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RBB Bancorp is a bank holding company registered under the Bank Holding Company Act of 1956, as amended.
−Removed: RBB Bancorp’s principal business is to serve as the holding company for its wholly-owned banking subsidiaries, Royal Business Bank (“Bank”) and RBB Asset Management Company (“RAM”), collectively referred to herein as “the Company.” The Bank began operations in 2008 as a California state-chartered commercial bank.
−Removed: In 2012, we established RBB Asset Management Company (“RAM”), as a wholly-owned subsidiary of the Company.
−Removed: We may continue to utilize RAM to purchase certain assets from the Bank from time to time, including assets acquired in acquisitions that we may make in the future.
+Added: RBB Bancorp’s principal business is to serve as the holding company for its wholly-owned banking subsidiaries, Royal Business Bank (“Bank”) and RBB Asset Management Company (“RAM”), collectively referred to herein as "the Company." RBB Bancorp was formed in January 2011 as a bank holding company and RAM was formed in 2012 to hold and manage problem assets acquired in business combinations.
When we refer to “we”, “us”, “our”, or the “Company”, we are referring to RBB Bancorp and its consolidated subsidiaries including the Bank, collectively.
−Removed: When we refer to the “parent company”, “Bancorp”, or the “holding company”, we are referring to RBB Bancorp, the parent company, on a stand-along basis.
−Removed: The Bank was organized by a group of experienced bankers, some of whom began their banking careers in Asia and have worked together at various banks in California during the 1980s and 1990s.
−Removed: After working for many years in positions of increasing responsibility at such banks, these individuals identified an opportunity resulting from the 2007 credit crisis to capitalize on the general dissatisfaction that many customers had with the nature and level of services being provided by existing Asian-American banks at that time.
−Removed: These bankers observed that first generation Chinese immigrants were not well served by existing banks.
−Removed: Our strategic plan focuses on providing commercial and consumer banking services to Asian American communities.
−Removed: 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.
−Removed: In recent years, the Bank has brought in independent directors and senior managers from diverse ethnic backgrounds.
−Removed: 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.
−Removed: We focus both on existing businesses and individuals already established in our local market area, as well as Asian immigrants who desire to establish their own businesses, purchase a home, or educate their children in the United States.
−Removed: Our size and infrastructure allow us to serve customers who require higher lending limits than normally associated with other smaller, local banking institutions that serve the Asian-American communities in which we operate.
−Removed: 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.
−Removed: After forming the Bank and retaining a strong executive management team, we established RBB Bancorp, a California corporation, as our holding company in January 2011.
−Removed: We began to review potential acquisition candidates and over the next several years, we acquired six banks to strategically grow our customer base by expanding our geographic footprint into other key Asian-American markets.
−Removed: Initially, we made a series of all cash transactions acquiring Las Vegas, Nevada-based First Asian Bank (“FAB”) and Oxnard, California-based Ventura County Business Bank (“VCBB”) in 2011, California-based Los Angeles National Bank (“LANB”) in 2013, California-based TFC Holding Company (“TFC”) and its wholly-owned subsidiary, TomatoBank in 2016, New York-based First American International Corp.
−Removed: (“FAIC”) and its wholly-owned subsidiary First American International Bank (“FAIB”) in 2018, and Chicago-based PGB Holdings, Inc.
−Removed: (“PGBH”) and its wholly-owned subsidiary, Pacific Global Bank (“PGB”) in 2020.
−Removed: On January 14 2022, we purchased the Bank of the Orient's (“BOTO”) Honolulu, Hawaii branch (the “Hawaii Branch”).
+Added: When we refer to the “parent company”, “Bancorp”, or the “holding company”, we are referring to RBB Bancorp, the parent company, on a stand-alone basis.
+Added: The Bank provides business-banking and consumer products and services predominantly to the Asian-centric communities through full service branches located in Los Angeles County, Orange County and Ventura County in California, Las Vegas (Nevada), the New York City metropolitan areas, Chicago (Illinois), Edison (New Jersey) and Honolulu (Hawaii).
+Added: The products and services include commercial and investor real estate loans, business loans and lines of credit, Small Business Administration (“SBA”) 7A and 504 loans, mortgage loans, trade finance and a full range of depository accounts, including specialized services such as remote deposit, E-banking, mobile banking and treasury management services.
+Added: We have supported our organic growth with disciplined strategic growth.
+Added: Between 2011 and 2018, we successfully completed six whole-bank acquisitions.
+Added: Most recently, on January 14, 2022, we purchased the Bank of the Orient's (“BOTO”) Honolulu, Hawaii branch (the “Hawaii Branch”).
We 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 the purchase date, reflecting a premium paid by us of approximately $2.3 million.
−Removed: We previously disclosed that, on December 28, 2021 , we entered into a definitive agreement to acquire Gateway Bank F.S.B.
−Removed: (“Gateway”) in an all cash transaction, subject to certain terms and conditions.
−Removed: On September 28, 2023 , we announced that the Company and Gateway had mutually agreed to terminate the definitive agreement, effective as of that date .
−Removed: Neither party has or will have any liability or pay any penalty to the other party as a result of the termination, and each party has released the other from any and all claims related to the definitive agreement or the transactions contemplated by the definitive agreement.
−Removed: We intend to continue to pursue organic growth opportunities and, once we fully resolve the matters contained in our Consent Order, growth through acquisitions that meet our criteria .
−Removed: We will consider opportunistic acquisitions that we believe will be beneficial to our long-term growth strategy for loans and deposits and immediately accretive to earnings.
−Removed: We operate as a minority depository institution, which is defined by the FDIC as a federally insured depository institution (“IDI”) where 51% or more of the voting stock is owned by minority individuals.
−Removed: A minority depository institution is eligible to receive from the FDIC and other federal regulatory agencies training, technical assistance and review, and assistance regarding the implementation of proposed new deposit taking and lending programs, as well as with respect to the adoption of applicable policies and procedures governing such programs.
−Removed: We intend to maintain our minority depository institution designation, as it is expected that at least 51% of our issued and outstanding shares of capital shall remain owned by minority individuals.
−Removed: The minority depository institution designation has been historically beneficial to us, as the FDIC has reviewed and assisted with the implementation of our deposit and lending programs, and we continue to use the program for technical assistance.
−Removed: In addition, in 2016, we became a community development financial institution (“CDFI”) which is a financial institution that has a primary mission of community development, serves a target market, is a financing entity, provides development services, remains accountable to its community, and is a non-governmental entity.
+Added: We will continue to consider opportunistic acquisitions that we believe will be beneficial to our long-term growth strategy and will be accretive to our shareholders.
+Added: We operate as a minority depository institution (“MDI”), which is defined by the Federal Deposit Insurance Corporation (“FDIC”) as a federally insured depository institution where 51% or more of the voting stock is owned by minority individuals or a majority of the board of directors is minority and the community that the institution serves is predominantly minority.
+Added: A MDI is eligible to receive support from the FDIC and other federal regulatory agencies such as training, technical assistance and review of proposed new deposit taking and lending programs, and the adoption of applicable policies and procedures governing such programs.
+Added: We intend to maintain our MDI designation, as it is expected that at least 51% of our issued and outstanding shares of capital shall remain owned by minority individuals.
+Added: The MDI designation has been historically beneficial to us, and we continue to use the program for technical assistance.
+Added: In addition, we have been designated a community development financial institution (“CDFI”).
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.
−Removed: We have established a CDFI advisory board to assist the Bank in finding organizations that provide services to low-to-moderate income individuals.
−Removed: In our commitment to this designation, the Bank has a policy that requires management above the level of vice president to contribute at least 24 hours of community service annually to a qualified organization.
−Removed: In 2021, the Bank was awarded a $1.8 million CDFI grant under the Treasury’s Rapid Response Program to facilitate a rapid response to the economic impacts of the COVID-19 pandemic in distressed and underserved communities.
−Removed: The award was subject to various performance goals and measures that specify the use of the funds to provide affordable housing.
−Removed: The Bank utilized all of such funds to originate two loans that provide affordable housing to underserved communities.
−Removed: In 2023, the Bank was awarded a $5.0 million CDFI grant under the Treasury’s Equitable Recovery Program (“ERP”) in response to the economic impacts of the COVID-19 pandemic in low and moderate-income communities that were disproportionally harmed by health and economic effects of the pandemic.
−Removed: The CDFI ERP award was subject to various performance goals and measures that specify the use of the funds.
−Removed: The Bank utilized all of such funds to originate two loans in the fourth quarter of 2023, which fulfilled the performance obligations specified under the ERP.
−Removed: The Bank currently operates 24 branches across two separate regions:
−Removed: the Western region with branches in Los Angeles County, California;
−Removed: Orange County, California;
−Removed: Ventura County, California;
−Removed: Clark County, Nevada;
+Added: We have established a CDFI advisory board to assist the Bank in finding organizations to support low-to-moderate income individuals.
+Added: To date, we have received five CDFI grants in the aggregate amount of $9.4 million and have deployed the grant proceeds and satisfied all performance obligations related to the grants.
+Added: We operate 24 banking offices in Arcadia, Cerritos, Diamond Bar, Irvine, Los Angeles, Monterey Park, Oxnard, Rowland Heights, San Gabriel, Silver Lake, Torrance, and Westlake Village, California;
+Added: Las Vegas, Nevada;
+Added: Manhattan, Brooklyn, Flushing, and Elmhurst, New York;
+Added: the Chinatown and Bridgeport neighborhoods of Chicago, Illinois;
+Added: Edison, New Jersey;
and Honolulu, Hawaii.
−Removed: and the Eastern region with branches in Manhattan, Brooklyn and Queens, New York;
−Removed: Chicago, Illinois and Edison, New Jersey.
−Removed: As of December 31, 2023, the Company had total consolidated assets of $4.03 billion, total consolidated held for investment loans of $3.03 billion, total consolidated deposits of $3.17 billion and total consolidated shareholders’ equity of $511.3 million.
+Added: Our primary source of revenue is providing loans to customers, who are predominately small and middle-market businesses and individuals.
+Added: We generate our revenue primarily from interest received on loans and, to a lesser extent, from interest received on investment securities.
+Added: We also derive income from noninterest sources, such as fees received in connection with various lending and deposit services, loan servicing, gain on sales of loans and wealth management services.
+Added: Our principal expenses include interest expense on deposits and borrowings, and operating expenses, such as salaries and employee benefits, occupancy and equipment, data processing, and income tax expense.
