset by a $292.2 million increase in the average balance.

The increase in the average balance resulted from pending utilization of these funds to higher yielding loans and securities.

Interest Expense.

Interest expense on interest-bearing liabilities decreased $10.5 million, or 23.4%, to $34.4 million in 2020 primarily due to a 67 basis point decrease in the average rate on these liabilities plus an increase in non-interest bearing deposits of $142.9 million, partially offset by a $188.2 million increase in the average balance of interest bearing liabilities.

Interest expense on interest-bearing liabilities decreased $11.6 million, or 33.9%, to $22.7 million in 2021 primarily due to a 63 basis point decrease in the average rate on these liabilities plus an increase in average non-interest bearing deposits of $374.6 million, partially offset by a $216.5 million increase in the average balance of interest bearing liabilities.

Interest expense on total deposits decreased to $12.0 million in 2021.

The $9.0 million, or 26.4%, decrease in interest expense on total deposits was primarily due to a 63 basis point decrease in the average rate paid on total interest bearing deposits, partially offset by a $168.5 million increase in the average balance of interest-bearing deposits.

The increase in the average balance of deposits resulted primarily from the PGBH acquisition in early 2020 and organic growth in 2020.

Interest expense on borrowings decreased from $10.6 million in 2019 to $9.2 million or 13.8% in 2020.

This decrease reflected decreased interest expense on subordinated notes, subordinated debentures, and other borrowed funds consisting of FHLB short-term and long-term advances.

In 2020, the average rate on these liabilities was 3.70% compared to 4.66% in 2019.

A five year FHLB advance was obtained in March 2020 to provide for additional liquidity.

The $13.2 million, or 52.6%, decrease in interest expense on total deposits was primarily due to a 73 basis point decrease in the average rate paid on total average interest bearing deposits, partially offset by a $141.9 million increase in the average balance of interest-bearing deposits.

The increase in the average balance of deposits resulted primarily from organic growth in 2021.

Interest expense on borrowings increased 17.5% from $9.2 million in 2020 to $10.8 million in 2021.

This increase reflected increased average balances in long term debt.

In 2021, the average rate on these liabilities was 3.34% compared to 3.70% in 2020. 

Average Balance Sheet, Interest and Yield/Rate Analysis

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Federal funds sold, cash equivalents and other (1)

Securities (2)

Available for sale

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Loans held for investment:

Commercial (4)

Total loans held for investment

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Interest-bearing liabilities:

NOW and money market deposits

Money market deposits

Savings deposits

Time deposits

Time deposits, less than $250,000

Time deposits, $250,000 and over

Total interest-bearing deposits

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Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.

Includes purchased receivables, which are short term loans made to investment grade companies and are used for cash management purposes by the Company.

Interest Rates and Operating Interest Differential

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Interest Variance

Earning assets:

Interest-earning assets:

Federal funds sold, cash equivalents & other (1)

Securities (2)

Available for sale

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Loans held for investment:

Commercial (4)

Total loans held for investment

Total earning assets

Interest-bearing liabilities

NOW and money market deposits

Savings deposits

Time deposits

Saving deposits

Time deposits, less than $250,000

Time deposits, $250,000 and over

Total interest-bearing deposits

FHLB short-term advances

FHLB advances

Long-term debt

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Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.

Includes purchased receivables, which are short term loans made to investment grade companies and are used for cash management purposes by the Company.

Provision for Credit Losses

The provision for credit loss expense in 2020 was $11.8 million compared to $2.4 million in 2019.

The increase in the 2020 provision expense was primarily attributable to COVID-19 pandemic related market effects of $2.3 million, increases in the size of our overall loan portfolio, and increases in past due loans, substandard loans and impaired loans.

Provision for Loan Losses

The provision for loan losses in 2021 was $4.0 million compared to $11.8 million in 2020.

The decrease in the 2021 provision expense was primarily attributable to a decrease in COVID-19 pandemic related market effects from 2020, partially offset by increases in past due loans, substandard loans and impaired loans.

Non-performing loans that increased during the year were individually analyzed, 

with $525,000 in 2020 and none in 2019, 

with $30,000 in 2021 and $525,000 in 2020, 

net addition to the allowance for loan losses.

Noninterest Income

Noninterest income decreased $4.3 million, or 23.4%, to $14.0 million in 2020 from $18.3 million in 2019.

Noninterest income increased $4.7 million, or 33.5%, to $18.7 million in 2021 from $14.0 million in 2020.

The following table sets forth the major components of noninterest income for the years ended December 31, 2021, 2020 and 2019:

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Gain on sale of loans

Loan servicing fee, net of amortization

Loan servicing income, net of amortization

Recoveries on loans acquired in business combinations

Unrealized gain on equity investments

Unrealized (loss) gain on equity investments

Gain on derivatives

Increase in cash surrender of bank owned life insurance

Increase in cash surrender of life insurance

Gain on sale of securities

3 unchanged sentences

Service charges, fees and others.

The increase in noninterest income from service charges, fees and other income was primarily from service charges on the additional transactional deposit accounts originated organically and acquired in the PGBH acquisition in 2020.  In 2020, the income from 

The increase in noninterest income from service charges, fees and other income was primarily from service charges on the additional transactional deposit accounts originated organically.  

Gain on sale of loans .

The gain on sales of loans decreased $3.9 million due primarily to the decrease of $2.9 million in SFR mortgage loans sold and a $788,000 decrease in premiums received on SBA loans sold. 

Decreases in gain on sales of loans were due to decreases of $15.1 million on SBA loans sold and $288.3 million on mortgage loans held for sale.  

The decrease in the mortgage loan sales is attributable to the change in market conditions in the secondary market primarily caused by COVID-19.

The gain on sales of loans increased $4.0 million due primarily to the increase in gains of $2.7 million in SFR mortgage loans sold and increase in gains of $1.3 million in SBA loans sold.

In creases in gain on sales of loans were due to increases of $7.2 million on SBA loans sold and $92.4 million on mortgage loans held for sale.  

The increase in the mortgage loan sales is attributable to the favorable change in market conditions in the secondary market.

Years Ended December 31,

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Loan servicing income, net of amortization.

Servicing income decreased due to increased loan pre-payments in the SFR loans serviced causing a decrease in the volume of mortgage loans we are servicing.

SBA loan servicing income increased due to a decline in SBA pre-payments.

Servicing income decreased due to increased loan pre-payments in the SFR loans serviced causing a decrease in the volume of mortgage loans we are servicing.

SBA loan servicing income decreased due to a decline in SBA pre-payments.

(dollars in thousands)

Years Ended December 31,

2020 Increase (Decrease)

2019 Increase (Decrease)

For the year, dollars in thousands

For the period

Loan servicing income, net of amortization:

SFR loans serviced

Single family residential loans serviced

SBA loans serviced

Years Ended December 31,

2020 Increase (Decrease)

2019 Increase (Decrease)

(dollars in thousands)

As of year-end, dollars in thousands

SFR loans serviced

Single family residential loans serviced

SBA loans serviced

2 unchanged sentences

Gain on derivatives. 

Due to the amount of loans that were committed to be delivered to FNMA at year-end, we recorded a derivative which resulted in a gain of $78,000 in 2020.

Due to the amount of loans that were committed to be delivered to FNMA at year-end, we recorded derivatives which resulted in a gain of $46,000 in 2021 and $78,000 in 2020. In 2021 and 2020, the income from interest rate lock commitments ("IRLCs") was ($41,000) and $182,000, respectively, and was recorded as service charges, fees and other. 

The income from forward mortgage loan sales commitments ("FMLSCs") was $46,000 and $78,000 in 2021 and 2020, respectively, and is reported in the income statement. 

There was no IRLC and FMLSC income in 2019.

Cash surrender value income of bank owned life insurance.

Cash surrender value income of bank owned life insurance (“BOLI”) decreased $8,000 due to slightly lower rates.

Cash surrender value income of bank owned life insurance (“BOLI”) increased $300,000 due to additional BOLI investment of $19.9 million in June 2021.

Gain on sales of securities, net.

Gain on sales of securities, net was $210,000 in 2020 from the sale of $11.7 million securities. 

Loss on Sale of OREO.

