OP Bancorp 10-K

Item 9A. Controls and Procedures. Evaluation of disclosure controls and procedures The Company’s management, including our President and Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered in this report. Based on such evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of that date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control Over Financial Reporting The Company is not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and is therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Changes in internal control over financial reporting There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal year to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B. Other Information. Not applicable. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable 82 PART III Item 10. Directors, Executive Officers and Corporate Governance. T HE BOARD OF DIRECTORS The Board of Directors oversees our business and monitors the performance of management. In accordance with corporate governance principles, the Board does not involve itself in day-to-day operations. The directors keep themselves informed through, among other things, discussions with the Chief Executive Officer, other key executives and our principal outside advisors (legal counsel, outside auditors, and other consultants), by reading reports and other materials that we send them and by participating in Board and committee meetings. Pursuant to OP Bancorp’s Articles of Incorporation and Bylaws, our Board of Directors is authorized to have not less than seven members nor more than 13 members, and is currently comprised of eight members. The exact number of directors may be fixed from time to time within the range set forth in our Bylaws by a Bylaw or amendment thereof duly adopted by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of a majority of the outstanding shares entitled to vote, or by resolution of our Board. Our Board of Directors has affirmatively determined that seven of our eight current directors qualify as independent directors based upon the rules of the Nasdaq Stock Market and the SEC. There are no arrangements or understandings between any of the directors and any other person pursuant to which he or she was selected as a director. The following provides biographical information for our directors, including their names, ages and year in which they began serving as a director of the Company (or the Bank prior to the Company’s formation in 2016). All of the directors of Open Bank became members of the OP Bancorp board of directors when we reorganized into our present bank holding company structure in 2016. The age indicated in each director’s biography is as of December 31, 2021. Brian Choi . Mr. Choi, age 71, a director of the Bank since 2008, has served as the Chairman of the Board of the Bank since 2010, and OP Bancorp since 2016. Mr. Choi has served as Chairman and Chief Executive Officer of Universal Financing Corporation since 1991, and as Chairman and Chief Executive Officer of Ehese Investments, LLC since 2001. Mr. Choi has previous experience as a bank director with Alaska First Bank & Trust (formerly First Interstate Bank of Alaska) where he served on the Board from 1999 through 2008. He was the president of the Korean Community of Anchorage, Alaska from 2003 to 2004. He was the President of the Korean Christian Businessmen’s Committee of North America from 2006 to 2008. He also served as the President of the Federation of Korean American Association of Northwest States of United States of America, which included Oregon, Washington, Idaho, Montana, and Alaska from 2010 to 2012. Mr. Choi is a graduate of Korea University where he received a Bachelor of Science in Political Science and Foreign Relations. Mr. Choi contributes to the Board over 21 years of leadership and substantial experience in the community banking industry. He brings a wide-ranging understanding of the bank management, finance and operations. His leadership ability, judgment and prior business executive experience led the Board to elect him as Chairman of the Board. Ernest E. Dow . Mr. Dow, age 72, has served as a member of the Board since the founding of the Bank in 2005. He is a Certified Public Accountant and a Principal of Dow & Sohn CPAs. He has maintained his accounting practice for over 38 years providing accounting, auditing, tax and business consulting services for international and local companies operating in Southern California. Mr. Dow served as a director for Pacific Union Bank from May 2003 until the bank’s acquisition by Hanmi Bank in April 2004. Mr. Dow is a member of the California Society of Certified Public Accountants. Mr. Dow obtained his Bachelor of Science from California State University, Northridge, in 1976. Mr. Dow’s significant accounting experience provides among other things in-depth knowledge of generally accepted accounting principles and auditing standards to the Board. Mr. Dow was a member of Choi Dow Ivan Hong & Lee