+Added: We completed six whole bank acquisitions and one branch acquisition from July 2011 through January 2022.
+Added: All of our acquisitions have been accounted for using the acquisition method of accounting and, accordingly, the operating results of the acquired entities have been included in the consolidated financial statements from their respective acquisition dates.
+Added: As of December 31, 2024, we had total consolidated assets of $4.0 billion, gross consolidated loans of $3.1 billion, deposits of $3.1 billion and shareholders’ equity of $507.9 million.
Our common stock is traded on the NASDAQ Global Select Market under the symbol “RBB.”
Our Strategic Plan
−Removed: In connection with the organization of the Company, we adopted a strategic plan that reflects the Company’s growth and recent developments.
−Removed: The Company’s current strategic plan contains the following key elements:
+Added: We update our strategic plan annually to reflect our growth, recent developments and describe our business objectives over a reasonable planning horizon.
+Added: Our current strategic plan contains the following key elements:
Maintain regulatory capital levels in excess of fully phased-in Basel III requirements;
−Removed: Provide commercial banking services and products primarily to businesses and their owners operating within Asian-American communities;
+Added: Provide commercial banking services and products primarily to small to midsized commercial enterprises operating within Asian-centric communities or that can benefit from our areas of core lending expertise;
Maintain a board of directors comprised of business leaders who work closely with community leaders;
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provide or receive goods or services to or from Asian countries, primarily Chinese-speaking regions, such as China, Hong Kong, Macau, Taiwan;
−Removed: have annual sales between $5 million and $50 million and between approximately 50 to 500 employees;
−Removed: have loan needs of $1 million to $40 million;
+Added: have loan needs of $1 million to $20 million (average loan size of $3 million to $7 million) and
prioritize using bankers with strong market knowledge who are dedicated to serving the local markets in which we operate.
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Construction and land development (“C&D”) loans comprised of residential construction, commercial construction and land acquisition and development construction;
−Removed: 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;
+Added: Commercial and Industrial (“C&I”) lending that emphasizes asset-based lending, trade finance, working capital lines of credit, and term 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.
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Small Business Administration (“SBA”) loans consisting primarily of 7(a) loans through our SBA Preferred Lender status.
−Removed: We sell the SBA guarantee portion of the loan in the secondary market generally on a quarterly basis, subject to market conditions.
−Removed: Consider new markets, products and services;
−Removed: Invest in new technologies or products where appropriate to improve efficiency, increase earnings, acquire new bank customers, or deepen relationships with existing clients;
−Removed: Explore digital banking initiatives for consumers and businesses to improve convenience, speed, and user experience;
−Removed: Explore new niche markets to gain a competitive advantage.
+Added: We sell the SBA guarantee portion of the loan in the secondary market subject to market conditions.
Our Competition
−Removed: We view the Asian-American banking market, including the Company, as comprised of 29 banks divided into three overlapping segments:
+Added: We view the Asian-centric banking market, including the Company, as comprised of 25 banks divided into three overlapping segments:
publicly-traded banks, locally-based banks, and banks that are subsidiaries of Taiwanese or Chinese banks.
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We principally focus our lending activities on loans that we originate from borrowers located in our market areas.
−Removed: We strive to expedite all requests from potential borrowers by promptly responding after we receive required financials and certain preliminary information.
−Removed: Our ability to provide quick responses to borrowers with financial solutions, while performing appropriate underwriting if a borrower decides to move forward, is due primarily to the experiences and expertise of our professionals who understand the needs of borrowers in our target markets and the areas of commercial lending practices that the Bank is engaged in.
−Removed: In addition, our credit approval process is streamlined since decision-making often only requires a couple of key executive management members while any loans that exceed executive management's delegated authority is elevated to a board loan committee which meets regularly or whenever needed.
+Added: We strive to expedite all requests from potential borrowers by promptly responding after we receive the required financials and certain preliminary information.
+Added: Our ability to provide quick responses to borrowers with financial solutions, while performing appropriate underwriting if a borrower decides to move forward, is primarily due to our experienced banking professionals who understand the needs of borrowers in our target markets and their expertise in our Bank’s commercial lending practices.
+Added: In addition, our credit approval process is streamlined since decision-making often only requires a couple of key executive management members while any loans that exceed executive management's delegated authority is elevated to a board loan committee which meets at regularly scheduled meetings and whenever needed.
We have five principal lending areas:
−Removed: Commercial and Industrial Loans.
−Removed: We have significant expertise in small to middle market C&I lending.
−Removed: Our success is the result of our product and market expertise.
−Removed: We focus on delivering high-quality, customized and quick turnaround service for our clients while maintaining an appropriate balance between prudent and disciplined underwriting and flexibility and responsiveness to our clients.
−Removed: Our trade financing unit provides international letters of credit, SWIFT, export advice, trade finance discounts and foreign exchange to many of our C&I loan customers.
−Removed: As of December 31, 2023, we had outstanding C&I loans of $130.1 million, or 4.3% of our total loan portfolio, compared to $201.2 million, or 6.0% of our total loan portfolio as of December 31, 2022.
−Removed: C&I loans on nonaccrual totaled $854,000 and $713,000 at December 31, 2023 and 2022.
+Added: Construction and Land Development Loans.
+Added: Our C&D loans are comprised of residential construction, commercial construction and land acquisition and development construction.
+Added: Interest reserves are generally established on real estate construction loans.
+Added: As of December 31, 2024, our real estate construction loan portfolio totaled $173.3 million, or 5.7% of our total loan portfolio, and was divided among the following categories:
+Added: $58.3 million of residential construction;
+Added: $98.0 million of commercial construction;
+Added: and $17.0 million of land acquisition and development.
+Added: As of December 31, 2023, the C&D loans totaled $181.5 million and were comprised of $80.3 million of residential construction, $78.1 million of commercial construction, and $23.1 million of land acquisition and development.
+Added: There were $44.6 million non-accrual C&D loans as of December 31, 2024 compared to zero as of December 31, 2023.
Commercial Real Estate Loans.
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Non-accrual CRE loans totaled $17.1 million and $10.6 million at December 31, 2024 and 2023.
−Removed: Construction and Land Development Loans.
−Removed: Our C&D loans are comprised of residential construction, commercial construction and land acquisition and development construction.
−Removed: Interest reserves are generally established on real estate construction loans.
−Removed: As of December 31, 2023, our real estate construction loan portfolio totaled $181.5 million, or 6.0% of our total loan portfolio, and was divided among the following categories:
−Removed: $80.3 million of residential construction;
−Removed: $78.1 million of commercial construction;
−Removed: and $23.1 million of land acquisition and development.
−Removed: As of December 31, 2022, the C&D loans were comprised of $166.6 million of residential construction, $77.2 million of commercial construction, and $33.1 million of land acquisition and development.
−Removed: There were no non-accrual C&D loans as of December 31, 2023 compared to $141,000 as of December 31, 2022.
+Added: We originate qualified SFR mortgage loans and non-qualified, alternative documentation SFR mortgage loans through wholesale channels and retail channels, including our branch network, to accommodate the needs of the Asian-centric market.
+Added: The qualified SFR mortgage loans are 15-year and 30-year conforming mortgages and may be sold directly to FNMA and FHLMC.
+Added: As of December 31, 2024, we had $1.49 billion of SFR mortgage loans, representing 48.9% of our total loan portfolio compared to $1.49 billion, or 49.1% at December 31, 2023.
+Added: We had $11.5 million in non-accrual SFR real estate loans as of December 31, 2024 compared to $18.1 million in non-accrual loans at December 31, 2023.
+Added: We originate non-qualified SFR mortgage loans generally to hold for investment.
+Added: The loans generated through our retail branch network are to our customers, many of whom establish a deposit relationship with us.
+Added: During 2024, we originated $102.8 million of SFR mortgage loans through our retail channel and $80.4 million of such loans through our wholesale channels.
+Added: During 2023, we originated $78.6 million of SFR mortgage loans through our retail channel and $113.7 million of such loans through our wholesale channels.
+Added: We have sold non-qualified SFR mortgage loans to other Asian-American banks and other investors.
+Added: SFR mortgage loans held for sale ("HFS") consist primarily of first trust deed mortgages on SFR properties located in California, New York and New Jersey.
+Added: SFR mortgage loans HFS are generally sold with the servicing rights retained.
+Added: Commercial and Industrial Loans.
+Added: We have significant expertise in small to middle market C&I lending.
+Added: Our success is the result of our products and market expertise.
+Added: We focus on delivering high-quality, customized and quick turnaround service for our clients while maintaining an appropriate balance between disciplined underwriting and flexibility and responsiveness to our clients.
+Added: Our trade financing unit provides international letters of credit, SWIFT, export advice, trade finance discounts and foreign exchange to many of our C&I loan customers.
+Added: As of December 31, 2024, we had outstanding C&I loans of $129.6 million, or 4.2% of our total loan portfolio, compared to $130.1 million, or 4.3% of our total loan portfolio as of December 31, 2023.
+Added: C&I loans on nonaccrual totaled $6.3 million and $854,000 at December 31, 2024 and 2023.
We are designated as a Preferred Lender under the SBA Preferred Lender Program.
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Our non-accrual SBA loans as of December 31, 2024 were $1.5 million, compared to $2.1 million as of December 31, 2023.
−Removed: We originate qualified SFR mortgage loans and non-qualified, alternative documentation SFR mortgage loans through correspondent relationships and retail channels, including our branch network, to accommodate the needs of the Asian American market.
−Removed: The qualified SFR mortgage loans are 15-year and 30-year conforming mortgages, which are generally originated through our branch network and may be sold directly to FNMA and FHLMC.
−Removed: As of December 31, 2023, we had $1.49 billion of SFR mortgage loans, representing 49.1% of our total loan portfolio compared to $1.46 billion, or 43.9% at December 31, 2022.
−Removed: We had $18.1 million in non-accrual SFR real estate loans as of December 31, 2023 compared to $5.9 million in non-accrual loans at December 31, 2022.
−Removed: We originate non-qualified SFR mortgage loans generally to hold for investment.
−Removed: The loans generated through our retail branch network are to our customers, many of whom establish a deposit relationship with us.
−Removed: During 2023, we originated $78.6 million of such loans through our retail channel and $113.7 million through our correspondent and wholesale channel of such loans.