In 2020, there were no sales of OREO.

A $106,000 loss on sale of OREO was recognized in 2019 from the sale of two OREO properties.

Gain on sales of securities, net was $210,000 in 2020 from the sale of $11.7 million securities. 

There was no gain on sale of securities in 2021. 

Noninterest Expense

Noninterest expense increased $2.0 million, or 3.5%, to $59.5 million in 2020 from $57.5 million in 2019.

Noninterest expense decreased $1.3 million, or 2.2%, to $58.2 million in 2021 from $59.5 million in 2020.

The following table sets forth the major components of our noninterest expense for the years ended December 31, 2021, 2020 and 2019:

11 unchanged sentences

Insurance and regulatory assessments

Amortization of intangibles

Amortization of core deposit intangible

OREO expenses

3 unchanged sentences

Salaries and employee benefits.

Salaries and employee benefits expense increased $403,000 due to severance pay to terminated employees in connection with the PGBH merger.

The number of full-time equivalent employees were 366 in 2020, 355 in 2019 and 256 in 2018. None of our employees are represented by a labor union, or governed by any collective bargaining agreements.

Salaries and employee benefits expense increased $256,000 due to normal salary increases.

The number of full-time equivalent employees were 365 at December, 31, 2021, 366 at year-end 2020 and 355 at year-end 2019. 

None of our employees are represented by a labor union, or governed by any collective bargaining agreements.

We consider relations with our employees to be satisfactory.

2 unchanged sentences

Occupancy and equipment.

Occupancy and equipment expense decreased $59,000 from 2019 to 2020 mainly due t o closing three branches in 2020, partially 

offset by the addition of three branches in Chicago (one leased and two owned)  and opening one branch in Edison, New Jersey. 

Occupancy and equipment expense decreased $1.0 million from 2020 to 2021 mainly due t o the savings from branch closures in 2020 and in early 2021 . 

Data processing.

Data processing expense increased $238,000 in 2021.

This increase was primarily due to upgrading our infrastructure and also reflected the impact of increased processing costs incurred subsequent to the PGBH acquisition.

This increase was primarily due to upgrading our infrastructure.

Effective June 2019, the Company renegotiated its data processing master agreement with its vendor, under which the Company is allowed to offset future monthly data processing expenses up to approximately $2.2 million through January 2026.

As of December 31, 2021, this offset benefit amounted to $1.2 million to be recognized through January 2026.

Conversion expense associated with the PGBH and FAIC acquisitions is in the “other expenses”

Legal and professional.

Legal and professional expense increased $911,000 in 2020 due to increases in problem loan collection expenses, and commission expense recognized in connection with the purchase of a new branch location. 

Legal and professional expense increased $1.0 million in 2021 due to increases in internal control audits, professional expense associated with emerging growth company status and problem loan collections. 

Office expenses.

Office expenses comprised of communications, postage, armored car, and office supplies, decreased by $31,000 in 2020.

The decrease was primarily due to cost saving implemented in 2020 (following the acquisition of PGBH in January).

Office expenses, comprised of communications, postage, armored car, and office supplies, decreased by $29,000 in 2021. 

Marketing and business promotion.

Marketing and business promotion expense decreased $557,000.

In 2020, marketing and promotion activity decreased due to COVID-19 pandemic. 

Marketing and business promotion expense increased $406,000, due to increased marketing efforts following the COVID-19 pandemic.  

Insurance and regulatory assessments.

Insurance and regulatory assessments expense increased by $84,000 to $984,000 in 2020 compared to $900,000 in 2019, following the PGBH acquisition in 2020.

Insurance and regulatory assessments expense increased by $577,000 to $1.6 million in 2021 compared to $984,000 in 2020.

The FDIC insurance assessment was $949,000 in 2021 and $455,000 in 2020, an increase of $494,000.

2 unchanged sentences

Amortization of intangibles.

Amortization of intangibles totaled $1.4 million in 2020 as compared to $1.5 million for 2019.

Amortization of intangibles totaled $1.1 million in 2021 as compared to $1.4 million for 2020.

The decrease was due to continued amortization of the core deposit intangible asset, following the additional core deposit intangible asset of $491,000 recognized in connection with the 2020 PGBH acquisition.

1 unchanged sentence

OREO expenses were $17,000 in 2021 and $35,000 in 2020.

The $302,000 decrease was due to payments made for delinquent property taxes and construction costs during the year ended 2019.

The $18,000 decrease was due to no further ongoing expenses for past OREOs.

Merger expenses.

Merger expenses were $137,000 in 2021 compared to $746,000 in 2020.

The 2019 expense includes $104,000 with respect to the PGBH acquisition which closed in January 2020.

The 2021 expense includes expenses relating to the acquisition of the Hawaii branch. 

While the 2020 expenses relate to the PGBH acquisition.

Other noninterest expenses.

Other expenses increased by $885,000 from 2019, primarily due to the provision for credit losses associated with unfunded commitments as of the balance sheet date of $558,000 in 2020 compared to $137,000 in 2019.

Other expenses decreased by $1.9 million from 2020, primarily due to the provision (benefit) for credit losses associated with unfunded commitments as of the balance sheet date of ($180,000) in 2021 compared to $558,000 in 2020.

The off-balance sheet liabilities are letters of credit and other commitments to lend.

The provision for off-balance sheet liabilities is a function of the volume of undisbursed loans and other loan commitments multiplied by a risk factor.

Other expense increases included a $417,000 increase in mortgage servicing rights impairment due to write-downs reflecting the decline in market rates of interest.

Other expense increases included a $416,000 decrease in mortgage servicing rights impairment due to reversal of write-downs reflecting the decline in market rates of interest.

Income Tax Expense

Income tax expense was $14.5 million in 2020 compared to $16.1 million in 2019, a decrease of $1.6 million or 9.8%.

Income tax expense was $24.0 million in 2021 compared to $14.5 million in 2020, an increase of $9.5 million, or 65.4%.

The effective tax rate for 2021 was 29.7% and 30.6% for 2020.

Income tax expense for 2021 included a $873,000 benefit for stock options exercised and a $26,000 benefit for 2020.

Net income decreased $6.3 million to $32.9 million in 2020, compared to $39.2 million in 2019. 

The decrease is primarily due to a decrease in net interest income of $1.5 million, a decrease in non-interest income of $4.3 million, a $2.0 million increase in non-interest expense and a $9.4 million increase in the credit loss provision, partially offset by a $10.5 million decrease in interest expense.

Net income increased $24.0 million to $56.9 million in 2021, compared to $32.9 million in 2020. 

The increase is primarily due to a increase in net interest income of $19.6 million, an increase in non-interest income of $4.7 million, a $1.3 million decrease in non-interest expense and a $7.9 million decrease in the credit loss provision, partially offset by a $9.5 million increase in tax expense.

Results of Operations—Comparison of Results of Operations for the Years Ended December 31, 2020 to December 31, 2019

Net Interest Income/Average Balance Sheet

In 2019, we generated fully-taxable equivalent net interest income of $96.9 million, an increase of $18.4 million, or 23.4%, from the net interest income produced in 2018.

This increase was largely due to a 39.9% increase in the average balance of interest-earning assets, mainly due to the FAIC acquisition, partially offset by a 49 basis point decrease in the net interest margin.

In 2020, we generated fully-taxable equivalent net interest income of $104.8 million, an increase of $7.9 million, or 8.1%, from the net interest income produced in 2019.

For the years ended December 31, 2020 and 2019 our reported net interest margin was 3.52% and 3.63%, respectively.

Our net interest margin benefits from discount accretion on our purchased loan portfolios.

The impact of accretion income on our net interest margin for the years ended December 31, 2019 and 2018 was to increase our reported net interest margin by 0.11%, and 0.13%, respectively.

Interest Income .

Total interest income was $139.1 million in 2020 compared to $141.7 million in 2019.

The $39.6 million, or 38.8%, increase in total interest income was mainly due to increases in average total loan balances of $689.2 million partially offset by a 3 basis point decrease in average loan yield.

This increase was augmented by higher Federal funds, cash equivalent and other balances resulting in $1.6 million in additional interest income, and $300,000 from an $11.1 million increase in average investment securities, partially offset by a 2 basis point decrease in the average yield on investment securities during the year ended 2019.

