What changed in this filing

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Item 1. Business

2023-04-07 compared with 2022-03-11 · 159 added, 244 removed, 643 unchanged (39% of the section changed)

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The Bank’s management team has utilized their strong local community ties along with their credibility and relationships with both federal and California bank regulatory agencies to create a bank that we believe emphasizes strong credit quality, a solid balance sheet without the burden of the troubled legacy assets of other banks, and a robust capital base, with the ability to raise additional capital.

Although the Bank serves all ethnicities, our board and management team are comprised of mostly Chinese-Americans.

Although the Bank serves all ethnicities, our board of directors and management team are comprised of mostly Asian-Americans.

Using the experience and expertise of our officers and employees, we have tailored our loan and deposit products to serve the Chinese-American, Korean-American, and other Asian-American markets.

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Our strategic plan is centered on delivering high-touch, superior customer service, customized solutions, and quick and local decision-making with respect to loan originations and servicing.

The Bank initially offered lending products that included traditional commercial real estate (“CRE”) loans, secured commercial and industrial (“C&I”) loans, and trade finance services for companies doing business in China, Taiwan and other Asian countries.

In 2014, we began originating a significant amount of non-conforming single family residential (“SFR”) mortgage loans, a portion of which we accumulate and may sell to other banks.

In 2018, with the acquisition of First American International Bank ("FAIB") we became a FNMA originator and servicer. 

Since 2010, we have also originated Small Business Administration (“SBA”) loans, with the intent to accumulate and periodically sell the guaranteed portion of such loans.

After forming the Bank and retaining a strong executive management team, we established the Bancorp, a California corporation, as our holding company in January 2011.

We began to review potential acquisition candidates and, in July 2011, we acquired Las Vegas, Nevada-based First Asian Bank (“FAB”) in an all cash transaction.

In September 2011, we acquired Oxnard, California-based Ventura County Business Bank (“VCBB”) in an all cash transaction.

After closing both transactions, our total assets and total deposits increased by an aggregate of $94.2 million and $91.6 million, respectively.

In order to further improve our capital and liquidity to further enhance our ability to consummate acquisitions, we conducted a private placement offering of our common stock in 2012, raising over $54 million from investors, many of whom were original shareholders of the Bank.

In May 2013, we acquired Los Angeles National Bank (“LANB”) in an all cash transaction, which added $190.7 million in total assets and $162.0 million in total deposits.

In February 2016, we acquired TFC Holding Company (“TFC”) and its wholly-owned subsidiary, TomatoBank, which added $469.9 million in total assets and $405.3 million in total deposits.  

In March 2016, we further supplemented our capital by issuing $50.0 million of subordinated notes, which we refer to as long-term debt in our consolidated financial statements, and in July 2017, we completed an initial public offering of our common stock, raising $86 million in gross proceeds.

In September 2011, we acquired Oxnard, California-based Ventura County Business Bank (“VCBB”) in an all cash transaction. In May 2013, we acquired Los Angeles National Bank (“LANB”) in an all cash transaction.

In February 2016, we acquired TFC Holding Company (“TFC”) and its wholly-owned subsidiary, TomatoBank.

In October 2018, we acquired First American International Corp.

(“FAIC”) and its wholly-owned subsidiary FAIB, located in the New York City metropolitan area.

This transaction involved the issuance by the Company of 3,011,762 shares of common stock (which was valued as of the date of the closing of the acquisition at $69.6 million) and $34.8 million of cash, and which added $850.3 million in total assets, $715.6 million in loans, and $629.7 million in total deposits.

In November 2018, we further supplemented our capital by issuing $55.0 million of subordinated notes, which we refer to as long-term debt in our consolidated financial statements.

On January 10, 2020, we acquired PGB Holdings Inc.

("PGBH") and its wholly-owned subsidiary, Pacific Global Bank (“PGB”) in an all cash transaction for $32.9 million.

At the time of the acquisition, PGB had approximately $217.9 million in total assets, $191.7 million in total deposits, and three branches in Chicago, Illinois.

In March 2021, we issued $120.0 million subordinated debt for growth and liquidity purposes.

In July 2021, we entered into an agreement, and in September 2021 we received regulatory approval in September, to purchase the Honolulu, Hawaii branch of the Bank of the Orient.

The transaction was completed on January 14, 2022.

The Company received a payment of $71.0 million to acquire all the premises and equipment at the Branch, all deposits totaling $81.7 million and performing loans totaling $7.4 million as of December 31, 2021, reflecting a premium paid by us of approximately $3.0 million.

On December 28, 2021, the Company announced that it entered into a definitive agreement to acquire Gateway Bank , F.S.B.

("Gateway Bank") in a cash transaction valued at approximately $22.9 million, subject to certain terms and conditions, including the receipt of the requisite regulatory approvals. 

Th e Company expects the transaction to be accretive to earnings per share in 2022 in the mid-single digit range.

The Company also expects to incur tangible book value per share dilution of approximately 1.8% upon closing of the transaction, with a tangible book value dilution payback period of approximately 1.8 years.

The earnings per share accretion estimates are based on estimated cost savings of approximately 60% of Gateway Bank's non-interest expense, with the cost savings phased in during 2022.

The earnings per share accretion estimates do not include any assumption of revenue synergies.

The transaction is expected to close in second quarter of 2022.

(“FAIC”) and its wholly-owned subsidiary First American International Bank ("FAIB"), located in the New York City metropolitan area.

In January 2020, we acquired PGB Holdings, Inc.

(“PGBH”) and its wholly-owned subsidiary, Pacific Global Bank (“PGB”), with three branches in Chicago, Illinois, in an all cash transaction for $32.9 million. 

On January 14 2022, we purchased the Bank of the Orient's ("BOTO") Honolulu, Hawaii branch (the "Hawaii Branch").

The Company received a payment of $71.0 million to acquire all the premises and equipment at the Hawaii Branch, all deposits totaling $81.7 million and performing loans totaling $7.4 million as of January 14, 2022, reflecting a premium paid by us of approximately $2.3 million.

On December 28, 2021, the Company announced that it had entered into a definitive agreement to acquire Gateway Bank F.S.B.

(“Gateway”), a commercial bank based in Oakland, California, in a cash transaction valued at approximately $22.9 million, subject to certain terms and conditions, including customary holdbacks if certain contingencies are not met, and other possible adjustments as contained in the agreement.

As of December 31, 2022, Gateway had total assets of $181.4 million, total gross loans of $121.9 million, total deposits of $162.5 million and total tangible equity of $17.2 million.

The expiration of the agreement has been extended to September 30, 2023 and the acquisition is subject to several conditions, including the receipt of all requisite regulatory approvals.

We intend to continue to pursue growth opportunities, both organically as well as through acquisitions that meet our criteria .

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CDFIs are certified by the CDFI Fund at the U.S.

Department of the Treasury, (“Treasury”) which provide funds to CDFIs through a variety of programs.

The Bank has received grants totaling $1.1 million from the CDFI Fund (zero in both 2021 and 2020, $479,000 in 2019 and $648,000 in prior years).

Department of the Treasury (“Treasury”), which provide funds to CDFIs through a variety of programs.

We have established a CDFI advisory board to assist the Bank in finding organizations that provide services to low-to-moderate income people.

In our commitment to this designation, the Bank has a policy that requires all directors and management above the level of vice president to contribute at least 24 hours of community service annually to a qualified organization. In mid-June, 2021 the Bank was awarded a $1.8 million CDFI grant under the US Treasury’s Rapid Response Program to facilitate a rapid response to the economic impacts of the COVID-19 pandemic in distressed and underserved communities.

The award was received in August 2021 after finalization of the contract between the Bank and the US Treasury which included various performance goals and measures that specify the use of the funds to provide affordable housing.