Accountancy Corporation (“CDIH&L”) from August 1992 to December 2007. Jason Hwang . Mr. Hwang, age 71, has served as a Board member since the founding of the Bank in 2005. He retired in 2020 from accounting firm, Jason Hwang CPA, which he founded in 1983. He holds General Securities Registered Representative (Series 7) license and a Certified Public Accountant (inactive). He is a past board member of Korean American National Museum and Korean American Scholarship Fund. Mr. Hwang obtained his Bachelor of Science degree in accounting from California State University, Los Angeles. Mr. Hwang’s significant accounting experience provides among other things in-depth knowledge of generally accepted accounting principles and auditing standards to the Board of Directors. He is particularly suited to serve as Chair of the audit committee. 83 Soo Hun Jung, M.D . Dr. Jung, age 72, has served as a Board member since the founding of the Bank in 2005. He is a medical doctor who has been in private medical practice since 1982. Dr. Jung obtained his medical degree from Pusan National University College of Medicine, Pusan, South Korea, in 1975. He subsequently completed his general surgery internship at Mount Sinai Hospital, New York, in 1979 and his internal medicine residency at Hospital of the Good Samaritan (affiliated with U.S.C. Medical School) Los Angeles, in 1982. Dr. Jung is affiliated with various hospitals and medical associations. He is a Member of the Board of Good Samaritan Medical Practice Association; Good Samaritan Hospital, and Korean-American Medical Group. In addition, he is a member of American Medical Association, American College of Physicians, and Korean Medical Association. He serves as Clinical Assistant Professor of Medicine for U.S.C. School of Medicine. As a long-term member of the Board, Mr. Jung has a broad-based understanding of the Company and the Bank and is deeply committed to the community through his medical practice and affiliations with medical organizations and associations. Min J. Kim . Ms. Kim, age 62, has served as the President and Chief Executive Officer and a member of the Board of the Company and the Bank since April 2010. She has over 38 years of banking experience in the Korean banking community. Prior to joining the Bank, she served as Chief Executive Officer and President of Nara Bancorp and Nara Bank (now Bank of Hope and Hope Bancorp Inc) for three and half years assuming those positions in 2006. From 1996 to March 2006, Ms. Kim served in various executive positions with Nara Bancorp and Nara Bank, including Executive Vice President and Chief Operating Officer, Executive Vice President and Chief Credit Officer, and Senior Vice President and Chief Credit Administrator. Prior to joining Nara Bancorp and Nara Bank in 1995, Ms. Kim served in numerous positions with Hanmi Bank, including Vice President and Manager of the Western Street Branch of Hanmi Bank in Los Angeles from 1985 to 1995. Ms. Kim has a Bachelor of Sciences degree in Finance from the University of Southern California. Ms. Kim contributes to the Board her breadth of knowledge of the Company’s bank business, markets, community and culture. She provides the Board with an overall perspective of all facets of the Company’s business, financial condition and strategic direction. Ock Hee Kim . Mrs. Kim, age 80, has served as a member of the Board since the founding of the Bank in 2005. She was the owner of Lily’s Dress Co., an apparel manufacturing company she founded in 1974 for 30 years. Mrs. Kim is actively involved in the L.A. Central Lions Club. Mrs. Kim serves as a deaconess in Torrance Presbyterian Church. Mrs. Kim obtained her Bachelor of Arts degree in Music from Kyung Hee University in Seoul, Korea. Ms. Kim brings a valuable perspective to the Board as result of her over 30 years of experience in the apparel and garment business which is an important industry in our downtown Los Angeles and Koreatown marketing areas, as well as and her involvement in local community activities. Myung Ja (Susan) Park . Ms. Park, age 73, has served as a Board member since the founding of the Bank in 2005. She is the owner and President of LP Royal Import LLC, an importer and national distributor of craft and wedding accessories. Ms. Park is also the current President of Park & Park, a property investment company. She is previously the President of Royal Accessories, an importer of artificial flowers and bridal accessories, a company she founded in 1986. From 1977 to 2003, Ms. Park was the sole shareholder and Chief Executive Officer of Showroom 3, Inc., a manufacturer of wedding accessories based in China. Over that same time period, Ms. Park was co-owner of B. B. World Corp, a leading importer/exporter and nationwide distributor of artificial flowers and wedding accessories. Ms. Park has been an active member of her community and served as the Vice President of the Korean Business and Professional Women’s Association. She also served as the