The $2.6 million, or 1.8%, decrease in total interest income was mainly due to a decrease in the average loan yield of 37 basis points.

Interest and fees on loans was $133.9 million in 2020 compared to $135.2 million in 2019.

The $37.7 million, or 38.7%, increase in interest income on loans was primarily due to a 39.4% increase in the average balance of held for investment and held for sale loans outstanding partially offset by a 3 basis point decrease in the average yield on loans.

The increase in the average balance of loans outstanding was primarily due to the FAIC acquisition in late 2018 plus organic growth in CRE and SFR mortgage loans during 2019.

The yield on the loan portfolio benefited from accretion income associated with purchase accounting discounts established on loans acquired in the FAIC acquisition.

For the years ended December 31, 2019 and 2018, the reported yield on total loans was 5.54% and 5.57%, respectively.

The impact of accretion income on our yield on total loans for the years ended December 31, 2019 and 2018 was to increase our reported yield on total loans by 0.11% and 0.13%, respectively.

A substantial portion of our acquired loan portfolio that is subject to discount accretion consists of CRE loans and SFR mortgages.

Interest income from our securities portfolio increased $300,000, or 12.6%, to $2.7 million in 2019.

The increase in interest income on securities was primarily due to an increased average balance of $11.1 million, or 13.3%, partially offset by a 2 basis point decrease in the average yield of securities.

Interest income on our federal funds sold, cash equivalents and other investments increased $1.6 million, or 71.4%, to $3.9 million in 2019.

The increase in interest income on these earning assets was primarily due to an increase in the average balance of $61.1 million partially offset by an 18 basis point decrease in average yield of cash equivalents.

The yield on the loan portfolio benefited from accretion income associated with purchase accounting discounts established on loans acquired in prior acquisitions.

For the years 2020 and 2019, the reported yield on total loans was 5.19% and 5.65%, respectively.

The impact of accretion income on our yield on total loans for the years 2020 and 2019 was to increase our reported yield on total loans by 0.08% and 0.11%, respectively.

A substantial portion of our acquired loan portfolio that is subject to discount accretion consists of commercial real estate loans and single family residential mortgages.

Interest income from our securities portfolio increased $315,000, or 11.7%, to $3.0 million in 2020.

The increase in interest income on securities was primarily due to an increased average balance of $88.2 million, or 93.1%, partially offset by a 120 basis point decrease in the average yield of securities.

Interest income on our federal funds sold, cash equivalents and other investments decreased $1.7 million, or 42.3%, to $2.3 million in 2020.

The decrease in interest income on these earning assets was primarily due to by a 184 basis point decrease in average yield of cash equivalents, partially offset by a $77.5 million increase in the average balance.

The increase in the average balance resulted from pending utilization of these funds to higher yielding loans and securities.

Interest Expense.

Interest expense on interest-bearing liabilities increased $21.2 million, or 89.7%, to $44.9 million in 2019 due to increases in interest expense on both deposits and borrowings.

Interest expense on total deposits increased to $34.2 million in 2019.

The $17.3 million, or 101.9%, increase in interest expense on total deposits was primarily due to the average balance of deposits increasing 43.6% in addition to a 45 basis point increase in the average rate paid.

The increase in the average balance of deposits resulted primarily from the FAIC acquisition in late 2018, organic growth in 2019 and a $100.7 million increase in average brokered deposits.

Interest expense on borrowings increased from $6.7 million in 2018 to $10.6 million or 58.9% in 2019.

This increase reflected increased interest expense on subordinated notes, subordinated debentures, and other borrowed funds consisting of FHLB short-term advances of less than 90-days.

The increase in interest expense on long-term debt and subordinated notes of $3.6 million was due to the issuance of $55.0 million of subordinated notes in November 2018.

The increase in interest expense on FHLB advances (other borrowed funds) of $324,000, from $2.6 million in 2018 to $2.9 million in 2019 was due to a 49 basis point increase in the average rate partially offset by a $10.6 million decrease in the average FHLB advances.

These FHLB advances were utilized to fund SFR mortgage loans that were originated and held for sale during the year.

Provision for Credit Losses

The provision for credit loss expense in 2019 was $2.4 million compared to $4.5 million in 2018.

The decrease in the 2019 provision expense was primarily attributable to a decrease in our concentration levels of commercial real estate and single-family residential mortgage loans.

While non-performing loans increased during the year, they were individually analyzed without a net addition to the allowance for loan losses.

Interest expense on total deposits decreased to $25.2 million in 2020.

The increase in the average balance of deposits resulted primarily from the PGBH acquisition in early 2020 and organic growth in 2020.

Interest expense on borrowings decreased from $10.6 million in 2019 to $9.2 million or 13.8% in 2020.

This decrease reflected decreased interest expense on subordinated notes, subordinated debentures, and other borrowed funds consisting of FHLB short-term and long-term advances.

In 2020, the average rate on these liabilities was 3.70% compared to 4.66% in 2019.

A five year FHLB advance was obtained in March 2020 to provide for additional liquidity.

Provision for Loan Losses

The provision for loan losses in 2020 was $11.8 million compared to $2.4 million in 2019.

Non-performing loans that increased during the year were individually analyzed, with $525,000 in 2020 and none in 2019, net addition to the allowance for loan losses.

Noninterest Income

Noninterest income increased $5.5 million, or 42.7%, to $18.3 million in 2019 from $12.8 million in 2018. 

Noninterest income decreased $4.3 million, or 23.4%, to $14.0 million in 2020 from $18.3 million in 2019.

Service charges, fees and others.

The increase in noninterest income from service charges, fees and other income was primarily from service charges on the additional transactional deposit accounts acquired in the FAIC acquisition.

The income from forward mortgage loan sales commitments ("FMLSCs") was $78,000 and is reported in the income statement as a gain on derivatives. 

There was no IRLC and FMLSC income in 2019.

Gain on sale of loans .

The gain on sales of loans increased $2.8 million due primarily to the increase of $241.7 million in SFR mortgage loans sold offset by a $37.9 million decrease in SBA loans sold and a decrease in premiums paid on SFR mortgage loans sold in the first half of 2019.

The lower premiums on mortgage loans is due to increased 10-year Treasury rates in the first half of 2019 and changes in market conditions. 

The gain on sales of loans decreased $3.9 million due primarily to the decrease of $2.9 million in SFR mortgage loans sold and a $788,000 decrease in premiums received on SBA loans sold. Decreases in gain on sales of loans were due to decreases of $15.1 million on SBA loans sold and $288.3 million on mortgage loans held for sale.  The decrease in the mortgage loan sales is attributable to the change in market conditions in the secondary market primarily caused by COVID-19.

Loan servicing income, net of amortization.

Servicing income increased due to an increase in the volume of mortgage loans we are servicing.

SBA loan servicing income also increased due to a decline in SBA pre-payments. 

Servicing income decreased due to increased loan pre-payments in the SFR loans serviced causing a decrease in the volume of mortgage loans we are servicing.

SBA loan servicing income increased due to a decline in SBA pre-payments.

Recoveries on loans acquired in business combination s .

Recoveries on loans acquired in business combinations decreased by $1.2 million to $143,000 in 2019 compared to $1.4 million in 2018.

The decrease in 2019 was due to a recovery on one VCBB loan purchased that occurred in 2018.

Unrealized gain on equity investments.

The $147,000 represents the amount of unrealized gains in equity position the Company has with bankers’

banks and as of a result of implementing ASU 2016-01.

Recoveries on loans acquired in business combinations decreased by $59,000 to $84,000 in 2020 compared to $143,000 in 2019.

Gain on derivatives.

  Due to the amount of loans that were committed to be delivered to FNMA at year-end, we recorded a derivative which resulted in a gain of $78,000 in 2020.

Cash surrender value income of bank owned life insurance.

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Gain on sales of securities, net.

Gain on sales of securities, net was $7,000 in 2019.

In 2019, the Company sold $6.1 million securities.

In late 2018, the Company sold $44.6 million in securities mainly from the FAIC investment portfolio, which were sold immediately after the purchase of FAIC to limit any gains or losses.