In our commitment to this designation, the Bank has a policy that requires all directors and management above the level of vice president to contribute at least 24 hours of community service annually to a qualified organization. In June 2021 the Bank was awarded a $1.8 million CDFI grant under the Treasury’s Rapid Response Program ("RRP") to facilitate a rapid response to the economic impacts of the COVID-19 pandemic in distressed and underserved communities.

The award was received in August 2021 after finalization of the contract between the Bank and the Treasury, which included various performance goals and measures that specify the use of the funds to provide affordable housing.

The Bank utilized all of such funds to originate two loans that provide affordable housing to underserved communities. 

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Clark County, Nevada;

Honolulu, Hawaii; and our Eastern region (sometimes referred to as the New York region) with branches in Manhattan, Brooklyn and Queens, New York;

and Honolulu, Hawaii; and our Eastern region with branches in Manhattan, Brooklyn and Queens, New York;

Chicago, Illinois and Edison, New Jersey. 

As of December 31, 2021, the Company had total consolidated assets of $4.2 billion, total consolidated held for investment loans of $2.9 billion, total consolidated deposits of $3.4 billion and total consolidated shareholders’

As of December 31, 2022, the Company had total consolidated assets of $3.9 billion, total consolidated held for investment loans of $3.3 billion, total consolidated deposits of $3.0 billion and total consolidated shareholders’

equity of $484.6 million.

Our common stock is traded on the NASDAQ Global Select Market under the symbol “RBB.”

As of December 31, 2022, RBB's status as an EGC expired and we are no longer permitted to comply with reduced regulatory and reporting requirements under the Securities Act and the Exchange Act.

Our Strategic Plan

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Maintain regulatory capital levels well in excess of fully phased-in Basel III requirements;

Provide commercial banking services and products primarily to businesses and their owners operating within Chinese-American communities;

Maintain a board of directors comprised of local business leaders who work closely with community leaders;

Provide commercial banking services and products primarily to businesses and their owners operating within Asian-American communities;

Maintain a board of directors comprised of business leaders who work closely with community leaders;

Attract and retain an experienced management team with demonstrated industry knowledge and lending expertise;

Focus on a target market consisting of businesses that:

are located in southern California, the San Francisco Bay area, the Chicago metropolitan area, the New York metropolitan area (including northern New Jersey), Nevada and Hawaii, with possible future geographic expansion currently focused on Seattle, Philadelphia and Houston;

are located in southern California, the San Francisco Bay area, the Chicago metropolitan area, the New York metropolitan area (including northern New Jersey), Nevada and Hawaii

provide or receive goods or services to or from Asian countries, primarily China (including Hong Kong and Macau) and Taiwan;

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Provide four main lending products:

CRE lending consisting of commercial real estate loans and construction and development (“C&D”) loans;

C&I lending that emphasizes trade finance, operating lines of credit, and working capital loans secured by inventory, accounts receivables, fixed assets and real estate;

SFR lending primarily to Asian Americans willing to provide higher down payment amounts and pay higher fees and interest rates in return for reduced documentation requirements.

The Bank originates these loans through its correspondent banking relationships, and through its branch network, primarily to be sold.

In most cases, the Bank retains the loan servicing rights and obligations;

in addition, we offer 15-year and 30-year qualified mortgage loans that are sold directly to the Federal National Mortgage Association (“FNMA”), and

Through our SBA Preferred Lender status, SBA loans consisting primarily of 7(a) loans to Asian Americans that are accumulated on the Bank’s balance sheet with the SBA guaranteed portion sold in the secondary market generally on a quarterly basis.

We are headquartered in Los Angeles County, California.

We currently have nine branches in Los Angeles County located in downtown Los Angeles, San Gabriel, Torrance, Rowland Heights, Monterey Park, Silver Lake, Arcadia, Cerritos, and Diamond Bar.

We operate primarily in the Los Angeles-Long Beach-Anaheim, California MSA.

With over 13 million residents, it is the largest MSA in California, the second largest MSA in the United States, and one of the most significant business markets in the world.

It is estimated that the greater Los Angeles area has a gross domestic product of approximately $1 trillion, which would rank it as the 18th largest economy in the world.

The economic base of the area is heavily dependent on small- and medium-sized businesses, providing us with a market rich in potential customers.

According to the U.S.

Census Bureau, Asian Americans account for 14.7% of the over 10.1 million residents in Los Angeles County as of 2019. 

We also maintain one branch in Irvine, Orange County, California.

We operate two branches in Ventura County, California, in Westlake Village and Oxnard.

Westlake Village is considered part of the Los Angeles-Long Beach-Anaheim, California MSA and has similar market characteristics.

Oxnard has similar market characteristics of Ventura County, which is home to a broad array of industries, including agriculture, professional business services, technology and tourism.

Its proximity to one of the world’s leading wine-growing regions and its 43 miles of coastline attracts a large number of visitors.

Ventura County is not only a port of call for travelers, but also a shipping hub for automobiles and agricultural goods.

Port Hueneme serves as a distribution hub for automobile manufacturers and is a collection point for many agricultural goods that are shipped throughout the United States.

According to the U.S.

Census Bureau, Asian Americans account for 7.3% of the 847,263 residents in Ventura County as of 2019.

We operate one branch in the Las Vegas-Paradise, Nevada MSA.

This MSA is located in the southern part of the state of Nevada, and includes the cities of Las Vegas, Henderson, North Las Vegas, and Boulder City.

A central part of the MSA is the Las Vegas Valley, a 600 square mile basin that includes the MSA’s largest city, Las Vegas.

With a 2020 gross domestic product of approximately $119.4 billion, this MSA contains the largest concentration of people in the state (approximately 2.2 million), and is a significant tourist destination, drawing over 19 million international and domestic visitors in 2016.

According to the U.S.

Census Bureau, Asian Americans account for 10.0% of the 2.3 million residents in Clark County as of 2019.

We operate seven branches in the New York City/New Jersey metropolitan MSA.

This MSA is located in the south-eastern part of the state of New York and northern New Jersey, and includes the boroughs of Manhattan, Queens and Brooklyn, plus our branch in Edison, New Jersey.

A central part of the MSA is the borough of Manhattan.

With a 2020 gross domestic product of approximately $1.8 trillion, this MSA contains the largest concentration of people in the state, and is a significant business and tourist destination.

According to the 2019 U.S.

Census Bureau, Asian Americans account for 12% of the over 19.2 million residents in metropolitan New York City.

As a result of the PGB acquisition, we operate two branches in the Chinatown area of Chicago (following the closure of one Chicago branch in February 2021) in the metropolitan area of Chicago-Naperville-Elgin MSA.

According to the U.S.

Census Bureau, as of 2019, Asians account for 90% of Chicago’s Chinatown population, and the Asian population is 7% of the over 9.5 million residents in the Chicago metropolitan area.  

As of January 18, 2022, we operate one branch in Honolulu, Hawaii. 

The branch was purchased from the Bank of the Orient.  According to the 2020 U.S.

Census Bureau, Asian Americans account for 56% of the nearly 1.5 million residents in the state of Hawaii.

Commercial real estate ("CRE") lending consisting of commercial real estate loans and construction and land development (“C&D”) loans;

Commercial and Industrial "C&I" lending that emphasizes trade finance, operating lines of credit, and working capital loans secured by inventory, accounts receivables, fixed assets and real estate;

Single family residential ("SFR") mortgage lending primarily to Asian Americans willing to provide higher down payment amounts and pay higher fees and interest rates in return for reduced documentation requirements.

The Bank originates these loans through its correspondent banking relationships, and through its branch network, in addition, we offer 15-year and 30-year qualified mortgage loans that are sold directly to the Federal National Mortgage Association (“FNMA”), in most cases, the Bank retains the loan servicing rights and obligations and;

Through our Small Business Administration ("SBA") Preferred Lender status, SBA loans consisting primarily of 7(a) loans to Asian Americans that are accumulated on the Bank’s balance sheet with the SBA guaranteed portion sold in the secondary market generally on a quarterly basis.