−Removed: During 2022, we originated $386.1 million through our retail channel and $286.0 million through our correspondent and wholesale channel of such loans.
−Removed: The decrease in loan originations was due to increases in market interest rates.
−Removed: We have sold non-qualified SFR mortgage loans to other Asian-American banks and other investors.
−Removed: During 2023, we engaged in loan sales to one affiliated bank, and are working to expand our network of entities who will acquire our SFR loan product.
−Removed: Loans held for sale consist primarily of first trust deed mortgages on SFR properties located in California, New York and New Jersey.
−Removed: SFR mortgage loans held for sale are generally sold with the servicing rights retained.
The quality of our deposit franchise and access to stable funding are key components to our success.
−Removed: We offer traditional depository products, including checking, savings, money market and certificates of deposits, to individuals, businesses, municipalities and other entities through our branch network.
+Added: We offer traditional depository products, including checking, savings, money market and time deposits, to individuals, businesses, municipalities and other entities through our branch network.
+Added: In addition, we offer retail deposit products where customers are able to achieve FDIC insurance for balances on deposit in excess of the $250,000 FDIC limit through the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweeps (“ICS”) programs.
Deposits at the Bank are insured by the FDIC up to statutory limits.
−Removed: We consider all deposit relationships under $250,000 as a core relationship except for time deposits originated through an internet listing service.
−Removed: 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.
+Added: Time deposits include deposits acquired through both retail and wholesale channels.
+Added: Wholesale channels include brokered deposits, collateralized deposits from the State of California, and deposits acquired through internet listing services.
+Added: As an Asian-centric business bank that focuses on successful businesses and their owners, many of our depositors choose to leave large deposits with us.
We monitor all deposit relationships over $250,000 on a quarterly basis and consider a relationship to be stable if there are any three or more of the following characteristics:
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and (vii) longevity of the relationship with us.
−Removed: 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.
−Removed: As of December 31, 2023, $2.36 billion or 74.4% of our relationships are considered stable relationships.
+Added: 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 the stability of our deposit base.
+Added: As of December 31, 2024, $2.2 billion or 72.7% of our relationships are considered core relationships.
Many of our management team members, including our branch managers, have worked together for up to 30 years, and our deposits relationships have been cultivated over that time period.
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Other Subsidiaries
−Removed: In addition to the Bank and RAM, the holding Company has three statutory business trusts as follows:
+Added: In addition to the Bank and RAM, the holding Company has three statutory business trusts acquired through our business acquisitions as follows:
TFC Statutory Trust .
−Removed: In connection with our 2016 acquisition of TomatoBank and its holding company, TFC, the Company acquired the TFC Statutory Trust (the “TFC Trust”), a statutory business trust that was established by TFC in 2006 as a wholly-owned subsidiary.
−Removed: FAIC Statutory Trust.
−Removed: In connection with our 2018 acquisition of FAIB and its holding company, FAIC, the Company acquired the FAIC Statutory Trust (the “FAIC Trust”), a statutory business trust that was established by FAIC in 2004 under the laws of Delaware as a wholly-owned subsidiary.
−Removed: 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.
+Added: In connection with our 2016 acquisition of TomatoBank and its holding company, TFC, we acquired the TFC Statutory Trust (the “TFC Trust”), a statutory business trust that was established by TFC in 2006 as a wholly-owned subsidiary.
+Added: FAIC Statutory Trust I.
+Added: In connection with our 2018 acquisition of FAIB and its holding company, FAIC, we acquired the FAIC Statutory Trust I (the “FAIC Trust I”), a statutory business trust that was established by FAIC in 2004 under the laws of Delaware as a wholly-owned subsidiary.
+Added: PGBH Trust I .
+Added: In connection with our 2020 acquisition of PGB and its holding company, PGBH, we 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.
Each of the foregoing trusts issued trust preferred securities representing undivided preferred beneficial interests in the assets of the trusts.
The proceeds of these trusts preferred securities were invested in certain securities issued by us, with similar terms to the relevant series of securities issued by the trusts, which we refer to as subordinated debentures.
−Removed: The Company guarantees on a limited basis the payments of distributions on the capital securities of the trusts and payments on redemption of the capital securities of the trusts.
−Removed: The Company is the owner of all the beneficial interests represented by the common securities of the trusts.
+Added: We guarantee on a limited basis the payments of distributions on the capital securities of the trusts and payments on redemption of the capital securities of the trusts.
+Added: We are the owner of all the beneficial interests represented by the common securities of the trusts.
In addition, the Bank has a wholly-owned subsidiary , FAIB Capital Corp, a real estate investment trust, which was acquired in connection with the 2018 acquisition of FAIC.
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The purpose of this real estate investment trust is to minimize New York State and local taxes.
+Added: As of December 31, 2024, FAIB Capital Corp has $533.2 million in assets.
Human Capital Resources
−Removed: We believe in the value of teamwork and the power of diversity.
−Removed: We expect and encourage participation and collaboration, and understand that we need each other to be successful.
+Added: We believe in the value of teamwork and the power of participation and collaboration.
+Added: We cultivate an environment where it is understood that we need each other to be successful.
We value accountability because it is essential to our success, and we accept our responsibility to hold ourselves and others accountable for meeting shareholder commitments and achieving exceptional standards of performance.
+Added: We are committed to fostering an inclusive environment that empowers our employees to make more meaningful contributions within our Company and the communities we serve.
Staffing Model.
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None of our employees are represented by any collective bargaining unit or are parties to a collective bargaining agreement.
−Removed: Diversity, Equity and Inclusion.
−Removed: 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.
−Removed: Our board of directors is comprised of six Asian-Americans and four Caucasians, of which seven members are men and three members are women.
−Removed: Our executive committee is comprised of six Asian-Americans and two Caucasians, including two members who are women.
−Removed: Our workforce includes 332 Asian-Americans, 23 Latin-Americans, 20 Caucasians, one Pacific Islander and four employees who identify with two or more races.
Health & Safety.
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Employee Assistance Plans (EAP)
−Removed: Climate-related Discussion
−Removed: The SEC adopted a final rule that will require companies to disclose a broad array of climate-related exposures, including, among other things, material climate-related risks;
−Removed: activities to mitigate or adapt to such risks;
−Removed: information about the registrant’s board of directors’ oversight of climate-related risks and management’s role in managing material climate-related risks;
−Removed: and information on any climate-related targets or goals that are material to the registrant’s business, results of operations, or financial condition.
−Removed: The final rule will also require disclosure of Scope 1 and/or Scope 2 greenhouse gas (GHG) when such emissions are material, the filing of an attestation report covering the required disclosure of a company’s Scope 1 and/or Scope 2 emissions and disclosure of the financial statement effects of severe weather events and other natural conditions.
−Removed: The disclosures related to GHG emissions would include a company’s material direct emissions and indirect emissions in the form of purchased energy — otherwise known as Scope 1 and Scope 2 emissions, respectively.
−Removed: As a financial institution, the Company has minimal Scope 1 direct GHG emissions.
−Removed: Scope 1 GHG emissions result from a leased automobile, and three owned vehicles, all of which are compliant with state emissions regulations.
−Removed: Scope 2 emissions result from 23 leased office properties and six owned office properties, which have indirect GHG emissions from acquired electricity, steam heat or cooling.
−Removed: Under the SEC's final rule, Scope 1 and Scope 2 disclosures will be required on a phased-in basis for larger registrants when such emissions are material and will be required to be made by accelerated filers reporting fiscal year 2028 results.
−Removed: We are committed to overseeing the Company’s environmental efforts.
−Removed: The Company considers environmental matters throughout the organization.
−Removed: 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.
−Removed: We believe that the leases to which we are subject are generally on terms consistent with prevailing market terms.
−Removed: None of the leases are with our directors, officers, beneficial owners of more than 5% of our voting securities or any affiliates of the foregoing.
Corporate Information
13 unchanged sentences
federal and state laws.
−Removed: 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 DFPI, the Board of Governors of the Federal Reserve System (“Federal Reserve”), the FDIC, and the Consumer Financial Protection Bureau (“CFPB”).
+Added: As a result, our growth and earnings performance 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 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.
−Removed: Department of Housing and Urban Development, and agencies such as FNMA and FHLMC, have an impact on the Company’s business.
+Added: Department of Housing and Urban Development, and agencies such as FNMA and FHLMC, have an impact on our business.
The effect of these statutes, regulations, regulatory policies and rules are significant to the financial condition and results of operations of the Company and its subsidiaries, including the Bank, and the nature and extent of future legislative, regulatory or other changes affecting financial institutions are impossible to predict with any certainty.
−Removed: Additional initiatives may be proposed or introduced before Congress, the California Legislature, and other governmental bodies in the future.
−Removed: Such proposals, if enacted, may further alter the structure, regulation, and competitive relationship among financial institutions and may subject us to increased supervision and disclosure and reporting requirements.
−Removed: In addition, the various bank regulatory agencies often adopt new rules, regulations and policies to implement and enforce existing legislation.
−Removed: It cannot be predicted whether, or in what form, any such legislation or regulatory changes in policy may be enacted or the extent to which the business of the Bank would be affected thereby.
−Removed: The outcome of examinations, any litigation, or any investigations initiated by state or federal authorities also may result in necessary changes in our operations and increased compliance costs.
−Removed: Federal and state banking laws impose a comprehensive system of supervision, regulation and enforcement on the operations of financial institutions, their holding companies and affiliates intended primarily for the protection of the FDIC-insured deposits and depositors of banks, rather than their shareholders.
−Removed: These federal and state laws, and the related regulations of the bank regulatory agencies, affect, among other things, the scope of business, the kinds and amounts of investments banks may make, reserve requirements, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, the ability to merge, consolidate and acquire, dealings with insiders and affiliates and the payment of dividends.
−Removed: This supervisory and regulatory framework subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that, while not publicly available, can affect the conduct and growth of their businesses.
−Removed: These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors.
−Removed: The regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable laws or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies.
−Removed: The following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and its subsidiaries, including the Bank.
−Removed: It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described.
−Removed: The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision.
−Removed: Bank Holding Company and Bank Regulation
−Removed: 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.
+Added: This summary is qualified in its entirety by reference to the particular statute and regulatory provision referred to below and is not intended to be an exhaustive description of all applicable statutes and regulations.
+Added: Bancorp, as the sole shareholder of the Bank, is a bank holding company under federal law and regulation.