Gain on sales of securities, net was $210,000 in 2020 from the sale of $11.7 million securities. 

L oss  on Sale of OREO.

In 2020, there were no sales of OREO.

A $106,000 loss on sale of OREO was recognized in 2019 from the sale of two OREO properties.

There were no OREO sales during 2018.

Noninterest Expense

Noninterest expense increased $16.8 million, or 41.4%, to $57.5 million in 2019 from $40.6 million in 2018.

Noninterest expense increased $2.0 million, or 3.5%, to $59.5 million in 2020 from $57.5 million in 2019.

Salaries and employee benefits.

Salaries and employee benefits expense increased $9.7 million.

The number of full-time equivalent employees averaged 355 in 2019, 256 in 2018 and 186 in 2017.

This increase was primarily due to additional staff and expenses from the FAIC acquisition, plus annual salary increases and increased benefit costs of $994,000.

Salaries and employee benefits expense increased $403,000 due to severance pay to terminated employees in connection with the PGBH merger.

The number of full-time equivalent employees were 366 in 2020, 355 in 2019 and 365 in 2018. None of our employees are represented by a labor union, or governed by any collective bargaining agreements.

We consider relations with our employees to be satisfactory.

On a periodic basis, the human resources department will advise senior management of the following human capital management metrics:

(1) open positions, (2) overtime expense, (3) staff turnover, and (4) employee headcount.

Occupancy and equipment.

Occupancy and equipment expense increased $5.2 million in 2019 mainly due to the addition of the eight branches in the New York region including the depreciation, real estate taxes, utilities, ongoing maintenance and lease obligations associated with the branch and office facilities we added as a result.

These expenses were higher as a result of the FAIC acquisition.

During 2018, we recognized additional rent expense of $280,000 due to building out our new headquarters location.

On October 15, 2018, we opened a new branch in Irvine, California.

In 2019 we opened one new branch in Queens, New York and closed one branch and administration center in Manhattan, New York.

Occupancy and equipment expense decreased $59,000 from 2019 to 2020 mainly due to closing three branches in 2020, partially offset by the addition of three branches in Chicago (one leased and two owned)  and opening one branch in Edison, New Jersey. 

Data processing.

Data processing expense increased $1.4 million in 2019.

This increase was primarily due to upgrading our infrastructure and also reflected the impact of increased processing costs incurred subsequent to the 2018 FAIC acquisition of approximately $350,000.

Effective June 2019, the Company renegotiated its data processing master agreement with the vendor, under which the Company is allowed to offset future monthly data processing expenses up to approximately $2.2 million through January 2026.

Conversion expense associated with the FAIC acquisition is in the “other expenses”

Data processing expense increased $537,000 in 2020.

This increase was primarily due to upgrading our infrastructure and also reflected the impact of increased processing costs incurred subsequent to the PGBH acquisition.

As of December 31, 2020, this offset benefit amounted to $1.6 million to be recognized through January 2026.

Conversion expense associated with the PGBH and FAIC acquisitions is in the “other expenses”

Legal and professional.

Legal and professional expense increased $118,000 in 2019.

This increase in 2019 is due to increased auditing and internal control testing fees as the Company grew.

In 2018, our legal and professional fees increased substantially due to going public in 2017 and the increased accounting and control audits as well as the cost of the accounting work associated with the FAIC acquisition.

Office expenses.

Office expenses comprised of communications, postage, armored car, and office supplies, increased by $367,000 in 2019.

The increase was primarily due to the addition of the locations in the New York region for a full year and to normal business activity.

Office expenses comprised of communications, postage, armored car, and office supplies, decreased by $31,000 in 2020.

The decrease was primarily due to cost saving implemented in 2020 (following the acquisition of PGBH in January).

Marketing and business promotion.

Marketing and business promotion expense increased $165,000, primarily due to our increase in CRA activities, including increased donations to qualifying non-profit organizations, plus beginning stages of promoting the Company’s presence in the New York City metropolitan area following the FAIC acquisition.

Marketing and business promotion expense decreased $557,000.

In 2020, marketing and promotion activity decreased due to COVID-19 pandemic. 

Insurance and regulatory assessments.

Insurance and regulatory assessments expense decreased by $51,000 to $900,000 in 2019 compared to $951,000 in 2018, following the FAIC acquisition in 2018.

Our FDIC insurance assessment was $386,000 in 2019 and $561,000 in 2018, a decrease of $175,000.

Our California DFPI regulatory assessment increased by $17,000 from $131,000 for the year ended 2018 to $149,000 for year ended 2019.

Our corporate insurance expenses (including directors and officers insurance and fidelity bond), was $360,000 for 2019 compared to $258,000 for 2018.

Insurance and regulatory assessments expense increased by $84,000 to $984,000 in 2020 compared to $900,000 in 2019, following the PGBH acquisition in 2020.

The FDIC insurance assessment was $455,000 in 2020 and $386,000 in 2019, an increase of $69,000.

The DFPI regulatory assessment increased by $14,000 from $149,000 for the year 2019 to $163,000 for year 2020. 

The corporate insurance expenses (including directors and officers insurance and fidelity bond), were $363,000 for 2020 compared to $360,000 for 2019.

Amortization of intangibles.

Amortization of intangibles totaled $1.5 million in 2019 as compared to $575,000 for 2018.

The increase was due to the additional core deposit intangible asset of $6.7 million from the FAIC acquisition less continued amortization of the core deposit intangible asset associated with the acquisitions of FAIC and TomatoBank.

Amortization of intangibles totaled $1.4 million in 2020 as compared to $1.5 million for 2019.

OREO expenses.

OREO expenses were $35,000 in 2020 and $337,000 in 2019.

The $313,000 increase was due to payments made for delinquent property taxes and construction costs incurred during the year ended 2019.

The $302,000 decrease was due to payments made for delinquent property taxes and construction costs during the year ended 2019.

Merger expenses.

Merger expenses were $471,000 in 2019 compared to $1.7 million in 2018, following the October 2018 FAIC acquisition.

The 2019 expense includes $104,000 with respect to the PGB acquisition which closed in January 2020.

Merger expenses were $746,000 in 2020 compared to $471,000 in 2019.

The 2020 and 2019 expenses are for the PGBH acquisition which closed in January 2020.

Other noninterest expenses.

Other expenses decreased by $42,000 from 2018, primarily due to the provision for credit losses associated with unfunded commitments as of the balance sheet date of $137,000 in 2019 compared to $406,000 in 2018.

The off-balance sheet liabilities are comprised of loans, letters of credit and other commitments to lend.

The off-balance sheet liabilities are letters of credit and other commitments to lend.

The provision for off-balance sheet liabilities is a function of the volume of undisbursed loans and other loan commitments multiplied by a risk factor.

Other expense increases included a $204,000 increase in loan expenses and $249,000 decrease in director’s fees and expenses.

Other expense increases included a $416,000 increase in mortgage servicing rights impairment due to write-downs reflecting the decline in market rates of interest.

Income Tax Expense

Income tax expense was $16.1 million in 2019 compared to $10.1 million in 2018, an increase of $6.0 million or 59.5%.

Income tax expense was $14.5 million in 2020 compared to $16.1 million in 2019, a decrease of $1.6 million or 9.8%.

The effective tax rate for 2020 was 30.6% and 29.2% for 2019.

Income tax expense for 2019 included a $78,000 benefit for stock options exercised and $3.9 million benefit for 2018.

The estimated annual effective tax rate will vary depending upon tax-advantaged income, stock option exercises, and available tax credits.

Net income increased $3.1 million to $39.2 million in 2019, compared to $36.1 million in 2018.

The increase is primarily due to an increase in net interest income of $18.4 million due to the growth in earning assets as a result of the FAIC acquisition in late 2018, organic loan growth, an increase in non-interest income of $5.5 million and a $2.1 million decrease in the credit loss provision partially offset by a $16.8 million increase in non-interest expense.

Income tax expense for 2020 included a $26,000 benefit for stock options exercised and a $78,000 benefit for 2019.

Net income decreased $6.3 million to $32.9 million in 2020, compared to $39.2 million in 2019. 

