Financial Data and Key Metrics Changes - For Q4 2023, the company reported a net income of $0.10 per share, while the full year net income was $0.15 per share, primarily driven by a recovery on D&O insurance and an allowance reversal due to strong credit metrics [5][8] - The allowance for loan losses remains healthy at approximately 2.18% of the loan portfolio [6][8] Business Line Data and Key Metrics Changes - The company has seen a decline in third-party legal expenses, which are expected to continue to decrease in the upcoming quarters [9][10] - Legal costs related to ongoing compliance and reporting are moderating, with expectations of further reductions in 2024 [10] Market Data and Key Metrics Changes - The company is facing challenges related to interest rates and net interest margin (NIM) compression, with expectations of a flat change in margins moving forward [8][12] - The Advantage Loan portfolio has significantly reduced, now standing at $630 million, which is less than half of its previous size [14][15] Company Strategy and Development Direction - The company is focused on maintaining tangible book value, liquidity, and a moderate credit risk profile as key strategic priorities [12] - Management emphasizes a cautious approach to lending, ensuring careful selection in the current economic environment [13] Management Comments on Operating Environment and Future Outlook - Management acknowledges the uncertainty in the capital markets and the potential impact on profitability, but expresses optimism about the company's resilience and strategic vision [11][12] - The regulatory environment is described as quiet, with a transparent relationship with regulators [13] Other Important Information - The company is experiencing a transition in research coverage, with analysts moving to different firms, but expects new coverage to be established soon [38] Q&A Session Summary Question: Impact of potential rate cuts on margin - Management believes the margin will remain relatively flat even with potential rate cuts, as the loan portfolio is still repricing upward [20][22] Question: Details on non-performing loans - The $9 million in non-performing loans are primarily residential, with most in foreclosure, and management is optimistic about potential recoveries [23][24] Question: Ongoing non-interest expense base - The non-interest expense for the quarter was reported at $12.8 million, with expectations of it being slightly above $15 million in the future [30][33]

Financial Performance - Net income for the three months ended September 30, 2023, was $0.3 million, down from $1.2 million in the same period in 2022, primarily due to a decline in net interest income and recovery of credit losses [211]. - Net income for the nine months ended September 30, 2023, was $2.4 million, compared to $4.2 million for the same period in 2022 [268]. - Net interest income for Q3 2023 was $16.0 million, a decrease of $3.5 million, or 18%, from $19.5 million in Q3 2022 [275]. - Net interest income for the nine months ended September 30, 2023, was $49.9 million, a decrease of $10.4 million, or 17%, compared to the same period in 2022 [283]. - Non-interest income for the nine months ended September 30, 2023, was $2.6 million, an increase of $1.5 million from the same period in 2022, mainly due to gains on loan sales [294]. Loan and Credit Quality - Credit quality remained strong, although nonperforming loans and delinquent loans increased during the three months ended September 30, 2023 [212]. - Recovery of credit losses decreased to $1.9 million during the three months ended September 30, 2023, reflecting a decline in the loan portfolio [212]. - Nonperforming assets totaled $6.2 million at September 30, 2023, a significant decrease from $38.3 million at December 31, 2022 [228]. - The ratio of total nonaccrual loans to total loans was 0.36% at September 30, 2023, down from 2.03% at December 31, 2022 [228]. - Total loans 90 days or more past due decreased from $33.7 million at December 31, 2022, to $6.2 million at September 30, 2023 [234]. - Total delinquent loans increased by $11.5 million to $28.6 million during the three months ended September 30, 2023 [234]. - Loans classified as Special Mention and Substandard decreased by $29.0 million from $84.8 million at December 31, 2022, to $55.8 million at September 30, 2023 [236]. Capital and Regulatory Compliance - The company’s Tier 1 leverage capital ratios remained above the requirements to be considered "well capitalized" under applicable regulations as of September 30, 2023 [212]. - The company met all regulatory capital requirements as of September 30, 2023, and is considered "well capitalized" under the CBLR framework [323]. - The company is currently restricted from raising capital in private placements under Regulation A and Regulation D due to a guilty plea and criminal conviction, which may last up to five years unless a waiver is granted [324]. Deposits and Funding - Total deposits reached $2.0 billion as of September 30, 2023, an increase of $86.6 million, or 4%, compared to December 31, 2022 [259]. - Core deposits totaled $1.8 billion, representing 88% of total deposits, consistent with the previous year [260]. - Estimated