Consider new markets, products and services

Invest in new technologies or products where appropriate to improve efficiency, increase earnings, acquire new bank customers, or deepen relationships with existing clients

Explore digital banking initiatives for consumers and businesses to improve convenience, speed, and user experience

Explore new niche markets to gain a competitive advantage

Our Competition

We view the Chinese-American banking market, including the Company, as comprised of 23 banks divided into three overlapping segments:

publicly-traded banks (7 banks), locally-owned banks (16 banks), and banks that are subsidiaries of Taiwanese or Chinese banks (7 banks). 

Fourteen of the locally-owned banks are based in California.

We are currently the fifth-largest bank among this group of 24 banks.

In addition to these Chinese-American banks, we also compete with other banks in the region, particularly with Korean-American banks in our SFR and SBA lending areas.

We view the Asian-American banking market, including the Company, as comprised of 23 banks divided into three overlapping segments:

publicly-traded banks, locally-owned banks, and banks that are subsidiaries of Taiwanese or Chinese banks.

The Company views these banks as competition for attracting deposits and making loans.

In addition to Chinese-American banks, we also compete with other banks in the region, particularly with Korean-American banks in our SFR and SBA lending areas.

Although we were founded by and market primarily to Chinese Americans, we are broadening our marketing efforts to include all categories of Asian Americans.

In certain geographic markets where we currently operate, there is overlap between Chinese-American, Korean-American and other Asian-American banks for loan and deposit business.

We aim to grow both organically and potentially through acquisitions in

these markets.

We aim to grow both organically and potentially through acquisitions in these markets.

Lending Activities

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We seek to be the premier provider of lending products and services in our market areas and serve the credit needs of high-quality business and individual borrowers in the communities that we serve.

Our loan portfolio currently consists of four loan types:

CRE, C&I, SFR and SBA, with diversified product offerings within each type.

The charts below shows our loan portfolio composition as of December 31, 2021 , separately by type of collateral support and relevant business line.

As described below, the type of collateral supporting a loan is not necessarily indicative of the business line from which the loan was generated.

(1) Includes construction and land development loans

We have an extensive loan approval process in which we require not only financial and other information from our borrowers, but our loan and executive officers have an extensive knowledge of the local market area and of the borrower’s past transactions.

After receiving an extensive application and loan documentation and conducting an extensive review, our loan officers meet on a very frequent basis concerning the loan request.

We have an extensive loan approval process for our commercial lending practice in which we require not only financial and other information from our borrowers, but our loan and executive officers have knowledge of the local market area and of the borrower’s past transactions.

After receiving an application and loan documentation and conducting a review, our loan officers meet on a very frequent basis concerning the loan request.

After reaching a consensus decision to approve, the loan officer will then submit the loan to the chief executive officer for approval, and if the loan request is above the chief executive officer’s lending limit, it will be referred to the board of directors for decision.

We have four principal lending areas:

We have five principal lending areas:

Commercial and Industrial Loans.

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As of December 31, 2022, we had outstanding commercial and industrial loans of $201.2 million, or 6.0% of our total loan portfolio.

We had $3.7 million non-accrual commercial and industrial loans as of December 31, 2021 compared to $1.7 million non-accrual commercial and industrial loans as of December 31, 2020.

We had $713,000 non-accrual commercial and industrial loans as of December 31, 2022 compared to $3.7 million non-accrual commercial and industrial loans as of December 31, 2021.

Commercial Real Estate Loans.

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Our management team has an extensive knowledge of the markets where we operate and our borrowers and takes a conservative approach to commercial real estate lending, focusing on what we believe to be high quality credits with low loan-to-value ratios, income-producing properties with strong cash flow characteristics, and strong collateral profiles.

The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as owner occupied offices, warehouses and production facilities, office buildings, hotels, mixed-use residential and commercial, retail centers, multi-family properties and assisted living facilities.

The total commercial real estate portfolio was $1.2 billion at December 31, 2021 of which $222.8 million was secured by owner occupied properties.

The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as offices, warehouses and production facilities, hotels, mixed-use residential and commercial, retail centers, multi-family properties and assisted living facilities.

The total commercial real estate portfolio was $1.3 billion, or 39.3% of our total loan portfolio, at December 31, 2022 of which $255.2 million was secured by owner occupied properties.

The multi-family residential loan portfolio totaled $643.2 million as of December 31, 2022.

The single-family residential loan portfolio originated for a business purpose totaled $69.3  million as of December 31, 2022.

Our non-accrual commercial real estate loans as of December 31, 2021 were $4.7 million.

Our non-accrual commercial real estate loans as of December 31, 2022 were $1.2 million compared to $4.7 million as of December 31, 2021.

Construction and Land Development Loans.

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Interest reserves are generally established on real estate construction loans.

As of December 31, 2021, our real estate construction loan portfolio was divided among the foregoing categories:

As of December 31, 2022, our real estate construction loan portfolio totaled $276.9 million, or 8.3% of our total loan portfolio, and was divided among the foregoing categories:

$166.6 million, or 60.1%, of residential construction;

$77.2 million, or 27.9%, of commercial construction;

and $19.4 million, or 6.4%, of land acquisition and development.

and $33.1 million, or 12.0%, of land acquisition and development. Our non-accrual construction and land development loans as of December 31, 2022 were $141,000 compared to $149,000 as of December 31, 2021.

We are designated a Preferred Lender under the SBA Preferred Lender Program.

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SBA loans can have any maturity up to 25 years.

Typically, non-real estate secure loans mature in less than 10 years.

Typically, non-real estate secured loans mature in less than 10 years.

Collateral may also include inventory, accounts receivable and equipment, and includes personal guarantees.

Our unguaranteed loans collateralized by real estate are monitored by collateral type and included in our CRE Concentration Guidance as previously discussed.

From time to time, we will also originate SBA 504 loans.

We originate SBA loans through our branch staff, loan officers and through SBA brokers.

In 2021, we originated $60.3  million 

in SBA loans, of which $22.5 million were PPP loans, $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.

As of December 31, 2021 our SBA portfolio totaled $76.1 million of which $17.9 million is guaranteed by the SBA and $58.2 million is unguaranteed, of which $56.6 million is secured by real estate and $1.6 million is unsecured or secured by business assets.  There are $22.5 million SBA loans originated under the Paycheck Protection Program (“PPP”) in 2021.  We monitor the unguaranteed portfolio by type of real estate collateral.

As of December 31, 2021, $25.4 million or 43.6% is secured by hotel/motels;

$5.0 million or 8.6% by gas stations;

and $27.9 million or 47.8% in other real estate types.

We further analyze the unguaranteed portfolio by location.

As of December 31, 2021, $27.8 million or 47.7% is located in California;

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

$5.1 million or 8.7% is located in Nevada;

$5.0 million or 8.5% is located in Texas;

$3.4 million or 5.8% is located in New York;

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

Our non-performing SBA loans as of December 31, 2021 amounted to $6.3 million of which $1.1 million are guaranteed by the SBA.

Our unguaranteed loans collateralized by real estate are monitored by collateral type and included in our CRE Concentration Guidance as later discussed.

From time to time, we will also originate SBA 504 loans. Our non-accrual SBA loans as of December 31, 2022 were $2.2 million, compared to $6.3 million as of December 31, 2021.

We originate mainly non-qualified, alternative documentation SFR mortgage loans through correspondent relationships or through our branch network or retail channel to accommodate the needs of the Asian-American market.

Our loan product is a seven-year hybrid adjustable mortgage with a current start rate of 3.875% plus 0%-1% in points, which re-prices after five or seven years to the one-year CMT plus 3.00%.

We also offer qualified mortgage program as a correspondent to major banking financial institutions.