The decrease was primarily due to a decrease in net interest income of $1.5 million, a decrease in non-interest income of $4.3 million, a $2.0 million increase in non-interest expense and a $9.4 million increase in the loan loss provision, partially offset by a $10.5 million decrease in interest expense.

ANALYSIS OF FINANCIAL CONDITION

Total assets were $3.4 billion as of December 31, 2020 and $2.8 billion as of December 31, 2019.

We increased our loans held for investment by $509.8 million. 

This increase included $173.1 million from the PGBH acquisition and $336.7 million from loan growth.

Organic loan growth increased mainly in single family residential loans and commercial real estate mortgages. Our mortgage loans held for sale decreased by $58.2 million in 2020.

The increase in assets was funded by an increase in deposits of $386.2 million (including $188.4 million in deposits from the PGBH acquisition), $150.0 million in a long-term FHLB borrowing, and a $20.8 million increase in equity (primarily resulting from $32.9 million in net income, less $7.9 million in repurchase of common stock and $6.6 million in dividends paid).

Total assets were $4.2 billion as of December 31, 2021 and $3.4 billion as of December 31, 2020.

We increased our net loans held for investment by $221.0 million. 

This increase was from organic loan growth.

Organic loan growth increased mainly in commercial real estate loans and construction loans. Our mortgage loans held for sale decreased by $44.0 million in 2021.

The increase in assets was funded by an increase in deposits of $750.4 million, and a $38.2 million increase in equity (primarily resulting from $56.9 million in net income, less $10.5 million in repurchase of common stock and $9.9 million in dividends paid).

Investment Securities.

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SBA agency securities

Mortgage-backed securities

Government sponsored agencies

Mortgage-backed securities - Government sponsored agencies

Collateralized mortgage obligations

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SBA agency securities

Mortgage-backed securities

Government sponsored agencies

Mortgage-backed securities- Government sponsored agencies

Collateralized mortgage obligations

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SBA securities

Mortgage-backed securities

Government sponsored agencies

Mortgage-backed securities- Government sponsored agencies

Collateralized mortgage obligations

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Corporate debt securities

Municipal securities

Held to maturity

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The weighted-average yield on the total investment portfolio at December 31, 2021 was 1.03% with a weighted-average life of 3.8 years.

This compares to a weighted-average yield of 2.31% at December 31, 2019 with a weighted-average life of 3.0 years.

This compares to a weighted-average yield of 1.14% at December 31, 2020 with a weighted-average life of 3.3 years.

The weighted average life is the average number of years that each dollar of unpaid principal due remains outstanding.

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The table below shows the Company’s investment securities’

amortized cost and fair value by maturity in the following maturity groupings as of December 31, 2020.

amortized cost and fair value by maturity in the following maturity groupings as of December 31, 2021.  The amortized cost and fair value of the investment securities portfolio are shown by expected maturity.

Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

Less than One Year

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SBA securities

Mortgage-backed securities

Government sponsored agencies

Mortgage-backed securities- Government sponsored agencies

Collateralized mortgage obligations

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December 31, 2021

Mortgage-backed securities

Government sponsored agencies

Mortgage-backed securities- Government sponsored agencies

Collateralized mortgage obligations

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December 31, 2020

Government agency securities

SBA securities

Mortgage-backed securities

Government sponsored agencies

Mortgage-backed securities- Government sponsored agencies

Collateralized mortgage obligations

Commercial paper

Corporate debt securities

Municipal securities

Total available for sale

The Company did not record any charges for other-than-temporary impairment losses for the twelve months ended December 31, 2021 and 2020.

The Company has no individual investment security amounting to 10% or more of shareholders’

The loan portfolio is the largest category of our earning assets.

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Commercial real estate (2)

Mortgage loans held for investment

Total loans (2)

Single-family residential mortgages

Allowance for loan losses

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Net of discounts and deferred fees and costs

Net loans held for investment increased $509.8 million, or 23.2%, to $2.7 billion at December 31, 2020 as compared to $2.2 billion at December 31, 2019.

The increase in net loans resulted from $173.1 million loans acquired in the PGBH acquisition, and organic growth for the remaining increase in loans.

Net loans held for investment increased $221.0 million, or 8.3%, to $2.9 billion at December 31, 2021 as compared to $2.7 billion at December 31, 2020.

The increase in net loans resulted from organic growth.

Commercial and industrial loans.

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Substantially all of our C&I loans are collateralized by business assets or by real estate.

We originate commercial and industrial lines of credit, term loans, mortgage warehouse lines and international trade discounts which totaled $290.1 million as of December 31, 2020 and $274.6 million at December 31, 2019.

We originate commercial and industrial lines of credit, term loans, mortgage warehouse lines and international trade discounts which totaled $268.7 million as of December 31, 2021 and $290.1 million at December 31, 2020.

The interest rate on these loans are generally Wall Street Journal Prime rate based.

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As a result, we and our clients are not subject to foreign currency fluctuations, and, therefore, we do not have a need to engage in transactions designed to hedge against foreign currency fluctuations and risk.

Commercial and industrial loans increased $15.6 million, or 5.7%%, to $290.1 million as of December 31, 2020 compared to $274.6 million at December 31, 2019.

This increase resulted primarily from a $31.5 million increase in mortgage warehouse lines, and an increase of $6.1 million in undisbursed commercial lines of credit, partially offset by a decrease in shared national credits of $6.1 million, and a $16.9 million decrease in commercial lines of credit.

Commercial and industrial loans decreased $21.4 million, or 7.4%, to $268.7 million as of December 31, 2021 compared to $290.1 million at December 31, 2020.

This decrease resulted primarily from a $31.1 million decrease in mortgage warehouse lines, partially offset by a $15.4 million increase in commercial lines of credit.

Commercial real estate loans.  

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Our policy maximum loan-to-value ("LTV") is 75% for CRE loans.

The total CRE portfolio totaled $1.0 billion at December 31, 2020 and $793.3 million as of December 31, 2019, of which $198.8 million and $177.3 million, respectively, are secured by owner occupied properties.

The multi-family residential loan portfolio totaled $346.6 million as of December 31, 2020 and $235.8 million as of December 31, 2019.

The SFR loan portfolio originated for a business purpose totaled $24.0 million as of December 31, 2020 and $19.2 million as of December 31, 2019.

The total CRE portfolio totaled $1.2 billion at December 31, 2021 and $1.0 billion as of December 31, 2020, of which $222.8 million and $198.8 million, respectively, are secured by owner occupied properties.

The multi-family residential loan portfolio totaled $545.9 million as of December 31, 2021 and $346.6 million as of December 31, 2020.

The SFR loan portfolio originated for a business purpose totaled $65.6 million as of December 31, 2021 and $24.0 million as of December 31, 2020.

Construction & land development loans .

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Our LTV policy limits are 75% for construction and land development loans.

C&D loans increased $90.7 million or 94.5%, to $186.7 million at December 31, 2020 as compared to $96.0 million at December 31, 2019.

C&D loans increased $116.4 million or 62.3%, to $303.1 million at December 31, 2021 as compared to $186.7 million at December 31, 2020.

This increase was primarily due to increases in residential construction loans.

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In 2021, we originated $60.3  million 

in SBA loans, of which $32.9 million were PPP loans and $19.4 million were SBA 7A originations. Of SBA loan originations, $45.2 million or  86 .4%  were produced by branch staff and loan officers.

in SBA loans, of which $22.5 million were PPP loans and $26.2 million were SBA 7A originations and $11.6 million were SBA 504 originations. Of SBA loan originations, $43.9 million or  72.8 %  were produced by branch staff and loan officers.

The remaining $16.4 million or 27.2% was referred to us through SBA brokers.

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As of December 31, 2021, $27.8 million or 47.8% is located in California;

$8.3 million or 16.8% is located in Washington;

$6.0 million or 10.3% is located in Washington state;

$5.1 million or 8.7% is located in Nevada;

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and $11.0 million or 19.0% is located in other states.

SBA loans increased $22.8 million, or 30.5%, to $97.8 million at December 31, 2020 compared to $75.0 million at December 31, 2019.

This increase was primarily due to $32.9 million in PPP loan origination, SBA 7A loans originations of $19.4 

million less SBA loan sales of $13.7 million, SBA charge-offs of $1.3 million and $ 14.5  million in loan payments in 2020.