+Added: As a bank 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 (“BHCA”).
+Added: Under the BHCA, Bancorp is subject to periodic examination by the Federal Reserve.
+Added: Bancorp is required to file with the Federal Reserve periodic reports of Bancorp’s operations and such additional information regarding Bancorp and its subsidiaries as the Federal Reserve may require.
Bancorp is also a bank holding company within the meaning of Section 1280 of the California Financial Code.
−Removed: Therefore, Bancorp and its subsidiaries are subject to examination by, and may be required to file reports with, the Federal Reserve and the DFPI.
−Removed: Federal Reserve and DFPI approvals are also required for financial holding companies to acquire control of a bank.
−Removed: As a California commercial bank, the deposits of which are insured by the FDIC, the Bank is subject to regulation, supervision, and regular examination by the DFPI and by the FDIC, as the Bank’s primary federal regulator, and must additionally comply with certain applicable regulations of the Federal Reserve.
−Removed: The wide range of requirements and restrictions contained in both federal and state banking laws include:
−Removed: Requirements that bank holding companies and banks file periodic reports.
−Removed: Requirements that bank holding companies and banks meet or exceed minimum capital requirements (See “Regulatory Capital Requirements” below.)
−Removed: Requirements that bank holding companies serve as a source of financial and managerial strength for their banking subsidiaries.
−Removed: In addition, the regulatory agencies have “prompt corrective action” authority to limit activities and require a limited guaranty of a required bank capital restoration plan by a bank holding company if the capital of a bank subsidiary falls below capital levels required by the regulators.
−Removed: (See “Source of Strength” and “Prompt Corrective Action” below.)
−Removed: Limitations on dividends payable to stockholders.
−Removed: Bancorp’s ability to pay dividends is subject to legal and regulatory restrictions.
−Removed: A substantial portion of Bancorp’s funds to pay dividends or to pay principal and interest on our debt obligations is derived from dividends paid by the Bank.
−Removed: (See “The Company – Dividend Payments” below).
−Removed: Limitations on dividends payable by bank subsidiaries.
−Removed: These dividends are subject to various legal and regulatory restrictions.
−Removed: The federal banking agencies have indicated that paying dividends that deplete a depositary institution’s capital base to an inadequate level would be an unsafe and unsound banking practice.
−Removed: Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings.
−Removed: (See “The Bank – Dividend Payments” below).
−Removed: Safety and soundness requirements.
−Removed: Banks must be operated in a safe and sound manner and meet standards applicable to internal controls, information systems, internal audit, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, as well as other operational and management standards.
−Removed: These safety and soundness requirements give bank regulatory agencies significant latitude in exercising their supervisory authority and the authority to initiate informal or formal enforcement actions.
−Removed: Requirements for notice, application and approval, or non-objection of acquisitions and certain other activities conducted directly or in subsidiaries of Bancorp or the Bank.
−Removed: Compliance with the Community Reinvestment Act (“CRA”).
−Removed: The CRA requires that banks help meet the credit needs in their communities, including the availability of credit to low and moderate income individuals.
−Removed: If the Bank fails to adequately serve its communities, restrictions may be imposed, including denials of applications for adding branches, subsidiaries or affiliate companies, for engaging in new activities or for merger or purchase of other financial institutions.
−Removed: In its last reported examination by the FDIC in May 2023, the Bank received a CRA rating of “Satisfactory.”
−Removed: 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”).
−Removed: (See “The Bank – Anti-Money Laundering and OFAC Regulation" below).
−Removed: Limitations on the amount of loans to one borrower and its affiliates and to executive officers and directors.
−Removed: Limitations on transactions with affiliates.
−Removed: Restrictions on the nature and amount of investments in, and the ability to underwrite, certain securities.
−Removed: Requirements for opening of intra- and interstate branches.
−Removed: Compliance with truth in lending and other consumer protection and disclosure laws to ensure equal access to credit and to protect consumers in credit transactions.
−Removed: (See “Operations, Consumer and Privacy Compliance Laws” below).
−Removed: Compliance with provisions of the Gramm-Leach-Bliley Act of 1999 (“GLB Act”) and other federal and state laws dealing with privacy for nonpublic personal information of customers, including but not limited to the California Consumer Privacy Act of 2018 (the “CCPA”), which took effect January 1, 2020.
−Removed: The CCPA gives consumers more control over the personal information that businesses collect about them and the CCPA regulations provide guidance on how to implement the law.
−Removed: This landmark law secures new privacy rights for California consumers, including:
−Removed: (i) the right to know about the personal information a business collects about them and how it is used and shared;
−Removed: (ii) the right to delete personal information collected from them (with some exceptions);
−Removed: (iii) the right to opt-out of the sale of their personal information;
−Removed: and (iv) the right to non-discrimination for exercising their CCPA rights.
−Removed: 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.
−Removed: 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.
−Removed: These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.
−Removed: Specific federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds, their activities relating to dividends, the nature and amount of collateral for certain loans, servicing and foreclosing on loans, borrowings, capital requirements, certain check-clearing activities, branching, and mergers and acquisitions.
−Removed: California banks are also subject to statutes and regulations including Federal Reserve Regulation O and Federal Reserve Act Sections 23A and 23B and Regulation W, which restrict or limit loans or extensions of credit to “insiders,” including officers, directors, and principal shareholders, and affiliates, and purchases of assets from affiliates, including parent bank holding companies, except pursuant to certain exceptions and only on terms and conditions at least as favorable to those prevailing for comparable transactions with unaffiliated parties.
−Removed: The Dodd-Frank Act expanded definitions and restrictions on transactions with affiliates and insiders under Sections 23A and 23B, and also lending limits for derivative transactions, repurchase agreements and securities lending, and borrowing transactions.
−Removed: The Bank operates branches and/or loan production offices in California, Illinois, Nevada, New York, New Jersey and Hawaii.
+Added: Therefore, Bancorp and its subsidiaries are subject to examination by, and may be required to file reports with the DFPI.
+Added: Under changes made by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), a bank holding company must act as a source of financial and managerial strength to each of its subsidiary banks and commit resources to support each such subsidiary bank.
+Added: In order to fulfill its obligations as a source of strength, the Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank.
+Added: In addition, the Federal Reserve may charge the bank holding company with engaging in unsafe and unsound practices if the bank holding company fails to commit resources to a subsidiary bank or if it undertakes actions that the Federal Reserve believes might jeopardize the bank holding company’s ability to commit resources to such subsidiary bank.
+Added: The Federal Reserve also has the authority to require a bank holding company to terminate any activity or to relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company.
+Added: The Bank is a California-chartered bank, but is not a member of the Federal Reserve System (a “non-member bank”).
+Added: The deposit accounts of the Bank are insured by the FDIC’s Deposit Insurance Fund (“DIF”) to the maximum extent provided under federal law and FDIC regulations.
+Added: As a California-chartered FDIC-insured non-member bank, the Bank is subject to the examination, supervision, reporting and enforcement requirements of the DFPI, the chartering authority for California banks, and as a non-member bank, the FDIC.
+Added: California-chartered banks are required to pay supervisory assessments to the DFPI to fund its operations.
+Added: 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.
+Added: During the years ended December 31, 2024 and 2023, the Bank paid supervisory assessments to the DFPI totaling $303,000 and $268,000.
+Added: The Bank operates branches in California, Illinois, Nevada, New York, New Jersey and Hawaii.
While the DFPI remains the Bank’s primary state regulator, the Bank’s operations in these jurisdictions are subject to examination and supervision by local bank regulators, and transactions with customers in those jurisdictions are subject to local laws, including consumer protection laws.
+Added: Legislative and regulatory initiatives, which necessarily impact the regulation of the financial services industry, are introduced from time-to-time.
+Added: We cannot predict whether or when potential legislation or new regulations will be enacted, and if enacted, the effect that new legislation or any implemented regulations and supervisory policies would have on our financial condition and results of operations.
+Added: The Dodd-Frank Act, by way of example, contains a comprehensive set of provisions designed to govern the practices and oversight of financial institutions and other participants in the financial markets.
+Added: The Dodd-Frank Act made extensive changes in the regulation of financial institutions and their holding companies.
+Added: Some of the changes brought about by the Dodd-Frank Act have been modified by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (the “Regulatory Relief Act”), signed into law on May 24, 2018.
+Added: The Dodd-Frank Act has increased the regulatory burden and compliance costs of the Company.
+Added: Moreover, bank regulatory agencies can be more aggressive in responding to concerns and trends identified in examinations, which could result in an increased issuance of enforcement actions to financial institutions requiring action to address credit quality, liquidity, risk management, and capital adequacy, as well as other safety and soundness concerns.
+Added: Acquisitions, Activities and Change in Control
+Added: The primary purpose of a bank holding company is to control and manage banks.
+Added: The BHCA generally requires the prior approval by the Federal Reserve for any merger involving a bank holding company or any acquisition of control by a bank holding company of another bank or bank holding company.
+Added: Subject to certain conditions (including deposit concentration limits established by the BHCA and the Dodd-Frank Act), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States.
+Added: In approving interstate acquisitions, the Federal Reserve is required to give effect to applicable state law
+Added: limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its IDI affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.
+Added: Furthermore, in accordance with the Dodd-Frank Act, bank holding companies must be well-capitalized and well-managed in order to effect interstate mergers or acquisitions.
+Added: The BHCA generally prohibits Bancorp from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries.
+Added: This general prohibition is subject to a number of exceptions.
+Added: 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
+Added: 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.
+Added: The BHCA generally does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies.
+Added: 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.
+Added: Bancorp has elected to be a bank holding company.
+Added: In order to maintain Bancorp’s status as a bank holding company, Bancorp and the Bank must be well-capitalized, well-managed, and have at least a satisfactory CRA rating.
+Added: 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.
+Added: Furthermore, if the Federal Reserve subsequently determines that the Bank, as a bank holding company subsidiary, has not received a
+Added: satisfactory CRA rating, Bancorp would not be able to commence any new financial activities or acquire a company that engages in such activities.
+Added: Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator.
+Added: “Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 5% and 24.99% ownership.
+Added: Under the California Financial Code, any proposed acquisition of “control” of the Bank by any person (including a company) must be approved by the Commissioner of the DFPI.
+Added: The California Financial Code defines “control” as the power, directly or indirectly, to direct the Bank’s management or policies or to vote 25% or more of any class of the Bank’s outstanding voting securities.
