Commitments and Loss Contingencies

9 Months Ended

Sep. 30, 2024

Commitments and Loss Contingencies

Commitments and Loss Contingencies

13) Commitments and Loss Contingencies

Loss Contingencies

Within the ordinary course of our business, we are from time to time subject to private lawsuits, government audits and examinations, administrative proceedings and other claims. Under certain circumstances, we also may be subjected to increased risk associated with the acts or omissions of our clients (such as clients who, unbeknownst to the Bank or the Company, may engage in or become associated with fraudulent or unlawful transactions, Ponzi schemes, money laundering, and similar unlawful acts). A number of these claims may exist at any given time, and some of the claims may be pled as class actions. We could be affected by adverse publicity and litigation costs resulting from such allegations, regardless of whether they are valid or whether we are ultimately determined to be liable.

At September 30, 2024, the Company was the subject of three pending legal proceedings (excluding pending and potential litigation arising in the ordinary course of business) each of which was an employment-related action asserted between November 2020 and October 2021. Two of the claims purport to be class actions on behalf of other employees and seek unspecified damages, penalties and attorney fees under the California Labor Code, the California Business and Professions Code, and the California Private Attorneys General Act (“PAGA”). The third such claim is an individual claim alleging race and gender discrimination, wage violations, and a variety of other claims. The claimants in all three actions allege various instances of disability, race and gender discrimination, wage-and-hour violations, retaliation, and related claims. Two of these cases remain pending in Alameda County Superior Court following a series of motions and interlocutory appeals, and are currently set for trial late in the summer of 2025. The third claim was substantially resolved through mediation in October 2024, after the period covered by the accompanying financial statements, for an amount that is immaterial to the Company’s financial condition and results of operations. The Company contends that the claims are without merit and intends to defend them vigorously.

The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. The outcomes of legal proceedings and other contingencies are, however, inherently unpredictable and subject to significant uncertainties. As a result, the Company cannot always reasonably estimate the amount or range of possible losses, including losses that could arise as a result of application of non-monetary remedies, with respect to the contingencies it faces, and the Company’s estimates, once made, may prove inaccurate.

At this time, we believe that the amount of reasonably possible losses resulting from final disposition of pending or threatened lawsuits, audits, proceedings and claims will not have a material adverse effect individually or in the aggregate on our financial position, results of operations or liquidity. It is possible, however, that our future results of operations for a particular quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings or claims, and that, associated with the defense of such claims, we may incur elevated levels of attorney fees and other litigation costs. Likewise, factors that affect the insurance coverage for these matters may affect our estimates of the relevant contingent liabilities, and we generally adjust our estimates based on known factors that affect that coverage as those factors come to light. Legal costs related to such claims are expensed as incurred.

Off-Balance Sheet Arrangements

In the normal course of business the Company makes commitments to extend credit to its clients as long as there are no violations of any conditions established in the contractual arrangements. These commitments are obligations that represent a potential credit risk to the Company, but are not reflected on the Company’s consolidated balance sheets. Total unused commitments to extend credit were $1,117,775,000 at September 30, 2024, and $1,149,056,000 at December 31, 2023. Unused commitments represented 33% and 34% of outstanding gross loans at September 30, 2024 and December 31, 2023, respectively.

The effect on the Company’s revenues, expenses, cash flows and liquidity from the unused portion of the commitments to provide credit cannot be reasonably predicted because there is no certainty that lines of credit and letters of credit will ever be fully utilized. The following table presents the Company’s commitments to extend credit at the dates indicated:

	September 30, 2024						December 31, 2023
	Fixed		Variable				Fixed		Variable
	Rate		Rate			Total	Rate		Rate		Total
	(Dollars in thousands)
Unused lines of credit and commitments to make loans	$	122,471	$	972,291	$	1,094,762	$	96,166	$	1,041,608	$	1,137,774
Standby letters of credit		6,178		16,835		23,013		4,283		6,999		11,282
	$	128,649	$	989,126	$	1,117,775	$	100,449	$	1,048,607	$	1,149,056

For the nine months ended September 30, 2024, there was a decrease of ($111,000) to the allowance for credit losses on the Company’s off-balance sheet credit exposures. The decrease in the allowance for credit losses for off-balance sheet credit exposures in the first nine months of 2024 was driven by a decline in the loss factor due to an improved forecast in the commercial and industrial and land and construction loan segments. The allowance for credit losses on the Company’s off-balance sheet credit exposures was $656,000 at September 30, 2024 and $767,000 at December 31, 2023.