SBA loans decreased $21.7 million, or 22.2%, to $76.1 million at December 31, 2021 compared to $97.8 million at December 31, 2020.

This decrease was primarily due to SBA loan sales of $20.9  million, and $50.9 million in mainly PPP loan payments in 2021 less $22.5 million in PPP loan origination, and SBA 7A loans originations of $26.2 

SFR real estate loans.

We originate qualified SFR mortgage loans and non-qualified, alternative documentation SFR mortgage loans through correspondent relationships or through our branch network or retail channel.

The loan product is a seven-year hybrid adjustable mortgage which re-prices between five or seven years to the one-year CMT plus 2.50%.

The loan product is a five- or seven-year hybrid adjustable mortgage which re-prices between five or seven years to the one-year CMT plus 3.00%.

The qualified SFR mortgage loans, 15-year and 30-year conforming mortgages, are originated by our branch network and are sold directly to FNMA within seven days of funding.

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We sell many of these non-qualified SFR mortgage loans to other Asian-American banks and private investors. 

The loans sold to other banks are sold with no representation or warranties and with a replacement feature for the first 90-days if the loan pays off early.  For SFR loans sold FNMA and to investment funds we provide limited representations and warranties and with a repurchase and premium refund for loans that become delinquent in the first 90-days or a premium refund if paid-off in the first 90-days with respect to all loans sold.  As a condition of the sale, the buyer must have the loans audited for underwriting and compliance standards.

During 2020, we originated $419.0 million of SFR mortgage loans and sold $184.2 million to FNMA, investment funds and other banks in our market.

The loans sold to other banks are sold with no representation or warranties and with a replacement feature for the first 90-days if the loan pays off early.  For SFR loans sold to FNMA and to investment funds we provide limited representations and warranties and with a repurchase and premium refund for loans that become delinquent in the first 90-days or a premium refund if paid-off in the first 90-days with respect to all loans sold.  As a condition of the sale, the buyer must have the loans audited for underwriting and compliance standards.

During 2021, we originated $472.1 million of SFR mortgage loans and sold $276.7 million to FNMA, investment funds and other banks in our market.

SFR real estate loans include home equity loans acquired in the LANB, FAIC and PGBH acquisitions.

As of December 31, 2020, we had a total of $5.6 million of home equity loans.

SFR real estate loans held for investment, which include $5.6 million of home equity loans, increased $167.1 million, or 17.5%, to $1.1 billion as of December 31, 2020 as compared to $957.3 million as of December 31, 2019.

Loans held for sale decreased $58.2 million or 53.8% to $50.0 million as of December 31, 2020 compared to $108.2 million December 31, 2019. In addition, our SFR mortgage lending unit originates mortgage warehouse lines to our correspondents.

These loans are including in our commercial and industrial lending unit and totaled $78.3 million as of December 31, 2020 and $46.7 million as of December 31, 2019.

As of December 31, 2021, we had $3.9 million in home equity loans.

SFR real estate loans held for investment, which include $3.9 million of home equity loans, decreased $119.8 million, or 10.7%, to $1.0 billion as of December 31, 2021 as compared to $1.1 billion as of December 31, 2020.

Loans held for sale decreased $44.0 million or 88.1% to $6.0 million as of December 31, 2021 compared to $50.0 million December 31, 2020. In addition, our SFR mortgage lending unit originates mortgage warehouse lines to our correspondents.

These loans are included in our commercial and industrial lending unit and totaled $47.2 million as of December 31, 2021 and $78.3 million as of December 31, 2020.

The loan maturities in the table below are based on contractual maturities as of December 31, 2021.

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After One Year to Five Years

Over Five Years

After Five Years to Fifteen Years

Over Fifteen Years

Construction & land development

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Loans acquired that had evidence of deterioration of credit quality since origination are referred to as PCI (purchase credit impaired) loans.

With our acquisitions of FAB and VCBB, we acquired $16.7 million contractual amount due with a fair value of $9.7 million of PCI loans.

There were no outstanding balance and carrying amount of PCI loans as of December 31, 2020 and December 31, 2019, respectively.

For these PCI loans, the Company did not record an ALLL for 2020 or 2019 as there were no significant reductions in the expected cash flows.

Analysis of the ALLL.

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The following table shows our credit discounts by loan portfolio for purchased loans only as of December 31, 2021 and December 31, 2020.

We have recorded additional reserves of $2.1 million due to the credit discounts on the bank acquisitions being less than the analysis for loan losses on those acquisitions as of December 31, 2020.

We have recorded additional reserves of $1.6 million at December 31, 2021 and $2.1 million at December 31, 2020 due to the credit discounts on the bank acquisitions being less than the analysis for loan losses on those acquisitions as of December 31, 2021.

As of December 31,

(dollars in thousands)

Commercial and industrial

Construction and land development

Commercial real estate

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Recoveries on loans previously charged off are added to the allowance.

Net charge-offs to average loans were 0.05% for both the twelve months ended December 31, 2020 and 2019.

The ALLL was $29.3 million at December 31, 2020 compared to $18.8 million at December 31, 2019.

The $10.5 million increase in 2020 was primarily due to an addition of $2.3 million related to a COVID-19 special quantitative reserve, loan growth and a $6.3 million increase in non-performing loans.  The COVID-19 portion of the ALLL equates to a seven basis point reserve on the entire loan portfolio plus a reserve on all loans being deferred at December 31, 2020.  

Net charge-offs to average loans were 0.01% and 0.05% for both the twelve months ended December 31, 2021 and 2020, respectively

The ALLL was $32.9 million at December 31, 2021 compared to $29.3 million at December 31, 2020.

The $3.6 million increase in 2021 was primarily due to loan growth and a $1.2 million increase in non-performing loans.  The COVID-19 portion of the ALLL equates to a 2.63 basis point reserve on the loan portfolio, excluding impaired and cash secured loans, at December 31, 2021.  

We analyze the loan portfolio, including delinquencies, concentrations, and risk characteristics, at least quarterly in order to assess the overall level of the allowance and nonaccretable discounts.

We also rely on internal and external loan review procedures to further assess individual loans and loan pools, and economic data for overall industry and geographic trends.

In determining the allowance and the related provision for credit losses, we consider three principal elements:

In determining the allowance and the related provision for loan losses, we consider three principal elements:

(i) valuation allowances based upon probable losses identified during the review of impaired C&I, CRE, C&D loans, (ii) allocations, by loan classes, on loan portfolios based on historical loan loss experience and qualitative factors and (iii) review of the credit discounts in relationship to the valuation allowance calculated for purchased loans.

Provisions for credit losses are charged to operations to record changes to the total allowance to a level deemed appropriate by us.

Provisions for loan losses are charged to operations to record changes to the total allowance to a level deemed appropriate by us.

The following table provides an analysis of the ALLL, provision for credit losses and net charge-offs for the years 2017 to 2021:

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Commercial and industrial

Commercial real estate

Total recoveries

Net (charge-offs)/recoveries

Provision for (recapture of) loan losses

Provision for loan losses

Balance, end of period

Total loans at end of period

Average loans (2)

Net charge-offs (recoveries) to average loans

Total HFI loans at end of period

Average HFI loans

Net charge-offs to average HFI loans

Allowance for loan losses to total loans

Credit-discount on loans purchased through acquisition

Total loans are net of discounts and deferred fees and costs.

Excludes loans held for sale

Credit discount on loans purchased through acquisitions

Problem Loans.

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The impairment amount on a collateral-dependent loan is charged-off to the allowance if deemed not collectible and the impairment amount on a loan that is not collateral-dependent is set up as a specific reserve.

In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructuring (“TDR”).

In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a TDR.

These concessions may include a reduction of the interest rate, principal or accrued interest, extension of the maturity date or other actions intended to minimize potential losses.

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Commercial and industrial

Commercial and industrial - TDR

Construction and land development

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Nonperforming assets to total assets

The $6.3 million increase in nonperforming loans at December 31, 2020 was primarily due to the addition of nine SFR mortgage loans for $6.5 million, five commercial and industrial loans for $2.2 million, four SBA loans for $2.1 million and three commercial real estate loans for $552,000, partially offset by payoff of one construction and development loan for $264,000 and one SBA loan for $991,000, and a net balance decrease in nonperforming loans of $3.8 million.