As of December 31, 2021, we had $1.0 billion of SFR mortgage loans, representing 34.3% of our total loan portfolio, excluding available for sale SFR loans.

We had 13 non-accrual single-family residential real estate loans as of December 31, 2021 totaling $4.2 million compared to 12 loans totaling $7.7 million at December 31, 2020.

We offer qualified mortgage program as a correspondent to major banking financial institutions.

As of December 31, 2022, we had $1.5 billion of SFR mortgage loans, representing 43.9% of our total loan portfolio.

We had $5.9 million in non-accrual single-family residential real estate loans as of December 31, 2022 compared to $4.2 million in non-accrual loans at December 31, 2021.

We originate these non-qualified single-family residential mortgage loans both to sell and hold for investment.

The loans held for investment are generally originated through our retail branch network to our customers, many of whom establish a deposit relationship with us.

The loans are generally originated through our retail branch network to our customers, many of whom establish a deposit relationship with us.

During 2022, we originated $386.1 million of such loans through our retail channel, and $286.0 million through our correspondent and wholesale channel.

During 2021, we originated $410.0 million of such loans through our retail channel, and $62.1 million through our correspondent and wholesale channel. 

We sell many of these non-qualified single-family residential mortgage loans to other Asian-American banks, FNMA and other investors.

We currently engage in loan sales to eight banks and private investors, and are working to expand our network of entities who will acquire our SFR loan product.

Loans held for sale consist primarily of first trust deed mortgages on single-family residential properties located in California.

We sell many of these non-qualified single-family residential mortgage loans to other Asian-American banks and other investors.

We currently engage in loan sales to banks and private investors, and are working to expand our network of entities who will acquire our SFR loan product.

Loans held for sale consist primarily of first trust deed mortgages on single-family residential properties located in California, New York and New Jersey.

Single-family residential mortgage loans held for sale are generally sold with the servicing rights retained.

Our intention is to continue selling SFR mortgage loans to these investors. 

However, our correspondents have moved away from the non-qualified mortgage product to the standard FNMA product. 

Therefore, we expect we will have lower non-qualified mortgage sales and higher FNMA sales. 

In addition, the current low start rate makes it unprofitable to currently sell non-qualified mortgage loans to institutional investors.   

In our Eastern region, we originate 15-year and 30-year conforming mortgages which are sold directly to FNMA.

During 2021, we originated $136.2  million of these loans.

Our intention is to continue selling SFR mortgage loans to these investors. However, our investors are commanding a higher rate than we are currently offering for the non-qualified mortgage product.

Consumer Loans.

During 2019, we started an automobile lending unit to support the Chinese-American immigrant community.

During 2019, we started an automobile lending unit to support the Asian-American immigrant community.

We do not expect material volumes of business in this area as it is an accommodation to our customers. In 2021, we purchased home improvement loans of $29.7 million.

As of December 31, 2021, consumer loans amounted to $30.8 million.

As of December 31, 2022, consumer loans amounted to $20.7 million compared to $30.8 million as of December 31, 2021.

The quality of our deposit franchise and access to stable funding are key components to our success.

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Deposits at the Bank are insured by the FDIC up to statutory limits.

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.

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

We track all deposit relationships over $250,000 on a quarterly basis and consider a relationship to be core if there are any three or more of the following:

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Many of our management team members, including in many cases branch managers, have worked together for up to 30 years, and our deposits relationships have been cultivated over that time period.

Many of our depositors have relationships with executive officers and our board of directors.

Our ability to gather deposits, particularly core deposits, is an important aspect of our business franchise and we believe core deposits are a significant driver of franchise value as a cost efficient and stable source of funding to support our growth.

As of December 31, 2021, we had $3.4 billion of total deposits, with an average total interest-bearing deposit cost of 0.46% at December 31, 2021.

As of December 31, 2022, we had $3.0 billion of total deposits, with an average total interest-bearing deposit cost of 2.86%.

Other Subsidiaries

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FAIC Statutory Trust.

In connection with our 2018 acquisition of FAIB and its holding company, FAIC, the Company acquired the FAIC Statutory Trust, a statutory business trust that was established by FAIC in 2004 under the laws of Delaware as a wholly-owned subsidiary (the “FAIC Trust”). 

In connection with our 2018 acquisition of FAIB and its holding company, FAIC, the Company acquired the FAIC Statutory Trust, a statutory business trust that was established by FAIC in 2004 under the laws of Delaware as a wholly-owned subsidiary (the “FAIC Trust”). 

In connection with our 2020 acquisition of PGB and its holding company, PGBH, the Company acquired Pacific Global Bank Trust I (“PGB Capital Trust I”), a statutory business trust that was established by PGB in 2004 under the laws of Delaware as a wholly-owned subsidiary. 

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RBB Asset Management Company .

In 2012, as a result of our acquisitions of FAB and VCBB , we established RBB Asset Management Company, or RAM, as a wholly-owned subsidiary of the Company.

In 2012, as a result of our acquisitions of FAB and VCBB , we established RBB Asset Management Company ("RAM”), as a wholly-owned subsidiary of the Company.

In March 2013, RAM purchased approximately $6.5 million in loans and $1.7 million in other real estate owned (“OREO”) from the Bank that had been acquired in the FAB and VCBB acquisitions.

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We also employ regular part-time associates and some seasonal/temporary associates.

As of December 31, 2021, we had 362 full-time employees and 3 part-time employees, totaling 365 full-time equivalent staff. 

We do not outsource job functions or use subcontractors to fill open positions. None of our employees are represented by any collective bargaining unit or are parties to a collective bargaining agreement. 

As of December 31, 2022, we had 379 full-time equivalent staff. We do not outsource job functions or use subcontractors to fill open positions. None of our employees are represented by any collective bargaining unit or are parties to a collective bargaining agreement. 

Diversity, Equity and Inclusion.

 We believe that diversity of thought and experiences results in better outcomes and empowers our employees to make more meaningful contributions within our company and communities.

 All members of our board of directors are Asian-American, and two members are women. 

Our executive committee is comprised of seven Asian-Americans and one Caucasian, of which two are women. 

Our workforce includes 330 Asian-Americans, 20 Latin-Americans, 20 Caucasians and 3 African-Americans.

Our board of directors is comprised of 11 Asian-Americans and one Caucasian, of which four members are women. Our executive committee is comprised of five Asian-Americans and one Caucasian, of which one is a woman. Our workforce includes 337 Asian-Americans, 24 Latin-Americans, 18 Caucasians and one African-American.

Health & Safety.

We are focused on conducting our business in a safe and efficient manner and in compliance with all local, state and federal safety and health regulations, and special safety concerns.

 We are committed to offering a competitive total compensation package.

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Internal training and development.

Climate-related Discussion

The SEC proposed a rule that would require companies to disclose a broad array of climate-related exposures, including a company’s carbon emissions across its value chain. The disclosures would require the company’s big picture climate risks as well as wholesale calculation of the company’s environmental impact and greenhouse gas (GHG) emissions. Publicly traded companies would also be required to explain their governance procedures around climate risk, including processes for identifying, assessing, and managing climate-related risks.

On greenhouse gas emissions, the disclosures would include a company’s direct emissions, indirect emissions in the form of purchased energy, and emissions from “upstream and downstream activities in a registrant’s value chain”

otherwise known as Scope 1, Scope 2, and Scope 3 emissions, respectively. 

As a financial institution, the Company has minimal Scope 1 direct GHG emissions. Scope 1 GHG emissions result from four leased automobiles used by Company executives, and two Company owned vehicles used in our operations. The automobiles are recent models that are compliant with state emissions regulations. Scope 2 emissions result from 23 leased office properties, six owned office properties, one corporate owned house, and two OREO properties. Company leased or owned properties have indirect GHG emissions from acquired electricity, steam heat or cooling. Scope 3 emissions result from goods and services purchased from vendors, business travel and employee commuting. We have implemented a work-from-home program and 9% of our staff participate as of December 31, 2022. The Company encourages employees to commute via public transportation by subsidizing transit passes. Where feasible, the Company utilizes LED- or fluorescent-lighting to reduce electricity usage.