+Added: Additionally, a rebuttable presumption of control arises when any person (including a company) seeks to acquire, directly or indirectly, 10% or more of any class of the Bank’s outstanding voting securities.
+Added: The Consumer Financial Protection Bureau
The Dodd-Frank Act provided for the creation of the CFPB as an independent entity within the Federal Reserve with broad rulemaking, supervisory, and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans and credit cards.
9 unchanged sentences
State regulation of financial products and potential enforcement actions could also adversely affect our business, financial condition or results of operations.
−Removed: In 2020, the California Legislature passed Assembly Bill 1864, which enacts the California Consumer Financial Protection Law (“CCFPL”).
−Removed: Among other items, the CCFPL:
−Removed: 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;
−Removed: 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;
−Removed: 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;
−Removed: 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;
−Removed: Provides the 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:
−Removed: “(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;
−Removed: 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.
−Removed: Interchange Fees
−Removed: Under the Durbin Amendment to the Dodd-Frank Act, the Federal Reserve adopted rules establishing standards for assessing whether the interchange fees that may be charged with respect to certain electronic debit transactions are “reasonable and proportional” to the costs incurred by issuers for processing such transactions.
−Removed: Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions.
−Removed: 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.
−Removed: We are not subject to this limitation because we have less than $10 billion in total assets.
−Removed: The Federal Reserve also adopted a rule to allow a debit card issuer to recover 1 cent per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements required by the Federal Reserve.
−Removed: 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.
−Removed: Based on the CFPB 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,” the Bank lowered “Overdraft Fees and Non-sufficient Fees” from $35 per item to $15 per item, effective July 1, 2022.
−Removed: The Bank further lowered the “Overdraft Fees and Non-sufficient Fees” from $15 per item to $10 per item, effective February 1, 2023.
−Removed: The Bank also removed the “Return Items Fees” from the Bank’s Schedule of Deposit Accounts, Services and Fees.
−Removed: Financial Regulatory Reform
−Removed: The Dodd-Frank Act, which was enacted in July 2010, significantly restructured the financial regulatory landscape in the United States, including the creation of a systemic risk oversight body, the Financial Stability Oversight Council (the “FSOC”).
−Removed: The FSOC oversees and coordinates the efforts of the primary U.S.
−Removed: financial regulatory agencies (including the Federal Reserve, SEC, the Commodity Futures Trading Commission and the FDIC) in establishing regulations to address financial stability concerns.
−Removed: The Dodd-Frank Act and the Federal Reserve’s implementing regulations impose increasingly stringent regulatory requirements on financial institutions as their size and scope of activities increases.
−Removed: In May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) was enacted.
−Removed: While the EGRRCPA reduced the impact of the Dodd-Frank Act on bank holding companies of our size, the Dodd-Frank Act nonetheless subjected us to additional significant regulatory requirements.
Regulatory Capital Requirements
5 unchanged sentences
Under federal regulations, bank holding companies and banks must meet certain risk-based capital requirements.
−Removed: Effective as of January 1, 2015, the Basel III final capital framework, among other things, (i) introduced as a new capital measure “Common Equity Tier 1” (“CET1”), (ii) specified that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) defined CET1 narrowly by requiring that most adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (iv) expanded the scope of the adjustments, as compared to existing regulations.
−Removed: 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.
−Removed: 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 2016, 2017, 2018 and 2019, respectively.
−Removed: As fully phased-in on January 1, 2019, Basel III subjects bank holding companies and banks to the following risk-based capital requirements:
+Added: Basel III is currently applicable to Bancorp and the Bank.
+Added: Basel III requires financial institutions to maintain a minimum “capital conservation buffer” on top of each of the minimum-risk based capital ratios to avoid restrictions on capital distributions such as dividends and equity repurchases and other payments such as discretionary bonuses to executive officers.
+Added: Basel III subjects bank holding companies and banks to the following risk-based capital requirements:
a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer,” or 7.0%;
5 unchanged sentences
The Basel III final framework provides for a number of deductions from and adjustments to CET1.
−Removed: These include, for example, a limitation on the amount mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities that may be held on a Bank's balance sheet, with any excess to be deducted from CET1.
+Added: These include, for example, a limitation on the amount of mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities that may be held on a Bank's balance sheet, with any excess to be deducted from CET1.
Basel III also includes, as part of the definition of CET1 capital, a requirement that banking institutions include the amount of Additional Other Comprehensive Income (“AOCI”), which primarily consists of unrealized gains and losses on available for sale securities, which are not required to be treated as other-than-temporary impairment, net of tax, in calculating regulatory capital.
Banking institutions had the option to opt out of including AOCI in CET1 capital if they elected to do so in their first regulatory report following January 1, 2015.
−Removed: As permitted by Basel III, the Company elected to exclude AOCI from CET1.
+Added: As permitted by Basel III, we elected to exclude AOCI from CET1.
The Dodd-Frank Act excludes trust preferred securities issued after May 19, 2010 from being included in Tier 1 capital, unless the issuing company is a bank holding company with less than $500 million in total assets.
9 unchanged sentences
Of this amount, $15.2 million is attributable to subordinated debentures issued to statutory trusts in connection with prior issuances of trust preferred securities, which qualifies as Tier 1 capital, and $119.5 million is attributable to outstanding subordinated notes, which qualifies as Tier 2 capital.
−Removed: Basel III changed the manner of calculating risk-weighted assets.
−Removed: New methodologies for determining risk-weighted assets in the general capital rules are included, including revisions to recognition of credit risk mitigation, including a greater recognition of financial collateral and a wider range of eligible guarantors.
−Removed: They also include risk weighting of equity exposures and past due loans;
−Removed: and higher (greater than 100%) risk weighting for certain commercial real estate exposures that have higher credit risk profiles, including higher loan-to-value and equity components.
−Removed: In particular, loans categorized as “high-volatility commercial real estate” loans, as defined as pursuant to applicable federal regulations, are required to be assigned a 150% risk weighting, and require additional capital support.
In addition to the uniform risk-based capital guidelines and regulatory capital ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.
2 unchanged sentences
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.
−Removed: Basel III became applicable to Bancorp and the Bank on January 1, 2015.
−Removed: 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.
−Removed: However, as of December 31, 2023, Bancorp had total consolidated assets of $4.03 billion and, consequently, the more stringent Basel III minimum capital requirements are applicable.
−Removed: 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.
−Removed: 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”).
−Removed: Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provides a new standardized approach for operational risk capital.
−Removed: Under the Basel framework, these standards will generally be effective on January 1, 2022, with an aggregate output floor phasing in through January 1, 2027.
−Removed: Under the current U.S.
−Removed: capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to Bancorp or the Bank.
−Removed: The impact of Basel IV on us will depend on the manner in which it is implemented by the federal bank regulators.
−Removed: In 2018, the federal bank regulatory agencies issued a variety of proposals and made statements concerning regulatory capital standards.
−Removed: These proposals touched on such areas as commercial real estate exposure, credit loss allowances under U.S.
−Removed: generally accepted accounting principles (“GAAP”) and capital requirements for covered swap entities, among others.
−Removed: 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.
In February 2019, the U.S.
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Additionally, in March 2020, the U.S.
−Removed: 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.
+Added: federal bank regulatory agencies issued an interim final rule that provided 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 strains on the U.S.
economy as a result of the COVID-19 pandemic.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: As of December 31, 2023, 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.
−Removed: 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 (the “FDIA”), as discussed below under “Prompt Corrective Action.”
+Added: Effective January 1, 2022, we 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.
Prompt Corrective Action
−Removed: The FDIA requires federal banking agencies to take PCA in respect of depository institutions that do not meet minimum capital requirements.
+Added: The Federal Deposit Insurance Act ("FDIA") requires federal banking agencies to take “prompt corrective action” (“PCA”) in respect to depository institutions that do not meet minimum capital requirements.
The FDIA includes the following five capital tiers:
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Tangible Equity/Total Assets =< 2%
+Added: As of December 31, 2024, 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.
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.
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As of December 31, 2024, we met the requirements to be “well-capitalized” based upon the aforementioned ratios for purposes of the PCA regulations, as currently in effect.
−Removed: Bancorp, as the sole shareholder of the Bank, is a bank holding company under federal law and regulation.
−Removed: As a bank holding company, Bancorp is registered with, and is subject to regulation by, the Federal Reserve under the BHCA.
−Removed: 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.
−Removed: Under the BHCA, Bancorp is subject to periodic examination by the Federal Reserve.
−Removed: Bancorp is required to file with the Federal Reserve periodic reports of Bancorp’s operations and such additional information regarding Bancorp and its subsidiaries as the Federal Reserve may require.
−Removed: Acquisitions, Activities and Change in Control.
−Removed: The primary purpose of a bank holding company is to control and manage banks.
−Removed: The BHCA generally requires the prior approval by the Federal Reserve for any merger involving a bank holding company or any acquisition of control by a bank holding company of another bank or bank holding company.
−Removed: Subject to certain conditions (including deposit concentration limits established by the BHCA and the Dodd-Frank Act), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States.
−Removed: In approving interstate acquisitions, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its IDI affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.
−Removed: Furthermore, in accordance with the Dodd-Frank Act, bank holding companies must be well-capitalized and well-managed in order to effect interstate mergers or acquisitions.
−Removed: For a discussion of the capital requirements, see “Regulatory Capital Requirements” above.
−Removed: The BHCA generally prohibits Bancorp from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries.
−Removed: This general prohibition is subject to a number of exceptions.
−Removed: 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.
−Removed: The BHCA generally does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies.
−Removed: 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.
−Removed: Bancorp has elected to be a bank holding company.
−Removed: In order to maintain Bancorp’s status as a bank holding company, Bancorp and the Bank must be well-capitalized, well-managed, and have at least a satisfactory CRA rating.
−Removed: 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.
−Removed: 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.
−Removed: Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator.
−Removed: “Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 5% and 24.99% ownership.
−Removed: Under the California Financial Code, any proposed acquisition of “control” of the Bank by any person (including a company) must be approved by the Commissioner of the DFPI.
−Removed: The California Financial Code defines “control” as the power, directly or indirectly, to direct the Bank’s management or policies or to vote 25% or more of any class of the Bank’s outstanding voting securities.
−Removed: Additionally, a rebuttable presumption of control arises when any person (including a company) seeks to acquire, directly or indirectly, 10% or more of any class of the Bank’s outstanding voting securities.