uninsured deposits were $438.8 million, or 21% of total deposits at September 30, 2023 [261]. - Outstanding FHLB borrowings remained at $50.0 million as of September 30, 2023 [263]. - The Company had the ability to borrow an additional $341.6 million from the FHLB, including a line of credit of $20.0 million [265]. Interest Rate and Margin - The company experienced margin compression due to the substantial rise in interest rates, impacting net interest income [211]. - Interest expense on deposits increased significantly, outpacing interest income during the rising rate environment [275]. - The average rate paid on interest-bearing deposits increased by 218 basis points for the nine months ended September 30, 2023, contributing to higher interest expenses [287]. - Net interest margin decreased to 2.62% in Q3 2023, down 57 basis points from 3.19% in Q3 2022 [282]. Strategic Initiatives - The company engaged a consulting firm to develop a comprehensive strategic plan, incorporating new banking products and services following its new status as a covered savings association [208]. - The board of directors is exploring potential strategic alternatives, including a sale of the company or a merger [209]. - The company suspended the origination of residential mortgage loans due to the exit of its third-party vendor responsible for this function [208]. - The company has stopped originating construction loans and is evaluating alternatives for the development of new loan products [223]. Legal and Compliance Matters - The company paid $27.2 million in restitution as part of the Plea Agreement with the DOJ, which is expected to reduce legal costs moving forward [210]. - The company is involved in a legal proceeding against its founder for alleged breaches of fiduciary duties, with the outcome pending [339].

Financial Data and Key Metrics Changes - The company reported a modest profit of $300,000 for the quarter, with a margin remaining flat at 262 basis points [18] - The allowance for credit losses ratio was maintained at 2.42%, indicating stability in credit quality [4] - Deposits and the balance sheet were relatively flat, with no significant changes aside from the redemption of subordinated debt and a settlement with the Department of Justice [4][19] Business Line Data and Key Metrics Changes - The company has disposed of over $100 million in loans, both commercial and residential, to address long-term debt issues [5] - Legal expenses for indemnified individuals amounted to $1.7 million, with additional costs related to the bank's own legal matters estimated at a couple of hundred thousand [22] Market Data and Key Metrics Changes - The company noted significant pressure in coastal markets, particularly in the office and hospitality sectors, as well as emerging issues with multifamily property loans in the Northeast due to rising cap rates and interest rates [11] - The current economic environment is characterized by high interest rates and inflation, creating challenges for the banking industry [10][20] Company Strategy and Development Direction - The company is focused on preserving capital and maintaining its strengths during uncertain times, while navigating pressures from liability pricing and potential interest rate increases [19][20] - Management anticipates continued pressure on margins and spreads if interest rates remain high, but expects some roll-off in loans and securities to be reinvested at higher rates in the future [27] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the economic environment, highlighting the challenges posed by high inflation and interest rates [10][20] - There is uncertainty regarding the timeline for government inquiries, with expectations that civil inquiries may be nearing conclusion, while criminal inquiries could extend into 2024 [26] Other Important Information - The company has exhausted its Directors and Officers (D&O) insurance during the quarter, with an expected reimbursement of $3 million to $4 million from the insurer [23] - The company does not foresee similar levels of legal expenses in future quarters, primarily due to the intensity of current government inquiries [23] Q&A Session Summary Question: Can you address some of the expenses this quarter? - Management indicated that the legal expenses were unusually high this quarter, reflecting ongoing government inquiries, but future quarters are not expected to incur similar costs [22] Question: How does a scenario of sustained high rates affect your margin? - Management acknowledged potential downward pressure on margins in the current and following quarters, but anticipated some recovery as loans and securities are reinvested at higher rates [27]

AAT Forward‐Looking Statements A HISTORY OF SUCCESS. A FUTURE OF OPPORTUNITY. American Assets Trust HISTORY OF SUCCESS (3) TOTAL REVENUE ($ IN MILLIONS) $315 $331 $367 $345 $376 $423 CAGR: +6.9% ADAM WYLL ROBERT BARTON EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER EMILY MANDIC 4 • The company's growth potential excludes any impact from future acquisitions, dispositions, equity issuances or repurchases, future debt financings or repayments. These estimates are forward‐looking and reflect management's ...