Our 30-89 day delinquent loans, excluding non-accrual loans, increased to $8.9 million as of December 31, 2020, compared to $5.3 million at December 31, 2019.

The $1.2 million increase in nonperforming loans at December 31, 2021 was primarily due to the addition of eight SFR mortgage loans for $3.0 million, four commercial and industrial loans for $3.7 million, two SBA loans for $1.6 million and four commercial real estate loans for $4.2 million, partially offset by four loans removed from non-accrual status in the amount of $5.6 million, net charge offs of six non-accrual loans of $422,000, payoffs of $2.7 million and paydowns of $2.6 million.

Our 30-89 day delinquent loans, excluding non-accrual loans, increased to $17.6 million as of December 31, 2021, compared to $8.9 million at December 31, 2020.  From December 31, 2020 to December 31, 2021, the increase in past due loans (excluding non-accrual loans) resulted from increases of $3.9 million in SFR mortgage loans, $1.7 million in SBA loans, $1.6 million in commercial and industrial loans, and $1.5 million in CRE loans.

We did not recognize any interest income on nonaccrual loans during the years ended December 31, 2021 and December 31, 2020 while the loans were in nonaccrual status.

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Impact of the COVID-19 Pandemic on the Loan Portfolio

As of December 31, 2020, the Bank originated 260 loans totaling $32.9 million, or 1.2% of the Company’s total loan portfolio, under the SBA’s Paycheck Protection Program due to the COVID-19 pandemic.  The following table provides details regarding the Company's COVID-19 loan deferral activity through January 15, 2021.

As of June 30, 2020

As of October 23, 2020

As of January 15, 2021

Loans Deferred

General retail (excluding SBA)

Mixed use commercial

Hospitality (excluding SBA) (1)

Restaurants (excluding SBA)

Commercial, office and other (1)

SFR mortgage loans - Western region

SFR mortgage loans - Eastern region

SFR mortgage loans - Chicago metropolitan

Loans with a principal amount of $23.5 million are principal deferments only. 

Interest is paid up to date through December 31, 2020 and January 15, 2021.

As of December 31, 2021, the Bank had 69 loans totaling $11.8 million, or 0.40% of the Company’s total loan portfolio that had been originated pursuant to the PPP due to the COVID-19 pandemic and were still outstanding as of such date.  Presently none of our SBA customers are on a payment deferral plan due to the COVID-19 pandemic. 

As of January 15, 2022, the Company had no loans deferred as a result of the COVID-19 pandemic.

The Company does not have any shared national credits or loans, backed by airlines or cruise lines, on deferral as of January 15, 2022.

Cash and Cash Equivalents.

Cash and cash equivalents increased $12.9 million, or 7.1%, to $194.7 million as of December 31, 2020 as compared to $181.8 million at December 31, 2019.

Cash and cash equivalents increased $499.7 million, or 256.7%, to $694.4 million as of December 31, 2021 as compared to $194.7 million at December 31, 2020.

Goodwill and Other Intangible Assets.

Goodwill was $69.2 and $58.6 million at December 31, 2020 and 2019, respectively.

Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired.

The $10.7 million increase in 2020 was due to the PGBH acquisition.

 Our other intangible assets, which consist of core deposit intangibles, were $5.2 million and $6.1 million at December 31, 2020 and December 31, 2019.

In 2020, $491,000 was added from the PGBH acquisition.

Goodwill was $69.2 million both at December 31, 2021 and 2020.

Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired. Our other intangible assets, which consist of core deposit intangibles, were $4.1 million and $5.2 million at December 31, 2021 and December 31, 2020.

These core deposit intangible assets are amortized primarily on an accelerated basis over their estimated useful lives, generally over a period of 3 to 10 years.

On January 10, 2020, we completed the PGBH acquisition.

PGBH, and its subsidiary PGB, provided commercial and retail banking services primarily to Asian-Americans through three branches in the metro Chicago area.

We acquired PGBH for $32.9 million in cash.

The identifiable assets acquired of $222.8 million and liabilities assumed of $200.6 million were recorded at fair value.

The identifiable assets acquired included the establishment of a $491,000 core deposit intangible, which is being amortized on an accelerated basis over 10 years.

Based upon the acquisition date fair values of the net assets acquired, we recorded $10.7 million of goodwill in our consolidated balance sheet.

Total liabilities increased $540.0 million to $2.9 billion, or 22.7%, at December 31, 2020 from $2.4 billion at December 31, 2019, primarily due to a $386.2 million increase in deposits, of which $188.4 million were acquired in the PGBH acquisition, and a $150.0 million increase in FHLB advances.

Total liabilities increased $839.9 million to $3.8 billion, or 28.7%, at December 31, 2021 from $2.9 billion at December 31, 2020, primarily due to a $750.4 million increase in deposits. 

As a Chinese-American business bank that focuses on successful businesses and their owners, many of our depositors choose to leave large deposits with us.

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As many of our customers have more than $250,000 on deposit with us, we believe that using this method reflects a more accurate assessment of our deposit base.

As of December 31, 2020, the Bank considers $2.3 billion or 88.0% of our deposits as core relationships.

As of December 31, 2020, our top ten deposit relationships totaled $368.4 million, of which two are related to directors and shareholders of the Company for a total of $17.9 million or 4.9% of our top ten deposit relationships.

As of December 31, 2021, the Bank considers $2.96 billion or 87.5% of our deposits as adjusted core relationships.

As of December 31, 2021, our top ten deposit relationships totaled $884.7 million, of which two are related to directors and shareholders of the Company for a total of $54.5 million or 1.6% of our top ten deposit relationships.

As of December 31, 2021, our directors and shareholders with deposits over $250,000 totaled $56.9 million or 2.3% of all relationships over $250,000.

The following table summarizes our average deposit balances and weighted average rates at December 31, 2021, 2020 and 2019:

For the year ended

December 31, 2021

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Wholesale deposits are defined as time deposits under $250,000 originated through via internet rate line and/or through other deposit originators, and are considered non-core deposits.

The following table sets forth the estimated deposits exceeding the FDIC insurance limit:

(dollars in thousands)

For the year ended December 31,

Uninsured deposits

The estimated aggregate amount of time deposits in excess of the FDIC insurance limit is $475.6 milllion at December 31, 2021. 

The following table sets forth the maturity distribution of the estimated uninsured time deposits.

(dollars in thousands)

December 31, 2021

3 months or less

Over 3 months through 6 months

Over 6 months through 12 months

Over 12 months

We acquired time deposits from the internet and outside deposits originators as needed to supplement liquidity.

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The total amount of such deposits as of December 31, 2021 was $70.1 million or 2.1% of total deposits.

The balances of such deposits as of December 31, 2019 were $93.2 million.

Total deposits increased $386.2 million to $2.6 billion at December 31, 2020 as compared to $2.2 billion at December 31, 2019, as a result of organic growth and the PGBH acquisition.

The balance of such deposits as of December 31, 2020 were $93.7 million or 3.6% of total deposits.

Total deposits increased $750.4 million to $3.4 billion at December 31, 2021 as compared to $2.6 billion at December 31, 2020, as a result of organic growth.

As of December 31, 2021, total deposits were comprised of 38.1% noninterest-bearing demand accounts, 27.4% interest-bearing non-maturity deposit accounts and 34.5% of time deposits.

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The average fixed interest rate is 1.18%.

The Company secured this funding in case there is a liquidity issue caused by the COVID-19 pandemic and to obtain an attractive interest rate.

The Company secured this funding in case there was a liquidity issue caused by the COVID-19 pandemic and to obtain an attractive interest rate.

The following table sets forth information on our total FHLB advances during the periods presented:

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Long-term debt consists of subordinated notes.

As of December 31, 2020 the amount of subordinated notes outstanding was $104.4 million as compared to $104.0 million at December 31, 2019.

As of December 31, 2021 the amount of subordinated notes outstanding was $173.0 million as compared to $104.4 million at December 31, 2020.

In March and April 2016, we issued an aggregate of $50.0 million of subordinated notes for aggregate proceeds of $49.4 million.