Chairwoman of the Fundraising Board of the Children of Afghanistan Relief Initiative for World Vision. Ms. Park contributes to the Board over 40 years of experience and knowledge of the import/export business, and is passionate about serving the needs of the Korean-American community. Yong Sin Shin . Ms. Shin, age 62, has served as a Board member since the founding of the Bank in 2005. She is the President and Secretary of CJS Groups Inc (DBA Bicici & Coty Fashion), an apparel manufacturer and wholesaler in Los Angeles, California which she founded in 1994. Ms. Shin was a fashion designer and co-manager of Coty Fashion in Sao Paulo, Brazil, from 1985 to 1994. Ms. Shin obtained her Bachelor of Science in Dietary Nutrition from University of Sao Paulo, Sao Paulo, Brazil, in 1982. Ms. Shin co-founded her own manufacturing and wholesale business in Los Angeles, California and contributes to the Board her substantial business acumen developed though years of proven entrepreneurial success. Also as an active member of the Korean American Chamber of Commerce in Los Angeles she brings to the Board various business and cultural insights from the local community. Board Leadership Structure The Board of Directors is committed to maintaining an independent Board, and for many years a majority of the Board has been comprised of independent directors. Further, it is the practice of the Company to separate the roles of 84 Chairman of the Board and Chief Executive Officer in recognition of the differences between the two roles. The Chief Executive Officer is responsible for setting our strategic direction and the day-to-day leadership and performance. The Chairman of the Board provides guidance to the Chief Executive Officer, sets the agenda for Board meetings, presides over meetings of the full Board (including executive sessions), and facilitates communication among the independent directors and between the independent directors and the Chief Executive Officer. The Board further believes that the separation of the duties of the Chief Executive Officer and the Chairman of the Board eliminates any inherent conflict of interest that may arise when the roles are combined, and that an independent director who has not served as an executive of the Company can best provide the necessary leadership and objectivity required as Chairman of the Board. Compensation Committee Interlocks and Insider Participation None of the members of our Human Resources & Compensation Committee will be or will have been one of our officers or employees. In addition, none of our executive officers serves or has served as a member of the compensation committee or other Board committee performing equivalent functions of any entity that has one or more executive officers serving as one of our directors or on our Human Resources & Compensation Committee. Risk Management and Oversight The Board of Directors has ultimate authority and responsibility for overseeing our risk management. The Board of Directors monitors, reviews and reacts to material enterprise risks identified by management. The Board receives specific reports from executive management on financial, credit, liquidity, interest rate, capital, operational, legal compliance and reputation risks and the degree of exposure to those risks. The Board helps ensure that management is properly focused on risk by, among other things, reviewing and discussing the performance of senior management and business line leaders. Board committees have responsibility for risk oversight in specific areas. The Audit Committee oversees financial, accounting and internal control risk management policies. The Human Resources & Compensation Committee assesses and monitors risks in our compensation program. The Nomination & Governance Committee oversees the nomination and evaluation of the Board and is responsible for overseeing our corporate governance principles. The Bank’s Risk and Compliance Committee oversees the risk and compliance programs, adherence to management policies and procedures, compliance with regulatory requirements and information technology strategies and activities. The Bank’s Loan & Credit Policy Committee is primarily responsible for credit and other risks arising in connection with our lending activities, which includes overseeing management committees that also address these risks. The Bank’s Asset/Liability Management Committee monitors our interest rate risk, with the goal of structuring our asset-liability composition to maximize net interest income while minimizing the adverse impact of changes in interest rates on net interest income and capital. Committees of the Board Our Board of Directors has established standing committees in connection with the discharge of its responsibilities. These committees include the Audit Committee, the Human Resource & Compensation Committee, and the Nomination & Governance Committee. Our Board of Directors also may establish such other committees as it deems appropriate, in accordance