Financial Performance - Net income for Q2 2023 was $2.5 million, a significant increase from a net loss of $(2.2) million in Q2 2022, primarily due to a recovery of credit losses of $2.9 million and a gain on the sale of mortgage loans of $1.7 million [203]. - Net income for the three months ended June 30, 2023, was $2.5 million, compared to a net loss of $(2.2) million for the same period in 2022 [264]. - Net income for the six months ended June 30, 2023, was $2.0 million, a decrease of $1.1 million compared to $3.1 million for the same period in 2022 [264]. Asset and Loan Management - Total assets increased slightly to $2.5 billion at June 30, 2023, up from $2.4 billion at December 31, 2022, driven by increased liquid assets from loan repayments [205]. - As of June 30, 2023, total gross loans held for investment decreased by $173.0 million, or 10%, to $1.5 billion from $1.7 billion at December 31, 2022 [217]. - Residential real estate loans accounted for 82% of total gross loans held for investment as of June 30, 2023, down from 84% at December 31, 2022 [216]. - The company transferred loans with an amortized cost of $41.1 million from loans held for investment to loans held for sale during the six months ended June 30, 2023 [217]. - Approximately 80% of the loan portfolio was based in California, with 54% in the San Francisco metropolitan area and 26% in the Los Angeles metropolitan area [216]. Nonperforming Assets - Nonperforming assets decreased dramatically from $38.3 million at December 31, 2022, to $2.1 million at June 30, 2023, following the sale of nonperforming and chronically delinquent residential real estate loans [204]. - Nonperforming assets totaled $2.1 million at June 30, 2023, significantly down from $38.3 million at December 31, 2022 [225]. - The total nonaccrual loans to total loans ratio improved to 0.14% at June 30, 2023, from 2.03% at December 31, 2022 [225]. - Total loans 90 days or more past due decreased from $33.7 million at December 31, 2022, to $2.1 million at June 30, 2023 [229]. - Loans classified as Special Mention and Substandard decreased by $31.9 million from $84.8 million at December 31, 2022, although commercial real estate loans in the Substandard category increased by $18.9 million [231]. Credit Losses and Allowance - The allowance for credit losses was $36.2 million as of June 30, 2023, compared to $45.5 million at December 31, 2022 [216]. - The allowance for credit losses at June 30, 2023, was $36.2 million, or 2.43% of total loans held for investment, down from $44.2 million, or 2.66%, at January 1, 2023 [239]. - The decrease in the allowance for credit losses was primarily due to the transfer of nonaccrual and delinquent residential real estate loans to held for sale, resulting in a charge-off of $6.5 million [240]. - The total ending balance of the allowance for credit losses was $36.2 million as of June 30, 2023, reflecting a recovery of loan losses of $2.0 million due to improved credit quality [239]. - The recovery of credit losses was $(2.9) million for the three months ended June 30, 2023, compared to $(1.1) million for the same period in 2022, reflecting improved credit quality [285]. Deposits and Funding - Total deposits increased by $87.5 million, or 4%, to $2.0 billion as of June 30, 2023, compared to $1.95 billion at December 31, 2022 [254]. - Time deposits rose by $119.6 million, or 14%, reflecting the strategy to offer competitive interest rates [254]. - The total estimated uninsured deposits were approximately 24% of total deposits at June 30, 2023 [257]. - Core deposits totaled $1.8 billion, or 86% of total deposits, down from $1.7 billion, or 88%, at December 31, 2022 [255]. - The company had outstanding FHLB borrowings of $50.0 million as of June 30, 2023 [259]. Interest Income and Expense - Net interest income for Q2 2023 was $16.2 million, a decrease of $3.3 million, or 17%, from $19.5 million in Q2 2022 [270]. - The increase in interest expense on deposits outpaced interest income due to the rising rate environment, with the federal funds rate increasing from 1.50%-1.75% in June 2022 to 5.00%-5.25% in June 2023 [270]. - Total interest-earning assets amounted to $2.45 