The subordinated notes have a maturity date of April 1, 2026 at a fixed rate of 6.5% for the first five years and a floating rate based on the three-month LIBOR plus 516 basis points thereafter.

Under the terms of our subordinated notes and the related subordinated notes purchase agreements, we are not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the long term debt.

The Company redeemed these subordinated debentures on March 31, 2021.  The redemption price for the subordinated debentures was equal to 100% of principal amount of the Notes redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date of March 31, 2021.

In November 2018, the Company issued $55.0 million in fixed-to-floating rate subordinated notes due December 1, 2028.

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The Company used the net proceeds from both subordinated debt offerings for general corporate purposes, including providing capital to the Bank and maintaining adequate liquidity at Bancorp.

The subordinated notes qualified as Tier 2 capital for Bancorp for regulatory purposes and the portion that Bancorp contributed to the Bank qualified as Tier 1 capital for the Bank.

In connection with the November 2018 issuance of subordinated notes, Bancorp entered into a registration rights agreement with the purchasers of such notes pursuant to which the Company agreed to take certain actions to provide for the exchange of the notes for subordinated notes that are registered under the Securities Act and that have substantially the same terms as the privately issued notes.

In connection with the November 2018 issuance of subordinated notes, Bancorp entered into a registration rights agreement with the purchasers of such notes pursuant to which the Company exchanged the notes for subordinated notes that were registered under the Securities Act and that have substantially the same terms as the privately issued notes.

The exchange of notes was completed in March 2019.

In March 2021, the Company issued $120 million of 4.00% fixed to floating rate subordinated debentures, due April 1, 2031.

The interest rate is fixed through April 1, 2026 and floats at three month SOFR plus 329 basis points thereafter.

The Company can redeem these subordinated debentures beginning April 1, 2026.

The subordinated debentures are considered Tier 2 capital at the Company.

The Company used the net proceeds from these subordinated debt offerings for general corporate purposes, including providing capital to the Bank and maintaining adequate liquidity at Bancorp.

The subordinated notes qualified as Tier 2 capital for Bancorp for regulatory purposes and the portion that Bancorp contributed to the Bank qualified as Tier 1 capital for the Bank.

Subordinated Debentures.

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As of December 31, 2021 and December 31, 2020, the amount outstanding was $14.5 million and $14.3 million, respectively.

Under the terms of our subordinated notes issued in connection with the issuance of trust preferred securities, we are not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the long term debt.

These subordinated notes consist of the following:

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The subordinated debentures have a variable rate of interest equal to the three-month LIBOR plus 2.10% through final maturity on December 15, 2034.

The rate at December 31, 2020 was 2.32% and 4.14% at December 31, 2019.

In July 2017, British banking regulators announced plans to eliminate the LIBOR rate by the end of 2021, before these subordinated notes and debentures mature.

For these subordinated notes and debentures, there are provisions for amendments to establish a new interest rate benchmark.

The rate at December 31, 2021 was 2.30% and 2.32% at December 31, 2020.

In July 2017, British banking regulators announced plans to eliminate the LIBOR rate by June 3023, before these subordinated notes and debentures mature.

For these subordinated notes and debentures, there are provisions for amendments to establish a new interest rate benchmark. 

At this time, SOFR is the alternative reference rate we plan to adopt as the index rate for U.S.

dollar LIBOR.

Capital Resources and Liquidity Management

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Shareholders’

equity increased $20.8 million, or 5.1%, to $428.5 million during 2020 due to $32.9 million of net income, $712,000 of additional paid in capital from the exercise of stock options and a $890,000 increase in other comprehensive income, partially offset by $6.6 million of cash dividends declared during the year and $7.9 million from the repurchase of shares of the Company’s common stock.

The increase in accumulated other comprehensive income primarily resulted from increases in unrealized gains on available for sale securities.

equity increased $38.2 million, or 8.9%, to $466.7 million during 2021 due to $56.9 million of net income, $3.5 million of additional paid in capital from the exercise of stock options and $1.1 million from stock based compensation, partially offset by $9.9 million of cash dividends declared during the year, $10.5 million from the repurchase of shares of the Company’s common stock and a $2.8 million decrease in other comprehensive income.

The decrease in accumulated other comprehensive income primarily resulted from decreases in unrealized gains on available for sale securities.

Liquidity Management.

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To the extent we are unable to obtain sufficient liquidity through core deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a short- or long-term basis.

As of December 31, 2020 and December 31, 2019, we had $92.0 million and $49.0 million, respectively, of unsecured federal funds lines, with no amounts advanced against the lines as of such dates.

In addition, lines of credit from the Federal Reserve Discount Window at December 31, 2020 and December 31, 2019 were $9.8 million and $14.3 million, respectively.

Federal Reserve Discount Window lines were collateralized by a pool of CRE loans totaling $20.1 million and $28.7 million as of December 31, 2020 and December 31, 2019, respectively.

As of December 31, 2021 and December 31, 2020, we had $92.0 million for both years, respectively, of unsecured federal funds lines, with no amounts advanced against the lines as of such dates.

In addition, lines of credit from the Federal Reserve Discount Window at December 31, 2021 and December 31, 2020 were $22.3 million and $9.8 million, respectively.

Federal Reserve Discount Window lines were collateralized by a pool of CRE loans totaling $33.2 million and $20.1 million as of December 31, 2021 and December 31, 2020, respectively.

We did not have any borrowings outstanding with the Federal Reserve at December 31, 2021 and December 31, 2020 and our borrowing capacity is limited only by eligible collateral.

At December 31, 2020 there were $150.0 million in FHLB advances outstanding and none at December 31, 2019.

Based on the values of loans pledged as collateral, we had $915.2 million and $636.5 million of additional borrowing capacity with the FHLB as of December 31, 2020 and December 31, 2019, respectively.

At December 31, 2021 and 2020 there were $150.0 million in FHLB long-term advances outstanding.

Based on the values of loans pledged as collateral, we had $833.6 million and $915.2 million of additional borrowing capacity with the FHLB as of December 31, 2021 and December 31, 2020, respectively.

We also maintain relationships in the capital markets with brokers and dealers to issue certificates of deposit.

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(dollars in thousands)

December 31, 2020

December 31, 2019

December 31, 2018

Net income available to common shareholders

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Return on average tangible common equity

Efficiency Ratio.

The Company uses certain non-GAAP financial measures to provide supplemental information regarding the Company’s performance.

The efficiency ratio is non-interest expense divided by net interest income plus non-interest 

The efficiency ratio is presented for the years ended December 31, 2020 and 2019.

For the year ended

December 31, 2020

December 31, 2019

December 31, 2018

Efficiency Ratio (non-GAAP)

Non-interest expense

Net interest income

Non-interest income

Net interest income and non-interest income

Efficiency ratio

Regulatory Reporting to Financial Statements

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These financial measures include “core deposits to total deposits”

and “net non-core funding dependency ratio”.

Our management uses these financial measures in its analysis of our performance.

and “net non-core funding dependency ratio.” Our management uses these financial measures in its analysis of our performance.

Core Deposits and Non-core Funding Dependency.

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Core deposits:

demand and savings deposits of any amount plus time deposits less than $250,000

CDs > $250,000 considered core deposits (1)

Less brokered deposits considered non-core

Less internet deposits < $250,000 considered non-core (3)

Less internet and outside deposit originated time deposits < $250,000 considered non-core

Less other deposits not considered core (2)

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Non-core deposits:

Time deposits greater than $250,000

Less total adjustments

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Total earning assets

Net non-core funding dependency ratio

Adjusted net non-core funding dependency ratio

Core deposits comprise all demand and savings deposits of any amount plus time deposits less than $250,000.

Comprised of time deposits to core customers over $250,000 as defined in the lead-in to the table above.

Comprised of internet and outside deposit originator time deposits less than $250,000 which are not considered core deposits.

Comprised of demand and savings deposits in relationships over $250,000, which are considered non-core deposits because they do not satisfy the definition of core deposits set forth in the lead-in to the table above.

Non-core deposits are time deposits greater than $250,000

Short term assets include cash equivalents and investment with maturities less than one year.

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

What changed 10-K

Item 5. Market for Registrant’s Common Equity