Under the SEC's proposed rules, Scope 1 and 2 disclosures would be required to be made for accelerated filers reporting fiscal year 2024 results, and Scope 3 disclosures would be required to be made for fiscal year 2025 results.

We are committed to overseeing the Company’s environmental efforts. The Company considers environmental matters throughout the organization. The Company’s environmental initiatives are currently focused on reducing the Company’s environmental impact through supporting employees' use of mass transit where possible, recycling efforts, and supporting organizations in the communities the Company serves that address sustainable development goals.

We believe that the leases to which we are subject are generally on terms consistent with prevailing market terms.

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Available Information

We invite you to visit our website at www.royalbusinessbankusa.com , to access free of charge the Bancorp's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, all of which are made available as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC.

The content of our website is not incorporated into and is not part of this Annual Report on Form 10-K.

We invite you to visit our website at www.royalbusinessbankusa.com , to access free of charge Bancorp's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, all of which are made available as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC.

The content of our website is not incorporated into and is not part of this Annual Report.

In addition, you can write to us to obtain a free copy of any of those reports at RBB Bancorp, 1055 Wilshire Blvd.

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federal and state law.

As a result, the growth and earnings performance of the Company and its subsidiaries may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the California Department of Financial Protection and Innovation ("DFPI"), the Board of Governors of the Federal Reserve System (“Federal Reserve”), the FDIC, and the Consumer Financial Protection Bureau (“CFPB”).

As a result, the growth and earnings performance of the Company and its subsidiaries may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the California Department of Financial Protection and Innovation (“DFPI”), the Board of Governors of the Federal Reserve System (“Federal Reserve”), the FDIC, and the Consumer Financial Protection Bureau (“CFPB”).

Furthermore, tax laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the FASB, securities laws administered by the SEC and state securities authorities, anti-money laundering laws enforced by the Treasury, and mortgage related rules, including with respect to loan securitization and servicing by the U.S.

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Bank Holding Company and Bank Regulation

Bancorp is a financial holding company within the meaning of the Bank Holding Company Act and is registered as such with the Federal Reserve.

Bancorp is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the "BHCA"), and is registered as such with the Federal Reserve.

Bancorp is also a bank holding company within the meaning of Section 1280 of the California Financial Code.

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In its last reported examination by the FDIC in April 2020, the Bank received a CRA rating of “Satisfactory.”

Compliance with the Bank Secrecy Act, the USA Patriot Act, and other anti-money laundering laws (“AML”), and the regulations of the Treasury’s Office of Foreign Assets Control (“OFAC”).

Compliance with the Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "USA Patriot Act"), and other anti-money laundering laws (“AML”), and the regulations of the Treasury’s Office of Foreign Assets Control (“OFAC”).

(See “The Bank –

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(iii) the right to opt-out of the sale of their personal information;

and (iv) the right to non-discrimination for exercising their CCPA rights. 

The federal bank regulators have adopted rules limiting the ability of banks and other financial institutions to disclose non-public information about consumers to unaffiliated third parties.

and (iv) the right to non-discrimination for exercising their CCPA rights. The federal bank regulators have adopted rules limiting the ability of banks and other financial institutions to disclose non-public information about consumers to unaffiliated third parties.

These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to an unaffiliated third party.

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The CFPB has enforcement authority over unfair, deceptive or abusive act and practices (“UDAAP”).

UDAAP is considered one of the most far reaching new enforcement tools at the disposal of the CFPB and covers all consumer and small business financial products or services such as deposit and lending products or services such as overdraft programs and third-party payroll card vendors.

UDAAP is considered one of the most far reaching enforcement tools at the disposal of the CFPB and covers all consumer and small business financial products or services such as deposit and lending products or services such as overdraft programs and third-party payroll card vendors.

It is a wide-ranging regulatory net that potentially picks up the gaps not included in other consumer laws, rules and regulations.

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State regulation of financial products and potential enforcement actions could also adversely affect our business, financial condition or results of operations.

In 2020, the California Legislature passed Assembly Bill 1864, which enacts the California Consumer Financial Protection Law ("CCFPL"). 

Among other items, the CCFPL:

Establishes UDAAP authority for the new DFPI, adding “abusive” to “unfair or deceptive” acts or practices prohibited by California law, and authorizing remedies similar to those provided in the Dodd-Frank Act;

In 2020, the California Legislature passed Assembly Bill 1864, which enacts the California Consumer Financial Protection Law (“CCFPL”). Among other items, the CCFPL:

Establishes UDAAP authority for the DFPI, adding “abusive” to “unfair or deceptive” acts or practices prohibited by California law, and authorizing remedies similar to those provided in the Dodd-Frank Act;

Authorizes the DFPI to impose penalties of $2,500 for “each act or omission” in violation of the law without a showing that the violation was willful, which, arguably, represents an enhancement of DFPI’s existing enforcement powers in contrast to Dodd-Frank and existing California law, enhanced penalties for “reckless” violations of up to $25,000 per day or $10,000 per violation, and for “knowing” violations, the penalty may be up to $1,000,000 per day or 1% of the violator’s net worth (whichever is less) or $25,000 per violation;

Exempts from the DFPI’s new UDAAP authority, banks, credit unions, federal savings and loan associations, and similar entities, as well as current licensees of the DFPI and licensees of other California agencies, “to the extent that licensee or employee is acting under the authority of” the license;

Exempts from the DFPI’s UDAAP authority, banks, credit unions, federal savings and loan associations, and similar entities, as well as current licensees of the DFPI and licensees of other California agencies, “to the extent that licensee or employee is acting under the authority of” the license;

Creates a “registration” requirement (subject to the DFPI’s implementing regulations) that greatly expands the reach of the DFPI to oversee entities that are not currently subject to licensure/registration;

Provides DFPI with broad discretion to determine what constitutes a “financial product or service” within the law’s coverage, including by a regulation finding that the financial product or service is either:

“(A) Entered into or conducted as a subterfuge or with a purpose to evade any consumer financial law,” or “(B) Permissible for a bank … to offer or provide … [but] has, or likely will have, a material impact on consumers,” with certain enumerated exclusions;

“(A) Entered into or conducted as a subterfuge or with a purpose to evade any consumer financial law,” or “(B) Permissible for a bank to offer or provide but has, or likely will have, a material impact on consumers,” with certain enumerated exclusions;

Provides that administration of the law will be funded through the fees generated by the new registration process and other funds generated from fines, penalties, settlements, or judgments.

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fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions.

Under the final rules, for those card-issuing banks with $10 million or more in total assets, the maximum permissible interchange fee is equal to no more than 21 cents plus 5 basis points of the transaction value for many types of debit interchange transactions.

Under the final rules, for those card-issuing banks with $10 billion or more in total assets, the maximum permissible interchange fee is equal to no more than 21 cents plus 5 basis points of the transaction value for many types of debit interchange transactions.

We are not subject to this limitation because we have less than $10 billion in total assets.

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The Federal Reserve also has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product.

Based on Consumer Financial Protection Bureau issued Compliance Bulletin 2022-06 on "Unfair Returned Deposit Item Fee Assessment Practices”

and Consumer Financial Protection Circular 2022-06 on "Unanticipated overdraft fee assessment practices".

Royal Business Bank (Bank) took action to lower the “Overdraft Fees and Non-sufficient Fees”

from $35 per item to $15 per item, effectively July 1, 2022.

The Bank further lowered the “Overdraft Fees and Non-sufficient Fees”

from $15 per item to $10 per item, effectively February 1, 2023.

In the meantime, the Bank removed the “Return Items Fees”

from the Bank’s Schedule of Deposit Accounts, Services and Fees.