billion with an average yield of 5.15% for the three months ended June 30, 2023, compared to $2.64 billion and 3.47% in the same period of 2022 [270]. - Interest income for the three months ended June 30, 2023, was $31.6 million, an increase of $8.7 million, or 38%, from $22.9 million for the same period in 2022 [271]. - Interest expense rose to $15.4 million for the three months ended June 30, 2023, compared to $3.4 million for the same period in 2022, driven by a 235 basis point increase in the average rate paid on interest-bearing deposits [274]. Strategic Initiatives - The company engaged Keefe, Bruyette & Woods as a financial advisor to explore potential strategic alternatives, including a sale of the company or a merger [201]. - The strategic planning process includes the development of new banking products and services in light of the expected new status as a "covered savings association" [200]. - The company anticipates the election to be a "covered savings association" under HOLA will be effective before the end of 2023, allowing it to operate as a commercial bank without being subject to the qualified thrift lender test [199]. - The company is currently evaluating alternatives for the development of new loan products as part of a larger strategic planning process [218]. Regulatory Compliance - Regulatory capital ratios remained well above the levels required to be considered well capitalized for regulatory purposes as of June 30, 2023 [206]. - The Company and the Bank met all regulatory capital requirements and were considered "well capitalized" under applicable prompt corrective action requirements as of June 30, 2023 [313]. - The capital conservation buffer (CCB) is set at 2.5% of common equity Tier 1 capital to risk-weighted assets [311].

Financial Data and Key Metrics Changes - The company reported a profit of $0.05 per share, adjusted down to $0.03 at the operating level [15] - The net interest margin (NIM) declined by 29 basis points quarter-over-quarter to 2.64%, primarily due to increased costs associated with the deposit base [27] Business Line Data and Key Metrics Changes - The company experienced significant pressure on NIM due to the interest cost of subordinated debt, which was over 11% [4] - The impact of subordinated debt resulted in a margin compression of approximately 23 basis points in the second quarter, which is expected to improve following the redemption of the subordinated debt [18] Market Data and Key Metrics Changes - The current level of interest rates and competition for bank deposits has shifted compared to a year ago, with a continued high premium on liquidity [28] - The failures in the banking industry in March have had lasting effects, influencing the capital markets and the competitive landscape [30] Company Strategy and Development Direction - The company is entering a phase where it can begin to make strategic plans following the resolution of various investigations and the associated costs [24] - Management emphasized the importance of long-term thinking in business strategy, moving away from short-term decision-making that has historically drained shareholder value [6] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, indicating that the company is in the final stages of its turnaround and expects financial performance to become more predictable [5] - The company is cooperating with ongoing investigations and is in the final stages of settling with the DOJ, which is expected to clear the path for future strategic initiatives [25][26] Other Important Information - The company remains highly liquid and well-capitalized, positioning itself for future growth opportunities [24] - A special master will be appointed to determine the process for eligible shareholders to submit claims related to past issues [17] Q&A Session Questions and Answers Question: What is the impact of the current interest rates and competition for bank deposits? - Management noted that the current interest rates and competition have changed significantly, with a high premium on liquidity and careful review of tangible common equity [28] Question: How does the company view the future of capital markets? - Management indicated that there are signs of the capital markets becoming more favorable for transactions and discussions among banks [30]