−Removed: Capital Requirements.
−Removed: Bank holding companies are required to maintain capital in accordance with Federal Reserve capital adequacy requirements, as affected by the Dodd-Frank Act and Basel III.
−Removed: For a discussion of capital requirements, see “Regulatory Capital Requirements” above.
Dividend Payments
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Future cash dividends by the Bank will also depend upon management’s assessment of future capital requirements, contractual restrictions, and other factors.
−Removed: When phased in, the new capital rules will restrict dividends by the Bank if the capital conservation buffer is not achieved.
−Removed: The Bank is a California-chartered bank, but is not a member of the Federal Reserve System (a “non-member bank”).
−Removed: The deposit accounts of the Bank are insured by the FDIC’s Deposit Insurance Fund (“DIF”) to the maximum extent provided under federal law and FDIC regulations.
−Removed: As a California-chartered FDIC-insured non-member bank, the Bank is subject to the examination, supervision, reporting and enforcement requirements of the DFPI, the chartering authority for California banks, and as a non-member bank, the FDIC.
−Removed: Supervisory Assessments.
−Removed: California-chartered banks are required to pay supervisory assessments to the DFPI to fund its operations.
−Removed: 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.
−Removed: During the years ended December 31, 2023 and 2022, the Bank paid supervisory assessments to the DFPI totaling $268,000 and $212,000, respectively.
−Removed: Capital Requirements.
−Removed: Banks are generally required to maintain capital levels in excess of other businesses.
−Removed: For a discussion of capital requirements, see “Regulatory Capital Requirements” above.
−Removed: Dividend Payments.
−Removed: The primary source of funds for the Company is dividends from the Bank.
−Removed: Under the California Financial Code, the Bank is permitted to pay a dividend in the following circumstances:
−Removed: (i) without the consent of either the DFPI or the Bank’s shareholders, in an amount not exceeding the lesser of (a) the retained earnings of the Bank;
−Removed: or (b) the net income of the Bank for its last three fiscal years, less the amount of any distributions made during the prior period;
−Removed: (ii) with the prior approval of the DFPI, in an amount not exceeding the greatest of:
−Removed: (a) the retained earnings of the Bank;
−Removed: (b) the net income of the Bank for its last fiscal year;
−Removed: or (c) the net income for the Bank for its current fiscal year;
−Removed: and (iii) with the prior approval of the DFPI and the Bank’s shareholders in connection with a reduction of its contributed capital.
−Removed: The payment of dividends by any financial institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized.
−Removed: As described above, the Bank exceeded its minimum capital requirements under applicable regulatory guidelines as of December 31, 2023.
−Removed: Transactions with Affiliates and Insiders.
−Removed: Depository institutions are subject to the restrictions contained in the Federal Reserve Act (the “FRA”) with respect to loans to directors, executive officers and principal stockholders.
+Added: Transactions with Affiliates and Insiders Depository institutions are subject to the restrictions contained in the Federal Reserve Act (the “FRA”) with respect to loans to directors, executive officers and principal stockholders.
Under the FRA, loans to directors, executive officers and stockholders who own more than 10% of a depository institution and certain affiliated entities of any of the foregoing, may not exceed, together with all other outstanding loans to such person and affiliated entities, the institution’s loans-to-one-borrower limit.
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Federal regulators regularly assess the Bank’s record of meeting the credit needs of its communities.
−Removed: Applications for additional acquisitions would be affected by the evaluation of the Bank’s effectiveness in meeting its CRA requirements.
−Removed: 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.
−Removed: In September 2020, the Federal Reserve released for public comment its proposed rules to modernize CRA regulations.
−Removed: We will continue to evaluate the impact of any changes to the CRA regulations.
−Removed: The Bank received a “satisfactory” rating on its most recent CRA examination, which was conducted in May 2023.
−Removed: 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.
−Removed: On October 24, 2023, the federal banking agencies issued a final rule that significantly amends the CRA regulations and revises the framework for evaluating banks’ records of community reinvestment under the CRA.
−Removed: Under the revised framework, banks with assets of at least $2 billion, such as the Bank, are considered large banks and their retail lending, retail services and products, community development financing, and community development services will be subject to periodic evaluation.
−Removed: Depending on a large bank’s geographic distribution of lending, the evaluation of retail lending may include assessment areas in which the bank extends loans but does not operate any deposit-taking facilities, in addition to assessment areas in which the Bank has deposit-taking facilities.
−Removed: The effective date of the rule is April 1, 2024, however, certain provisions of the final rule will apply beginning January 1, 2026, and the remaining provisions will apply beginning January 1, 2027.
−Removed: The Company is evaluating the impact of the final rule.
+Added: A bank’s compliance with its CRA obligations is based on a performance-based evaluation system, which bases CRA ratings on an institution’s lending, service, and investment performance, resulting in a rating by the appropriate bank regulator of “outstanding,” “satisfactory,” “needs to improve,” or “substantial noncompliance.” The Bank received a “satisfactory” rating on its most recent CRA examination, which was conducted in May 2023.
+Added: The federal banking agencies may take compliance with fair lending laws and practices, including CRA into account when regulating and supervising other activities.
+Added: On October 24, 2023, the federal regulatory agencies jointly issued a final rule to strengthen and modernize regulations implementing the CRA.
+Added: On March 29, 2024, a federal district court in Texas granted a preliminary injunction barring implementation of the final rule in response to a lawsuit filed by several trade groups.
+Added: We will continue to monitor the litigation until resolved.
+Added: We have also begun efforts to evaluate the impact of the new rule and to develop a strategy to ensure compliance.
Anti-Money Laundering and OFAC Regulation
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Based on the Bank’s loan portfolio, the Bank does not exceed these guidelines.
−Removed: Consumer Financial Services
−Removed: Banks and other financial institutions are subject to numerous laws and regulations intended to protect consumers in their transactions with banks.
−Removed: These laws include, among others, laws regarding unfair and deceptive acts and practices and usury laws, as well as the following consumer protection statutes:
−Removed: Truth in Lending Act, Truth in Savings Act, Electronic Fund Transfer Act, Expedited Funds Availability Act, Equal Credit Opportunity Act, Fair and Accurate Credit Transactions Act, Fair Housing Act, Fair Credit Reporting Act, Fair Debt Collection Act, GLB Act, Home Mortgage Disclosure Act, Right to Financial Privacy Act and Real Estate Settlement Procedures Act.
−Removed: Many states and local jurisdictions including California have consumer protection laws analogous, and in addition, to those listed above.
−Removed: 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.
−Removed: Examples include but are not limited to the CCPA and the CCFPL described above.
−Removed: 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.
−Removed: 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.
−Removed: The CFPB has broad rulemaking authority for a wide range of consumer protection laws that apply to all providers of consumer products and services, including the Bank, as well as the authority to prohibit “unfair, deceptive or abusive” acts and practices.
−Removed: The CFPB has examination and enforcement authority over providers with more than $10 billion in assets.
−Removed: 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
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.
−Removed: 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.
+Added: 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 requires 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.
The Bank does not currently expect the CFPB’s rules to have a significant impact on its operations, except for higher compliance costs.
−Removed: Incentive Compensation Guidance
−Removed: The federal bank regulatory agencies have issued comprehensive guidance intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of those organizations by encouraging excessive risk-taking.
−Removed: The incentive compensation guidance sets expectations for banking organizations concerning their incentive compensation arrangements and related risk-management, control and governance processes.
−Removed: The incentive compensation guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon three primary principles:
−Removed: (1) balanced risk-taking incentives;
−Removed: (2) compatibility with effective controls and risk management;
−Removed: and (3) strong corporate governance.
−Removed: Any deficiencies in compensation practices that are identified may be incorporated into the organization’s supervisory ratings, which can affect its ability to make acquisitions or take other actions.
−Removed: In addition, under the incentive compensation guidance, a banking organization’s federal supervisor may initiate enforcement action if the organization’s incentive compensation arrangements pose a risk to the safety and soundness of the organization.
−Removed: In addition, beginning January 1, 2016, the Basel III rules limit discretionary bonus payments to the Bank’s executive officers if its capital ratios are below the threshold levels of the capital conservation buffer established by the rules.
−Removed: The capital conservation buffer was phased in from January 1, 2016 to January 1, 2019, when the full capital conservation buffer of 2.5% (as a percentage of risk-weighted assets) became effective.
−Removed: The capital conservation buffer is in addition to the minimum risk-based capital requirement.
−Removed: The scope and content of the U.S.
−Removed: banking regulators’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future.
−Removed: Sarbanes-Oxley Act
−Removed: 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.
−Removed: Enforcement Powers of Federal and State Banking Agencies
−Removed: The federal bank regulatory agencies have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver for financial institutions.
−Removed: Failure to comply with applicable laws and regulations could subject us and our officers and directors to administrative sanctions and potentially substantial civil money penalties.
−Removed: In addition to the grounds discussed above under “Prompt Corrective Actions,” the appropriate federal bank regulatory agency may appoint the FDIC as conservator or receiver for a banking institution (or the FDIC may appoint itself, under certain circumstances) if any one or more of a number of circumstances exist, including, without limitation, the fact that the banking institution is undercapitalized and has no reasonable prospect of becoming adequately capitalized, fails to become adequately capitalized when required to do so, fails to submit a timely and acceptable capital restoration plan or materially fails to implement an accepted capital restoration plan.
−Removed: The DFPI also has broad enforcement powers over us, including the power to impose orders, remove officers and directors, impose fines and appoint supervisors and conservators.
−Removed: Financial Privacy
−Removed: The federal bank regulatory agencies have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties.
−Removed: These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party.
−Removed: These regulations affect how consumer information is transmitted through financial services companies and conveyed to outside vendors.
−Removed: In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications.
−Removed: Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services.
−Removed: Additional Constraints on the Company and the Bank
−Removed: Monetary Policy.
−Removed: The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries.
−Removed: Among the tools available to the Federal Reserve to affect the money supply are open market transactions in U.S.
−Removed: government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits.
−Removed: These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits.
The Volcker Rule
−Removed: 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).
−Removed: 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.
−Removed: 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.
−Removed: 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:
−Removed: (i) the TruPS CDO was established, and the interest was issued, before May 19, 2010;
−Removed: (ii) the banking entity reasonably believes that the offering proceeds received by the TruPS CDO were invested primarily in qualifying TruPS collateral;
−Removed: and (iii) the banking entity’s interest in the TruPS CDO was acquired on or before December 10, 2013.