Financial Regulatory Reform

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Beginning January 1, 2016, financial institutions were required to maintain a minimum capital conservation buffer to avoid restrictions on capital distributions such as dividends and equity repurchases and other payments such as discretionary bonuses to executive officers.

The minimum capital conservation buffer was phased in over a four year transition period with minimum buffers of 0.625%, 1.25%, 1.875%, and 2.50% during 2017, 2018, 2019 and 2020, respectively.

The minimum capital conservation buffer was phased in over a four year transition period with minimum buffers of 0.625%, 1.25%, 1.875%, and 2.50% during 2017, 2018, 2019 and 2020, respectively.

As fully phased-in on January 1, 2019, Basel III subjects bank holding companies and banks to the following risk-based capital requirements:

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In addition, the Dodd-Frank Act requires the federal banking agencies to adopt capital requirements that address the risks that the activities of an institution poses to the institution and the public and private stakeholders, including risks arising from certain enumerated activities.

Basel III became applicable to Bancorp and the Bank on January 1, 2015. 

As a result of the EGRRCPA, Bancorp was not subject to the more stringent Basel III minimum capital requirements until Bancorp’s total consolidated assets equaled or exceeded $3 billion. 

However, as of December 31, 2021, Bancorp had total consolidated assets of $4.2 billion and, consequently, the more stringent Basel III minimum capital requirements became applicable.

Overall, the Company believes that implementation of the Basel III Rule has not had and will not have a material adverse effect on Bancorp’s or the Bank’s capital ratios, earnings, shareholder’s equity, or its ability to pay dividends, effect stock repurchases or pay discretionary bonuses to executive officers.

In September 2017, the federal bank regulators proposed to revise and simplify the capital treatment for certain deferred tax assets, mortgage servicing assets, investments in non-consolidated financial entities and minority interests for banking organizations, such as Bancorp and the Bank, that are not subject to the advanced approaches requirements.

In November 2017, the federal banking regulators revised the Basel III Rules to extend the current transitional treatment of these items for non-advanced approaches banking organizations until the September 2017 proposal is finalized.

The September 2017 proposal would also change the capital treatment of certain commercial real estate loans under the standardized approach, which we use to calculate our capital ratios.

Basel III became applicable to Bancorp and the Bank on January 1, 2015. As a result of the EGRRCPA, Bancorp was not subject to the more stringent Basel III minimum capital requirements until Bancorp’s total consolidated assets equaled or exceeded $3 billion. However, as of December 31, 2022, Bancorp had total consolidated assets of $3.9 billion and, consequently, the more stringent Basel III minimum capital requirements are applicable.

Overall, the Company believes that implementation of the more stringent Basel III minimum capital requirements has not had and will not have a material adverse effect on Bancorp’s or the Bank’s capital ratios, earnings, shareholder’s equity, or its ability to pay dividends, effect stock repurchases or pay discretionary bonuses to executive officers.

In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”).

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In 2018, the federal bank regulatory agencies issued a variety of proposals and made statements concerning regulatory capital standards.

These proposals touched on such areas as commercial real estate exposure, credit loss allowances under generally accepted accounting principles, capital requirements for covered swap entities, among others.

These proposals touched on such areas as commercial real estate exposure, credit loss allowances under U.S.

generally accepted accounting principles (“GAAP”), capital requirements for covered swap entities, among others.

In July 2019, the federal bank regulators adopted a final rule that simplifies the capital treatment for certain deferred tax assets, mortgage servicing assets, investments in non-consolidated financial entities and minority interests for banking organizations, such as Bancorp and the Bank, that are not subject to the advanced approaches requirements.

We will be assessing the impact on us of these new regulations and supervisory approaches as they are proposed and implemented.

As of December 31, 2021, the Bank’s capital ratios exceeded the minimum capital adequacy guideline percentage requirements of the federal banking agencies for “well capitalized”

In February 2019, the U.S.

federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase-in over a three-year period the Day 1 adverse regulatory capital effects of CECL accounting standard.

Additionally, in March 2020, the U.S.

federal bank regulatory agencies issued an interim final rule that provides banking organizations an option to delay the estimated CECL impact on regulatory capital for an additional two years for a total transition period of up to five years to provide regulatory relief to banking organizations to better focus on supporting lending to creditworthy households and businesses in light of recent strains on the U.S.

economy as a result of the COVID-19 pandemic.

The capital relief in the interim is calibrated to approximate the difference in allowances under CECL relative to the incurred loss methodology for the first two years of the transition period using a 25% scaling factor.

The cumulative difference at the end of the second year of the transition period is then phased in to regulatory capital at 25% per year over a three-year transition period.

Effective January 1, 2022, the Company adopted ASU 2016-13, reflected the full effect of CECL at December 31, 2022, and did not elect the three-year or five-year CECL phase-in options on regulatory capital.

As of December 31, 2022, the Bank’s capital ratios exceeded the minimum capital adequacy guideline percentage requirements of the federal banking agencies for “well capitalized”

institutions under the Basel III capital rules on a fully phased-in basis.

With respect to the Bank, the Basel III Capital Rules also revise the PCA regulations pursuant to Section 38 of the Federal Deposit Insurance Act, as discussed below under “PCA”.

Prompt Corrective Action (“PCA”)

The Federal Deposit Insurance Act, as amended (the "FDIA"), requires federal banking agencies to take PCA in respect of depository institutions that do not meet minimum capital requirements.

With respect to the Bank, the Basel III Capital Rules also revise the Prompt Corrective Action (“PCA”) regulations pursuant to Section 38 of the Federal Deposit Insurance Act, as discussed below under “Prompt Corrective Action”.

Prompt Corrective Action

The Federal Deposit Insurance Act, as amended (the “FDIA”), requires federal banking agencies to take PCA in respect of depository institutions that do not meet minimum capital requirements.

The FDIA includes the following five capital tiers:

“well capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized”, and “critically undercapitalized”.

A depository institution’s capital tier will depend upon how its capital levels compare with various relevant capital measures and certain other factors, as established by regulation.

The Basel III Capital Rules, revised the PCA requirements effective January 1, 2015.

“well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare with various relevant capital measures and certain other factors, as established by regulation.

Effective January 1, 2015, the Basel III Capital Rules, revised the PCA requirements.

Under the revised PCA provisions of the FDIA, an insured depository institution generally will be classified in the following categories based on the capital measures indicated:

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An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios, if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.

A bank’s capital category is determined solely for the purpose of applying PCA regulations and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.

A bank’s capital category is determined solely for the purpose of applying PCA regulations and the capital category may not constitute an accurate representation of such bank’s overall financial condition or prospects for other purposes.

The FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company, if the depository institution would thereafter be “undercapitalized.”

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institutions are subject to growth limitations and are required to submit capital restoration plans.

If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized”.

“Significantly undercapitalized”

If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized”

depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized”, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks.

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As of December 31, 2022, we met the requirements to be “well-capitalized”

based upon the aforementioned ratios for purposes of the prompt corrective action regulations, as currently in effect.

Bancorp, as the sole shareholder of the Bank, is a financial holding company under federal law and regulation.

As a financial holding company, Bancorp is registered with, and is subject to regulation by, the Federal Reserve under the Bank Holding Company Act of 1956, as amended (the “BHCA”).

based upon the aforementioned ratios for purposes of the PCA regulations, as currently in effect.

Bancorp, as the sole shareholder of the Bank, is a bank holding company under federal law and regulation.

As a bank holding company, Bancorp is registered with, and is subject to regulation by, the Federal Reserve under the BHCA.

In accordance with Federal Reserve policy, and as now codified by the Dodd-Frank Act, Bancorp is legally obligated to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances where Bancorp might not otherwise do so.

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This general prohibition is subject to a number of exceptions.

The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking ...

as to be a proper incident thereto”.

This authority would permit Bancorp to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage.