Financial Performance - The company reported a net loss of $(0.5) million for Q1 2023, compared to a net income of $5.3 million in Q1 2022, primarily due to a 166 basis point increase in interest expense on average interest-bearing deposits [195]. - Net interest income for the three months ended March 31, 2023, was $17.7 million, a decrease of $3.6 million, or 17%, from $21.3 million for the same period in 2022 [262]. - Total non-interest income decreased to $278,000 for the three months ended March 31, 2023, down $1.1 million, or 80%, from $1.4 million for the same period in 2022 [271]. - Non-interest income for Q1 2023 was $0.3 million, a decrease of $1.1 million or 78% from Q1 2022, primarily due to declines in net servicing income and recoveries of loan valuation losses [272]. - The effective tax rate for Q1 2023 was 9.7%, a decrease from 30.3% in Q1 2022, attributed to lower pretax earnings [275]. Interest Rates and Income - Average interest rate paid increased from 0.00%-0.25% in March 2022 to 4.75%-5.00% by March 31, 2023, while the average yield on interest-earning assets increased by 133 basis points [195]. - Interest income increased to $29.4 million for the three months ended March 31, 2023, up $4.5 million, or 18%, compared to the same period in 2022, primarily due to higher yields on investment securities and other interest-earning assets [263]. - Interest expense rose to $11.7 million for the three months ended March 31, 2023, compared to $3.6 million for the same period in 2022, driven by an increase in rates on interest-bearing deposits [267]. - The average yield on other interest-earning assets was 4.67% for the three months ended March 31, 2023, compared to 0.19% for the same period in 2022, benefiting from rising interest rates [263]. - The average yield on subordinated notes increased to 10.38% for the three months ended March 31, 2023, compared to 5.90% for the same period in 2022 [268]. Loans and Credit Quality - The company has suspended the origination of residential loans and is in the process of finding a new mortgage fulfillment provider [209]. - The allowance for credit losses was $38.6 million as of March 31, 2023, compared to $45.5 million at December 31, 2022 [207]. - The ratio of nonaccrual loans to total gross loans decreased from 2.14% at December 31, 2022, to 1.65% at March 31, 2023, when including nonaccrual loans held for sale [221]. - Total nonperforming assets totaled $26.3 million as of March 31, 2023, a decrease of $12.0 million from $38.3 million at December 31, 2022 [221]. - Net charge-offs for Q1 2023 were $6.4 million, compared to net recoveries of $(0.2) million in Q1 2022 [232]. Deposits and Funding - Total deposits remained stable at $1.9 billion as of March 31, 2023, with a decrease of $32.2 million, or 2%, from December 31, 2022 [197]. - The company had estimated $389.1 million in uninsured deposits, representing approximately 20% of total deposits at March 31, 2023 [249]. - Time deposits due within one year increased to $604.4 million, representing 31% of total deposits as of March 31, 2023, compared to 23% as of December 31, 2022 [282]. - The company had outstanding FHLB borrowings of $50.0 million as of March 31, 2023 [251]. - Core deposits totaled $1.7 billion, or 86% of total deposits, at March 31, 2023, compared to 88% at December 31, 2022 [247]. Regulatory and Compliance - The company entered into a Plea Agreement with the DOJ, agreeing to pay $27.2 million in restitution and enhance compliance programs [191]. - Regulatory capital ratios remained well above the levels required to be considered well capitalized for regulatory purposes [198]. - Non-interest expenses remained high due to ongoing professional fees related to the DOJ investigation [195]. - The company established a liability for unfunded commitments of $0.6 million following the adoption of ASU 2016-13 [227]. - The company is required to make a restitution payment of $27.2 million for the benefit of non-insider victim shareholders, to be funded primarily from a cash dividend from the Bank [288].