−Removed: Revisions to the Volcker Rule in 2019, that become effective in 2020, simplifies and streamlines the compliance requirements for banks that do not have significant trading activities.
+Added: On December 10, 2013, the federal regulatory agencies issued final rules to implement the prohibitions required by the Volcker Rule under the Dodd-Frank Act.
+Added: Under the final regulations, banking entities are generally prohibited, subject to significant exceptions from:
+Added: (i) short-term proprietary trading as principal in securities and other financial instruments, and (ii) sponsoring or acquiring or retaining an ownership interest in private equity and hedge funds.
+Added: Revisions to the Volcker Rule in 2019, that became effective in 2020, simplify and streamline the compliance requirements for banks that do not have significant trading activities.
In 2020, the OCC, Federal Reserve, FDIC, SEC and Commodity Futures Trading Commission finalized further amendments to the Volcker Rule.
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Additional Restrictions on Bancorp and Bank Activities
−Removed: Subject to prior notice or Federal Reserve approval, bank holding companies may generally engage in, or acquire shares of companies engaged in, activities determined by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
−Removed: Bank holding companies, such as Bancorp, which elect and retain “financial holding company” status pursuant to the GLB Act may engage in these nonbanking activities and broader securities, insurance, merchant banking and other activities that are determined to be “financial in nature” or are incidental or complementary to activities that are financial in nature without prior Federal Reserve approval.
−Removed: Pursuant to the GLB Act and the Dodd-Frank Act, in order to elect and retain financial holding company status, a bank holding company and all depository institution subsidiaries of a bank holding company must be well capitalized and well managed, and, except in limited circumstances, depository subsidiaries must be in satisfactory compliance with the CRA.
−Removed: Failure to sustain compliance with these requirements or correct any non-compliance within a fixed time period could lead to divestiture of subsidiary banks or require all activities to conform to those permissible for a bank holding company.
−Removed: Pursuant to the FDIA and the California Financial Code, California state chartered commercial banks may generally engage in any activity permissible for national banks.
−Removed: Therefore, the Bank may form subsidiaries to engage in the many so-called “closely related to banking” or “nonbanking” activities commonly conducted by national banks in operating subsidiaries or subsidiaries of bank holding companies.
−Removed: Further, pursuant to the GLB Act, California banks may conduct certain “financial” activities in a subsidiary to the same extent as a national bank, provided the bank is and remains “well-capitalized,” “well-managed” and in satisfactory compliance with the CRA.
−Removed: The Bank currently has no financial subsidiaries.
−Removed: Source of Strength
−Removed: Federal Reserve policy and federal law require bank holding companies to act as a source of financial and managerial strength to their subsidiary banks.
−Removed: Under this requirement, Bancorp is expected to commit resources to support the Bank, including at times when Bancorp may not be in a financial position to provide such resources, and it may not be in Bancorp’s, or Bancorp’s stockholders’ or creditors’, best interests to do so.
−Removed: In addition, any capital loans Bancorp makes to the Bank are subordinate in right of payment to depositors and to certain other indebtedness of the Bank.
−Removed: In the event of Bancorp’s bankruptcy, any commitment by Bancorp to a federal bank regulatory agency to maintain the capital of the Bank will be assumed by the bankruptcy trustee and entitled to priority of payment.
−Removed: Enforcement Authority
−Removed: The federal and California regulatory structure gives the bank regulatory agencies extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.
−Removed: The regulatory agencies have adopted guidelines to assist in identifying and addressing potential safety and soundness concerns before an institution’s capital becomes impaired.
−Removed: The guidelines establish operational and managerial standards generally relating to:
−Removed: (i) internal controls, information systems, and internal audit systems;
−Removed: (ii) loan documentation;
−Removed: (iii) credit underwriting;
−Removed: (iv) interest-rate exposure;
−Removed: (v) asset growth and asset quality;
−Removed: (vi) loan concentration;
−Removed: and (vii) compensation, fees, and benefits.
−Removed: Further, the regulatory agencies have adopted safety and soundness guidelines for asset quality and for evaluating and monitoring earnings to ensure that earnings are sufficient for the maintenance of adequate capital and reserves.
−Removed: If, as a result of an examination, the DFPI or the FDIC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank’s operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation, the DFPI and the FDIC have residual authority to:
−Removed: Require affirmative action to correct any conditions resulting from any violation or practice;
−Removed: Direct an increase in capital and the maintenance of higher specific minimum capital ratios, which may preclude the Bank from being deemed “well-capitalized” and restrict its ability to accept certain brokered deposits, among other things;
−Removed: Restrict the Bank’s growth geographically, by products and services, or by mergers and acquisitions;
−Removed: Issue, or require the Bank to enter into, informal or formal enforcement actions, including required board resolutions, memoranda of understanding, written agreements and consent or cease and desist orders or prompt corrective action orders to take corrective action and cease unsafe and unsound practices;
−Removed: Require prior approval of senior executive officer or director changes, remove officers and directors, and assess civil monetary penalties;
−Removed: Terminate FDIC insurance, revoke the Bank’s charter, take possession of, close and liquidate the Bank, or appoint the FDIC as receiver.
−Removed: The Federal Reserve has similar enforcement authority over bank holding companies and commonly takes parallel action in conjunction with actions taken by a subsidiary bank’s regulators.
−Removed: In the exercise of their supervisory and examination authority, the regulatory agencies have recently emphasized corporate governance, stress testing, enterprise risk management and other board responsibilities;
−Removed: anti-money laundering compliance and enhanced high-risk customer due diligence;
−Removed: vendor management;
−Removed: cyber security and fair lending and other consumer compliance obligations.
+Added: The activities of bank holding companies are generally limited to the business of banking, managing, or controlling banks, and other activities that the Federal Reserve has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
+Added: Bank holding companies that qualify and register as “financial holding companies” are also able to engage in certain additional financial activities, such as merchant banking, and securities and insurance underwriting, subject to limitations set forth in federal law.
+Added: We are not at this date a “financial holding company.
+Added: The BHCA requires a bank holding company to obtain prior approval of the Federal Reserve before:
+Added: (i) taking any action that causes a bank to become a controlled subsidiary of the bank holding company;
+Added: (ii) acquiring direct or indirect ownership or control of voting shares of any bank or bank holding company, if the acquisition results in the acquiring bank holding company having control of more than 5% of the outstanding shares of any class of voting securities of such bank or bank holding company, unless such bank or bank holding company is majority-owned by the acquiring bank holding company before the acquisition;
+Added: (iii) acquiring all or substantially all of the assets of a bank;
+Added: or (iv) merging or consolidating with another bank holding company.
+Added: Because California permits commercial banks chartered by the state to engage in any activity permissible for national banks, the Bank can form subsidiaries to engage in activates “closely related to banking” or “nonbanking” activities and expanded financial activities.
+Added: However, to form a financial subsidiary, the Bank must be well capitalized and would be subject to the same capital deduction, risk management and affiliate transaction rules as applicable to national banks.
+Added: Generally, a financial subsidiary is permitted to engage in activities that are “financial in nature” or incidental thereto, even though they are not permissible for a national bank to conduct directly within the bank.
+Added: The definition of “financial in nature” includes, among other items, underwriting, dealing in, or making a market in securities, including, for example, distributing shares of mutual funds.
+Added: The subsidiary may not, however, engage as principal in underwriting insurance (other than credit life insurance), issue annuities, or engage in real estate development, investment, or merchant banking.
+Added: Enforcement Powers of Federal and State Banking Agencies
+Added: The federal bank regulatory agencies have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver for financial institutions.
+Added: Failure to comply with applicable laws and regulations could subject us and our officers and directors to administrative sanctions and potentially substantial civil money penalties.
+Added: In addition to the grounds discussed above under “Prompt Corrective Actions,” the appropriate federal bank regulatory agency may appoint the FDIC as conservator or receiver for a banking institution (or the FDIC
+Added: may appoint itself, under certain circumstances) if any one or more of a number of circumstances exist, including, without limitation, the fact that the banking institution is undercapitalized and has no reasonable prospect of becoming adequately capitalized, fails to become adequately capitalized when required to do so, fails to submit a timely and acceptable capital restoration plan or materially fails to implement an accepted capital restoration plan.
+Added: The DFPI also has broad enforcement powers over us, including the power to impose orders, remove officers and directors, impose fines and appoint supervisors and conservators.
Deposit Insurance
10 unchanged sentences
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.
−Removed: On October 18, 2022, the FDIC adopted a final rule that increased 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% 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% within eight years.
1 unchanged sentence
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.
+Added: In conjunction with the Amended Restoration Plan, the FDIC adopted a final rule on October 18, 2022 that increased initial base deposit insurance assessment rates by 2 basis points, beginning with the first quarterly assessment period of 2023, to improve the likelihood that the reserve ratio would be restored to 1.35% by September 30, 2028.
The proposed rule was adopted as final without change.
−Removed: 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 IDIs.
+Added: Also, in the final rule adopted on October 18, 2022, the FDIC incorporated Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (ASC 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 ("IDIs").
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.
5 unchanged sentences
The FDIC retains the ability to cease collection early, extend the special assessment collection period, and impose a final shortfall special assessment to collect the difference between actual losses and the amounts collected after the receiverships for Silicon Valley Bank and Signature Bank terminate.
−Removed: The final rule will be effective April 1, 2024, with the first collection for the special assessment reflected on the invoice for the first quarterly assessment period of 2024 with a payment date of June 28, 2024.
+Added: The final rule became effective of April 1, 2024, with the first collection for the special assessment reflected on the invoice for the first quarterly assessment period of 2024 with a payment date of June 28, 2024.
Our deposits as of December 31, 2024 were below $5 billion and therefore the Bank is not subject to this special assessment.
Operations, Consumer and Privacy Compliance Laws
−Removed: The Bank must comply with numerous federal and state anti-money laundering and consumer protection statutes and implementing regulations, including the USA Patriot Act, the Bank Secrecy Act, the Foreign Account Tax Compliance Act, the CRA, the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act, the Equal Credit Opportunity Act, the Truth in Lending Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act, the California Homeowner Bill of Rights and various federal and state privacy protection laws, including but not limited to the CCPA.