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Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.

Bancorp has elected to be a financial holding company.

In order to maintain Bancorp’s status as a financial holding company, Bancorp and the Bank must be well-capitalized, well-managed, and have a least a satisfactory CRA rating.

If the Federal Reserve subsequently determines that Bancorp, as a financial holding company, is not well-capitalized or well-managed, Bancorp would have a period of time during which to achieve compliance, but during the period of noncompliance, the Federal Reserve may place any limitations on Bancorp it believes to be appropriate.

Furthermore, if the Federal Reserve subsequently determines that the Bank, as a financial holding company subsidiary, has not received a satisfactory CRA rating, Bancorp would not be able to commence any new financial activities or acquire a company that engages in such activities.

Bancorp has elected to be a bank holding company.

In order to maintain Bancorp’s status as a bank holding company, Bancorp and the Bank must be well-capitalized, well-managed, and have a least a satisfactory CRA rating.

If the Federal Reserve subsequently determines that Bancorp, as a bank holding company, is not well-capitalized or well-managed, Bancorp would have a period of time during which to achieve compliance, but during the period of noncompliance, the Federal Reserve may place any limitations on Bancorp it believes to be appropriate.

Furthermore, if the Federal Reserve subsequently determines that the Bank, as a bank holding company subsidiary, has not received a satisfactory CRA rating, Bancorp would not be able to commence any new financial activities or acquire a company that engages in such activities.

Federal law also prohibits any person or company from acquiring “control”

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The amount of the assessment paid by a California bank to the DFPI is calculated on the basis of the institution’s total assets, including consolidated subsidiaries, as reported to the DFPI.

During the years ended December 31, 2021 and 2020, the Bank paid supervisory assessments to the DFPI totaling $201,000 

and $164,000, respectively.

During the years ended December 31, 2022 and 2021, the Bank paid supervisory assessments to the DFPI totaling $212,000 and $201,000, respectively.

Capital Requirements.

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Federal regulators regularly assess the Bank’s record of meeting the credit needs of its communities.

Applications for additional acquisitions would be affected by the evaluation of the Bank’s effectiveness in meeting its CRA requirements.  In April 2018, the U.S.

Department of Treasury issued a memorandum to the federal banking regulators recommending changes to the CRA’s regulations to reduce their complexity and associated burden on banks, and in December 2019, the FDIC and the Office of the Comptroller of the Currency (“OCC”) proposed for public comment rules to modernize the agencies’

Applications for additional acquisitions would be affected by the evaluation of the Bank’s effectiveness in meeting its CRA requirements. In April 2018, the Treasury issued a memorandum to the federal banking regulators recommending changes to the CRA’s regulations to reduce their complexity and associated burden on banks, and in December 2019, the FDIC and the Office of the Comptroller of the Currency (“OCC”) proposed for public comment rules to modernize the agencies’

regulations under the CRA.

In September 2020, the Board of Governors of the Federal Reserve System released for public comment its proposed rules to modernize CRA regulations.

We will continue to evaluate the impact of any changes to the CRA regulations.  The Bank received a “satisfactory”

In September 2020, the Federal Reserve released for public comment its proposed rules to modernize CRA regulations.

We will continue to evaluate the impact of any changes to the CRA regulations.

The Bank received a “satisfactory”

rating on its most recent CRA examination, which was conducted in April 2020.

The last significant interagency revision to the CRA regulations occurred in 1995.

In May 2022, federal bank regulatory agencies jointly issued a proposal to strengthen and modernize regulations implementing the CRA to better achieve the purposes of the law.

The comment period ended on August 5, 2022.

We will continue to monitor for the final ruling and evaluate the impact of any changes to the CRA regulations.

Anti-Money Laundering and OFAC Regulation.

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "Patriot Act") is designed to deny terrorists and criminals the ability to obtain access to the U.S.

The USA Patriot Act is designed to deny terrorists and criminals the ability to obtain access to the U.S.

financial system and has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money.

The Patriot Act mandates financial services companies to have policies and procedures with respect to measures designed to address any or all of the following matters:

The USA Patriot Act mandates financial services companies to have policies and procedures with respect to measures designed to address any or all of the following matters:

(i) customer identification programs;

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Many states and local jurisdictions including California have consumer protection laws analogous, and in addition, to those listed above.

Failure to comply with these laws and regulations could give rise to regulatory sanctions, customer rescission rights, action by state and local attorneys general and civil or criminal liability.

These federal, state and local laws regulate the manner in which financial institutions deal with customers when taking deposits, making loans or conducting other types of transactions. Examples include but are not limited to the CCPA and the CCFPL described above. Failure to comply with these laws and regulations could give rise to regulatory sanctions, customer rescission rights, action by state and local attorneys general and civil or criminal liability.

The structure of federal consumer protection regulation applicable to all providers of consumer financial products and services changed significantly on July 21, 2011, when the CFPB commenced operations to supervise and enforce consumer protection laws.

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Banks and savings institutions with $10 billion or less in assets, like the Bank, will continue to be examined by their applicable bank regulators.

Mortgage and Mortgage-Related Products, Generally.

Because abuses in connection with residential mortgages were a significant factor contributing to the financial crisis, many new rules issued by the CFPB and required by the Dodd-Frank Act address mortgage and mortgage-related products, their underwriting, origination, servicing and sales.

Mortgage and Mortgage-Related Products.

The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by 1-4 family residential real property and augmented federal law combating predatory lending practices.

The Dodd-Frank Act generally required lenders or securitizers to retain an economic interest in the credit risk relating to loans that the lender sells, and other asset-backed securities that the securitizer issues, if the loans do not comply with the ability-to-repay standards described below.

In addition to numerous disclosure requirements, the Dodd-Frank Act imposed new standards for mortgage loan originations on all lenders, including banks and savings associations, in an effort to strongly encourage lenders to verify a borrower’s ability to repay, while also establishing a presumption of compliance for certain “qualified mortgages.” The Dodd-Frank Act generally required lenders or securitizers to retain an economic interest in the credit risk relating to loans that the lender sells, and other asset-backed securities that the securitizer issues, if the loans do not comply with the ability-to-repay standards described below.

The risk retention requirement generally is 5%, but could be increased or decreased by regulation.

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Sarbanes-Oxley Act

The Company is subject to the accounting oversight and corporate governance requirements of the Sarbanes-Oxley Act of 2002, including, among other things, required executive certification of financial presentations, requirements for board audit committees and their members, and disclosure of controls and procedures and internal control over financial reporting.

The Company is subject to the accounting oversight and corporate governance requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), including, among other things, required executive certification of financial presentations, requirements for board audit committees and their members, and disclosure of controls and procedures and internal control over financial reporting.

Enforcement Powers of Federal and State Banking Agencies

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In addition to other implications of the Dodd-Frank Act discussed above, the Dodd-Frank Act amended the BHCA to require the federal regulatory agencies to adopt rules that prohibit banking entities and their affiliates from engaging in proprietary trading and investing in and sponsoring certain unregistered investment companies (defined as hedge funds and private equity funds).

This statutory provision is commonly called the “Volcker Rule”.

On December 10, 2013, the federal regulatory agencies issued final rules to implement the prohibitions required by the Volcker Rule.

Thereafter, in reaction to industry concern over the adverse impact to community banks of the treatment of certain collateralized debt instruments in the final rule, the federal regulatory agencies approved an interim final rule to permit financial institutions to retain interests in collateralized debt obligations backed primarily by trust preferred securities (““TruPS CDOs”), from the investment prohibitions contained in the final rule.

This statutory provision is commonly called the “Volcker Rule.” On December 10, 2013, the federal regulatory agencies issued final rules to implement the prohibitions required by the Volcker Rule.