Financial Data and Key Metrics Changes - The company reported a breakeven quarter with a slight growth in tangible book value, primarily due to improvements in the mark-to-market on held-for-sale securities [31] - Margin experienced some compression, attributed to the cost of subordinated debt, which is estimated to impact the margin by approximately 12 basis points at current rates [33][61] - Deposits were reported just under $2 billion, with a slight increase of about $25 million since the collapse of Silicon Valley Bank [35] Business Line Data and Key Metrics Changes - The company adopted the Current Expected Credit Loss (CECL) model on January 1, resulting in a $0.5 million increase to retained earnings, mainly due to the short-term nature of the construction portfolio [10] - There was a decline in overall allowance primarily due to the transfer of residential delinquent and non-accrual loans to held for sale, while an increase in commercial real estate provisions was noted due to economic forecasts [12][13] Market Data and Key Metrics Changes - The company noted that the current economic environment has led to concerns in the commercial real estate sector, prompting increased provisions in that area [13] - The management expressed concerns about the overall banking environment, referencing recent bank failures and their impact on the deposit insurance fund, which has cost between $40 billion and $50 billion [28][29] Company Strategy and Development Direction - The management outlined three main objectives: settling with the DOJ, addressing long-term delinquent loans, and tackling the expensive subordinated debt [32][33] - The company is focused on improving liquidity and reducing reliance on broker deposits, which was a significant concern when the current management took over [39] - There is an intention to clean up the balance sheet further, with expectations of potential recaptures in reserves as the company continues to address its financial position [47] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, indicating that the costs associated with legal settlements should decrease in the upcoming quarters [44][46] - There is an expectation of increased regulation in the banking sector, with a hope that it will be more forward-looking rather than reactive to past issues [41] - The management is confident in the current reserve levels and does not foresee significant additions unless there are substantial new originations [21] Other Important Information - The company has engaged an independent advisor for the sale process of non-accrual and seriously delinquent residential loans, with expectations to conclude the sale by late May [36] - The management emphasized the importance of transparency in financial reporting, opting to keep all debt securities available for sale rather than held to maturity [35] Q&A Session Summary Question: What is the yield on the loans that took a haircut? - Management estimated the yield to be in the mid-5% range, with a significant portion of those loans in non-accrual status [6] Question: Is there any appetite for capital actions like share repurchases? - Management indicated that addressing the subordinated debt is a priority, and they have sufficient liquidity to consider such actions [22][25] Question: How does the company view margin pressure with potential rate hikes? - Management acknowledged the difficulty in predicting margin trends but expressed confidence in their ability to manage the impact of rising rates [52][53] Question: What is the status of the subordinated debt? - Management confirmed that the subordinated debt is callable, and they have the option to call some or all of it at par [56][61]

Financial Performance - The company reported a net interest income of $80,074,000 for the year ending December 31, 2022, with a projected increase of 4% to $83,587,000 if interest rates rise by 200 basis points [431]. - Net interest income after provision for loan losses was $88,736,000 in 2022, compared to $99,445,000 in 2021, representing a decrease of about 11% [454]. - The company reported a net loss of $14,194,000 for the year ended December 31, 2022, compared to a net income of $23,390,000 in 2021 [454]. - Comprehensive loss for 2022 was $(32,822,000), compared to comprehensive income of $22,106,000 in 2021 [457]. - Non-interest expense increased to $97,648,000 in 2022 from $72,218,000 in 2021, marking an increase of approximately 35% [454]. - The company’s retained earnings decreased to $234,049,000 in 2022 from $248,243,000 in 2021, reflecting a decline of approximately 5.7% [452]. Asset and Loan Management - Total assets decreased to $2,444,735,000 in 2022 from $2,876,830,000 in 2021, reflecting a decline of approximately 15% [452]. - The allowance for loan losses was $45,464,000 as of December 31, 2022, down from $56,548,000 in 2021, indicating a reduction in the general valuation allowance for loans [444]. - The total ending loans balance as of December 31, 2022, was $1,658,849, compared to $2,012,814 in 2021, indicating a decrease of about 17.5% [554]. - The company recorded recoveries of $3,111 in 2022, compared to $2,312 in 2021, showing an increase of approximately 34.5% [553]. - The total past due loans as of December 31, 2022, amounted to $57,042 million, with a total loan portfolio of $1,658,849 million [561]. Risk Management - The company is exposed to risks from the termination of its Advantage