−Removed: The Bank and Bancorp are also subject to federal and state laws prohibiting unfair or fraudulent business practices, untrue or misleading advertising, and unfair competition.
−Removed: Some of these laws are further discussed below:
−Removed: The Equal Credit Opportunity Act (“ECOA”) generally prohibits discrimination in any credit transaction, whether for consumer or business purposes, on the basis of race, color, religion, national origin, sex, marital status, age, receipt of income from public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act.
−Removed: The Truth in Lending Act (“TILA”) is designed to ensure that credit terms are disclosed in a meaningful way so that consumers may compare credit terms more readily and knowledgeably.
−Removed: As a result of the TILA, all creditors must use the same credit terminology to express rates and payments, including the annual percentage rate, the finance charge, the amount financed, the total of payments and the payment schedule, among other things.
−Removed: The Fair Housing Act (“FH Act”) regulates many practices, including making it unlawful for any lender to discriminate in its housing-related lending activities against any person because of race, color, religion, national origin, sex, handicap or familial status.
−Removed: A number of lending practices have been found by the courts to be, or may be considered, illegal under the FH Act, including some that are not specifically mentioned in the FH Act itself.
−Removed: The Home Mortgage Disclosure Act (“HMDA”) grew out of public concern over credit shortages in certain urban neighborhoods and provides public information that will help show whether financial institutions are serving the housing credit needs of the neighborhoods and communities in which they are located.
−Removed: The HMDA also includes a “fair lending” aspect that requires the collection and disclosure of data about applicant and borrower characteristics as a way of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes.
−Removed: Finally, the Real Estate Settlement Procedures Act (“RESPA”) requires lenders to provide borrowers with disclosures regarding the nature and cost of real estate settlements.
−Removed: Also, RESPA prohibits certain abusive practices, such as kickbacks, and places limitations on the amount of escrow accounts.
−Removed: Penalties under the above laws may include fines, reimbursements and other civil money penalties.
−Removed: Due to heightened regulatory concern related to compliance with the CRA, TILA, FH Act, ECOA, HMDA and RESPA generally, the Bank may incur additional compliance costs or be required to expend additional funds for investments in its local community.
+Added: The Bank is also subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks.
+Added: These laws include, among others:
+Added: Truth in Lending Act;
+Added: Truth in Savings Act;
+Added: Electronic Funds Transfer Act;
+Added: Expedited Funds Availability Act;
+Added: Equal Credit Opportunity Act;
+Added: Fair and Accurate Credit Transactions Act;
+Added: Fair Housing Act;
+Added: Fair Credit Reporting Act;
+Added: Fair Debt Collection Act;
+Added: Home Mortgage Disclosure Act;
+Added: Real Estate Settlement Procedures Act;
+Added: laws regarding unfair and deceptive acts and practices;
+Added: and usury laws.
+Added: These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits or making loans to such customers.
+Added: The Bank must comply with the applicable provisions of these consumer protection laws and regulations as part of their ongoing customer relations.
+Added: Many states and local jurisdictions have consumer protection laws analogous, and in addition, to those listed above.
+Added: 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.
+Added: Pursuant to the Dodd-Frank Act, the CFPB has broad authority to regulate and supervise the retail consumer financial products and services activities of banks and various nonbank providers.
+Added: The CFPB has authority to promulgate regulations, issue orders, guidance and policy statements, conduct examinations and bring enforcement actions with regard to consumer financial products and services.
+Added: The creation of the CFPB by the Dodd-Frank Act has led to, and is likely to continue to lead to, enhanced and strengthened enforcement of consumer financial protection laws.
+Added: Federal law currently contains extensive customer privacy protection provisions.
+Added: Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship and annually thereafter, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information.
+Added: These provisions also provide that, except for certain limited exceptions, a financial institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to
+Added: opt out of such disclosure.
+Added: In June 2018, the California legislature passed the California Consumer Privacy Act of 2018 (the “CCPA”), which took effect on January 1, 2020.
+Added: The CCPA, which covers businesses that obtain or access personal information on California resident consumers, grants consumers enhanced privacy rights and control over their personal information, and imposes significant requirements on covered companies with respect to consumer data privacy rights.
+Added: We expect this trend of state-level activity to continue, and are continually monitoring developments in other states in which we operate.
The Federal Reserve and other bank regulatory agencies also have adopted guidelines for safeguarding confidential, personal customer information.
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There can be no assurance that the FHLB will pay dividends at the same rate it has paid in the past, or that it will pay any dividends in the future.
−Removed: Impact of Monetary Policies
−Removed: The earnings and growth of the Bank are largely dependent on its ability to maintain a favorable differential or spread between the yield on its interest-earning assets and the rates paid on its deposits and other interest-bearing liabilities.
−Removed: As a result, the Bank’s performance is influenced by general economic conditions, both domestic and foreign, the monetary and fiscal policies of the federal government, and the policies of the regulatory agencies.
−Removed: The Federal Reserve implements national monetary policies (with objectives such as seeking to curb inflation and combat recession) by its open-market operations in U.S.
−Removed: government securities, by adjusting the required level of reserves for financial institutions subject to its reserve requirements, and by varying the discount rate applicable to borrowings by banks from the Federal Reserve Banks.
−Removed: The actions of the Federal Reserve in these areas influence the growth of bank loans, investments and deposits, and also affect interest rates charged on loans and deposits.
−Removed: The nature and impact of any future changes in monetary policies cannot be predicted.
Securities and Corporate Governance
−Removed: Bancorp is subject to the disclosure and regulatory requirements of the Securities Act and the Exchange Act, both as administered by the SEC.
−Removed: As a company listed on the NASDAQ Global Select Market, the Company is subject to NASDAQ listing standards for listed companies.
−Removed: 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.
+Added: The Company is subject to the disclosure and regulatory requirements of the Securities Act and the Exchange Act, both as administered by the SEC.
+Added: As a company listed on the NASDAQ Global Select Market, we are subject to NASDAQ listing standards for listed companies.
+Added: The Company 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.
−Removed: Under the Sarbanes-Oxley Act, management and the Bancorp’s independent registered public accounting firm are required to assess the effectiveness of the Bancorp’s internal control over financial reporting.
−Removed: These assessments are included in Part II — Item 9A — “Controls and Procedures.”
−Removed: Federal Banking Agency Compensation Guidelines
−Removed: Guidelines adopted by the federal banking agencies pursuant to the FDIA prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal stockholder.
−Removed: 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.
+Added: Under the Sarbanes-Oxley Act, management and the Company's independent registered public accounting firm are required to assess the effectiveness of the Company’s internal control over financial reporting.
+Added: These assessments are included in Part II—Item 9A.
+Added: Controls and Procedures.
+Added: Incentive Compensation Guidance
+Added: The federal bank regulatory agencies have issued comprehensive guidance intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of those organizations by encouraging excessive risk-taking.
+Added: The incentive compensation guidance sets expectations for banking organizations concerning their incentive compensation arrangements and related risk-management, control and governance processes.
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.
4 unchanged sentences
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.
−Removed: The scope and content of the U.S.
−Removed: banking regulators’ policies on executive compensation may continue to evolve in the near future.
−Removed: 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.
−Removed: Audit Requirements
−Removed: 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.
−Removed: The Bank and Bancorp are also each required to have an audit committee comprised entirely of independent directors.
−Removed: As required by NASDAQ, Bancorp has certified that its audit committee has adopted formal written charters and meets the requisite number of directors, independence, and other qualification standards.
+Added: The Dodd-Frank Act requires that the federal banking agencies issue a rule related to incentive-based compensation.
+Added: No final rule implementing this provision of the Dodd-Frank Act has, as of the date of the filing of this Annual Report on Form 10-K, been adopted, but a proposed rule was published in May 2024.
+Added: The proposed rule is intended to (i) prohibit incentive-based payment arrangements that the banking agencies determine could encourage certain financial institutions to take inappropriate risks by providing excessive compensation or that could lead to material financial loss, (ii) require the board of directors of those financial
+Added: institutions to take certain oversight actions related to incentive-based compensation, and (iii) require those financial institutions to disclose information concerning incentive-based compensation arrangements to the appropriate federal regulator.
+Added: Although a final rule has not been issued, the Company and the Bank have undertaken efforts to ensure that their incentive compensation plans do not encourage inappropriate risks, consistent with the principles identified above.
+Added: Future Legislative Developments
+Added: Various legislative acts are from time to time introduced in Congress and the California legislature.
+Added: This legislation may change banking statutes and the environment in which we operate in substantial and unpredictable ways.
+Added: We cannot determine the ultimate effect that potential legislation, if enacted, or implementing regulations and interpretations with respect thereto, would have on our financial condition or results of operations.
+Added: The new presidential administration and many members of Congress have advocated for changes in financial services regulation, potentially including amendments to the Dodd-Frank Act and other federal banking laws, and structural changes to the CFPB.
+Added: It is possible, though uncertain, that Congress and/or the relevant federal agencies may seek to roll back or modify some or much of the rulemaking and regulatory guidance issued under the previous presidential administration.
+Added: Additionally, the full impact of the leadership changes at banking regulatory agencies on the enforcement and supervisory priorities of each agency is not fully known at this time.
+Added: It is therefore unclear at the present time what effect the aforementioned changes will have on the banking industry as a whole or the Company specifically.
Regulation of Non-Bank Subsidiaries
1 unchanged sentence
Additionally, any foreign-based subsidiaries would also be subject to foreign laws and regulations.
−Removed: Future Legislation and Regulation
−Removed: Congress may enact, modify or repeal legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact, modify or repeal legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states.
−Removed: Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied.
−Removed: The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of proposed legislation (or modification or repeal of existing legislation) could impact the regulatory structure under which the Company and the Bank operate and may significantly increase its costs, impede the efficiency of its internal business processes, require the Bank to increase its regulatory capital and modify its business strategy, and limit its ability to pursue business opportunities in an efficient manner.
−Removed: The Company’s business, financial condition, results of operations or prospects may be adversely affected, perhaps materially.
Federal and State Taxation
Bancorp and the Bank report their income on a consolidated basis using the accrual method of accounting and are subject to federal income taxation in the same manner as other corporations with some exceptions.
−Removed: The Company has not been audited by the Internal Revenue Service.
−Removed: For 2023, 2022 and 2021, 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.
+Added: We have not been audited by the Internal Revenue Service.
+Added: For 2024, 2023 and 2022, we were 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.