Thereafter, in reaction to industry concern over the adverse impact to community banks of the treatment of certain collateralized debt instruments in the final rule, the federal regulatory agencies approved an interim final rule to permit financial institutions to retain interests in collateralized debt obligations backed primarily by trust preferred securities (“TruPS CDOs”), from the investment prohibitions contained in the final rule.

Under the interim final rule, the regulatory agencies permitted the retention of an interest in or sponsorship of covered funds by banking entities if the following qualifications were met:

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Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

On October 18, 2022, the FDIC adopted a final rule that increases initial base deposit insurance assessment rates by 2 basis points, beginning with the first quarterly assessment period of 2023.

Due to the decline in the DIF reserve ratio below the statutory minimum of 1.35 percent as of June 30, 2020, caused by extraordinary growth in insured deposits during the first and second quarters of 2020, the FDIC established a Restoration Plan in September 2020 to restore the DIF reserve ratio to meet or exceed the statutory minimum of 1.35 percent within eight years.

This 2020 plan did not include an increase in the deposit insurance assessment rate.

On June 21, 2022, however, the FDIC adopted an Amended Restoration Plan and notice of proposed rulemaking to increase the deposit insurance assessment rates as it was otherwise at risk of not reaching the statutory minimum by the statutory deadline of September 30, 2028.

The proposed rule was adopted as final without change.

Also, in the final rule adopted on October 18, 2022, the FDIC incorporated Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures in the risk-based deposit insurance assessment system applicable to all large and highly complex insured depository institutions.

In March 2022, the FASB issued ASU 2022-02, which eliminates accounting guidance for troubled debt restructurings (“TDRs”) and introduces new disclosures and enhances existing disclosures concerning certain loan refinancings and restructurings when a borrower is experiencing financial difficulty.

The FDIC final rule amends the assessment regulations to include a new term, “modifications to borrowers experiencing financial difficulty,”

in two financial measures—the underperforming assets ratio and the higher-risk assets ratio—used to determine deposit insurance assessments for large and highly complex insured depository institutions.

This final rule is effective January 1, 2023, and applicable to the first quarterly assessment period of 2023.

Operations, Consumer and Privacy Compliance Laws

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Securities and Corporate Governance

Bancorp is subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, both as administered by the SEC.

Bancorp is subject to the disclosure and regulatory requirements of the Securities Act and the Exchange Act, both as administered by the SEC.

As a company listed on the NASDAQ Global Select Market, the Company is subject to NASDAQ listing standards for listed companies.

Bancorp is also subject to the Sarbanes-Oxley Act of 2002, provisions of the Dodd-Frank Act, and other federal and state laws and regulations which address, among other issues, required executive certification of financial presentations, corporate governance requirements for board audit and compensation committees and their members, and disclosure of controls and procedures and internal control over financial reporting, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information.

Bancorp is also subject to the Sarbanes-Oxley Act, provisions of the Dodd-Frank Act, and other federal and state laws and regulations which address, among other issues, required executive certification of financial presentations, corporate governance requirements for board audit and compensation committees and their members, and disclosure of controls and procedures and internal control over financial reporting, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information.

NASDAQ has also adopted corporate governance rules, which are intended to allow stockholders and investors to more easily and efficiently monitor the performance of companies and their directors.

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The federal banking agencies have issued comprehensive guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.

In addition, the Dodd-Frank Act requires the federal bank regulatory agencies and the SEC to establish joint regulations or guidelines prohibiting certain incentive-based payment arrangements.

These regulators must establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-based compensation arrangements.

The agencies proposed such regulations in April 2011, but the regulations have not been finalized.

In April 2016, the agencies published a notice of proposed rulemaking further revising the incentive-based compensation standards originally proposed in 2011.

Similar to the 2011 proposed rule, the 2016 proposed rule would prohibit financial institutions with at least $1 billion in consolidated assets from establishing or maintaining incentive-based compensation arrangements that encourage inappropriate risk by providing any executive officer, employee, director or principal shareholder who is a covered person with excessive compensation, fees or benefits or that could lead to material financial loss to the covered institution.

It cannot be predicted whether, or in what form, any such proposed compensation rules may be enacted, particularly in light of the stated intention of the current administration to curtail the Dodd-Frank Act.

The scope, content and application of the U.S.

banking regulators’

policies on incentive compensation continue to evolve.

It cannot be determined at this time whether compliance with such policies will adversely affect the ability of Bancorp and the Bank to hire, retain and motivate key employees.

The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as us, that are not “large, complex banking organizations.”

The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

In accordance with the Dodd-Frank Act, the federal banking agencies prohibit incentive-based compensation arrangements that encourage inappropriate risk taking by covered financial institutions (generally institutions, like us, that have over $1 billion in assets) and are deemed to be excessive, or that may lead to material losses.

The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not “large, complex banking organizations.”

These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements.

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Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness, and the organization is not taking prompt and effective measures to correct the deficiencies.

The scope and content of the U.S.

banking regulators’

policies on executive compensation may continue to evolve in the near future.

It cannot be determined at this time whether compliance with such policies will adversely affect the Company’s ability to hire, retain, and motivate its key employees.

Audit Requirements

The Bank is required to have an annual independent audit, alone or as a part of its bank holding company’s audit, and to prepare all financial statements in accordance with U.S.

generally accepted accounting principles.

The Bank is required to have an annual independent audit, alone or as a part of its bank holding company’s audit, and to prepare all financial statements in accordance with GAAP.

The Bank and Bancorp are also each required to have an audit committee comprised entirely of independent directors.

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The Company has not been audited by the Internal Revenue Service.

For 2021, 2020 and 2019, the Company was subject to a maximum federal income tax rate of 21.00% and California state income tax rate of 8.84%.

For 2017, the Company was subject to a maximum federal income tax rate of 35.00% and California state income tax rate of 8.84%.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law.

The Tax Act included a number of provisions that impacted us, including the following:

The Tax Act replaced the graduated corporate income tax rates applicable under prior law, which imposed a maximum corporate income tax rate of 35%, with a reduced 21% flat corporate income tax rate.

Although the reduced corporate income tax rate generally was favorable to us, resulting in increased earnings and capital, it decreased the value of our existing deferred tax assets.

Accounting principles generally accepted in the United States requires that the impact of the provisions of the Tax Act be accounted for in the period of enactment.

Accordingly, the total incremental income tax expense recorded by Bancorp related to the Tax Act was $2.4 million in 2017.

Employee Compensation.

A “publicly held corporation”

is not permitted to deduct compensation in excess of $1 million per year paid to certain employees.

The Tax Act eliminated certain exceptions to the $1 million limit applicable under prior law related to performance-based compensation (for example, equity grants and cash bonuses paid only on the attainment of performance goals).

As a result, our ability to deduct certain compensation paid to our most highly compensated employees is now limited.

Business Asset Expensing.

The Tax Act allows taxpayers to immediately expense the entire cost (instead of only 50%, as under prior law) of certain depreciable tangible property and real property improvements acquired and placed in service after September 27, 2017 and before January 1, 2023 (with an additional year for certain property).

This 100% “bonus”

depreciation is phased out proportionately for property placed in service on or after January 1, 2023 and before January 1, 2027 (with an additional year for certain property).

Interest Expense.

The Tax Act limits a taxpayer’s annual deduction of business interest expense to the sum of (i) business interest income, and (ii) 30% of “adjusted taxable income,”

defined as a business’s taxable income without taking into account business interest income or expense, net operating losses, and, for 2018 through 2021, depreciation, amortization and depletion.

Because we generate significant amounts of net interest income, we do not expect to be impacted by this limitation.

However, under the Biden administration and the Democrat controlled Congress, tax laws and banking regulations are subject to change.

The Company is currently under tax examination by the state of New York for 2018, 2019 and 2020 New York state returns. For 2022, 2021 and 2020, the Company was subject to a maximum federal income tax rate of 21.00%, California state income tax rate of 10.84% and various state tax rates for other various state jurisdictions.

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 1. Business