Loan Program and potential claims related to governmental investigations [16]. - The company faces operational risks from increased reliance on technology and cybersecurity threats, which could impact financial transactions [22]. - The company has a concentration in residential real estate loans, which poses credit risks related to delinquencies and nonperforming assets [20]. - The company has established a liability for potential losses related to mortgage repurchase demands, which reflects subjective estimates and complex judgments [514]. Regulatory Compliance - The company is subject to extensive regulations affecting the financial services industry, including compliance with the Dodd-Frank Act and the Community Reinvestment Act [20]. - The Bank's regulatory capital ratios exceeded the requirements to be considered well capitalized for all regulatory purposes as of December 31, 2022 [613]. - The Company and the Bank had met all regulatory capital requirements as of December 31, 2022, and held capital in excess of the capital conservation buffer (CCB) [613]. Capital and Liquidity - The company’s liquidity management is overseen by the Asset Liability Committee, which regularly reviews liquidity, capital, and deposit mix [427]. - The total deposits decreased to $1,954,037,000 in 2022 from $2,261,735,000 in 2021, a decline of about 13.6% [452]. - The Company has additional borrowing capacity with the FHLB of $332,309 at December 31, 2022, based on collateralized investment securities and loans [587]. Employee and Compensation - The company’s ability to attract and retain key employees is critical for maintaining operational effectiveness [22]. - Stock-based compensation for 2022 amounted to $900,000, compared to $626,000 in 2021 [463]. - The Company recorded stock-based compensation expense of $906, $453, and $134 for the years ended December 31, 2022, 2021, and 2020, respectively [610]. Loan Portfolio Characteristics - As of December 31, 2022, residential real estate loans accounted for 84% of total gross loans, with 81% of gross loans originated in California [476]. - The residential real estate portfolio segment includes first and second mortgages, with credit quality closely tied to economic trends and borrower repayment capacity [504]. - The commercial real estate portfolio segment is affected by economic developments and vacancy rates, impacting credit quality and cash flow [504]. Changes in Loan Programs - The Company terminated its COVID-19 forbearance program effective July 31, 2021, with no loans outstanding under this program as of December 31, 2022 [567]. - As of December 31, 2022, the Advantage Loan Program loans totaled $880,373, representing 63% of gross residential loans, down from $1,185,458 or 69% in 2021 [478].

Financial Data and Key Metrics Changes - The company reported a loss of $200,000 for the quarter, but a profit of $4 million for the full year, with a margin of 3.09% in the quarter, which improved compared to earlier in the year [7][19] - Non-performing assets decreased slightly quarter-over-quarter to $38.3 million [44] Business Line Data and Key Metrics Changes - The bank's balance sheet remained relatively stable with a $3 million reduction quarter-over-quarter, and deposits were stabilized [25] - The company purchased a pool of high balance, conforming or jumbo residential loans, indicating a focus on quality assets [12] Market Data and Key Metrics Changes - The bank has seen a significant increase in the cost of funds due to rising interest rates, which has affected the overall margin [26] - The company has developed a demand deposit product, which has shown some success, although it is still in the early stages [32] Company Strategy and Development Direction - The company aims to maintain a high capital ratio to protect itself and its shareholders amid ongoing uncertainties [8] - There is a focus on derisking the loan portfolio, particularly in commercial real estate, which has been a significant area of concern [14] Management's Comments on Operating Environment and Future Outlook - Management expressed a strong sense of urgency to resolve ongoing investigations and emphasized their cooperation with authorities [22] - The company believes that the derisking efforts made in 2022 will continue to pay off in 2023, despite challenges in the operating environment [14] Other Important Information - Professional fees related to ongoing investigations accounted for about two-thirds of the total non-interest expenses, which are expected to decrease once the investigations are resolved [24] - The bank has a significant number of employees in its BSA department, reflecting the ongoing compliance requirements [31] Q&A Session Summary Question: What is the status of the CECL implementation given the pending government liability? - Management indicated that the CECL implementation would not significantly impact the reserve for penalties and that they do not expect major concerns from the CECL adjustment [38] Question: How will rising deposit costs affect the bank's margin? - Management acknowledged that while liability costs will increase, the bank's proactive liquidity management has positioned it well to handle these changes [39] Question: What is the strategy regarding large depositors and competitive rates? - The bank is not aggressively chasing higher rates but is maintaining a status quo approach in line with market rates [32]