with applicable law and regulations and our articles and bylaws. Audit Committee The Company has a separately designated standing Audit Committee as required by the rules of the Nasdaq Stock Market. The Audit Committee charter adopted by the Board sets out the responsibilities, authority and specific duties of the Audit Committee. The Audit Committee charter is available on the Company’s website at www.myopenbank.com under the “Investor Relations” tab. The responsibilities of the Audit Committee include the following: • oversee the quality and integrity of regulatory and financial accounting, financial statements, financial reporting processes and systems of internal accounting and financial controls; • oversee the annual independent audit of the Company’s financial statements and internal control over financial reporting, the engagement of the independent registered public accounting firm and the evaluation of the independent registered public accounting firm’s qualifications, independence and performance; • oversee and retain internal audit and/or outsourced internal audit and review; 85 • oversee the performance of our internal/external audit function and independent registered public accounting firm; • approve related-person transactions subject to Item 404 of Regulation S-K; and • review and discuss the annual audited financial statements with management and the independent auditors prior to publishing the annual report and filing the Annual Report on Form 10-K with the SEC. Each member of the Audit Committee meets the independence criteria as defined by applicable rules and regulations of the SEC for audit committee membership and is independent and is “financially sophisticated” as defined by the applicable rules and regulations of the Nasdaq Stock Market. The members of the Audit Committee are Brian Choi, Ernest E. Dow, Jason Hwang (committee chair), Soo Hun Jung, M.D., Myung Ja (Susan) Park, and Yong Sin Shin. The Audit Committee met eleven times in 2021. In 2021, the Board of Directors has determined that Jason Hwang has: (i) an understanding of generally accepted accounting principles and financial statements; (ii) an ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves; (iii) an experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by our financial statements, or experience actively supervising one or more persons engaged in such activities; (iv) an understanding of internal control over financial reporting; and (v) an understanding of audit committee functions. Therefore, in 2021, the Board determined that Mr. Hwang meets the definition of “audit committee financial expert” under the applicable rules and regulations of the SEC and is “financially sophisticated” as defined by the applicable rules and regulations of the Nasdaq Stock Market. The designation of a person as an audit committee financial expert does not result in the person being deemed an expert for any purpose, including under Section 11 of the Securities Act of 1933, as amended (the “Securities Act”). The designation does not impose on the person any duties, obligations or liability greater than those imposed on any other audit committee member or any other director and does not affect the duties, obligations or liability of any other member of the Audit Committee or Board of Directors. Human Resources & Compensation Committee The Company has a separately designated Human Resources & Compensation Committee (“HRCC”), which consists entirely of independent directors as defined by the applicable rules and regulations of the Nasdaq Stock Market. The Human Resources & Compensation Committee has adopted a charter, which is available on our website at www.myopenbank.com under the “Investor Relations” tab. The Human Resources & Compensation Committee has the following responsibilities: • annually review the Company’s competitive position for each component of the overall human resource and compensation plan (especially base salary, annual incentives, long term incentives, and supplemental executive benefit programs); • review trends in compensation in all industries; • annually review with the Chief Executive Officer, the Company’s compensation strategy to assure that the Chief Executive Officer and the management team (senior vice president and above) and their compensation is in relation to their contributions to the Company’s growth, profitability, and meeting strategic goals; • annually review and recommend for approval to the Board the overall performance and total compensation for the Chief Executive Officer, including agreed upon goals and objectives relevant to the Chief Executive Officer’s compensation, evaluate the performance of the Chief Executive Officer in light of those goals and objectives, and set the Chief Executive Officer’s compensation level based upon this evaluation, taking into consideration the Company’s performance and relative shareholder return, and the value of similar incentive awards to Chief Executive Officers at comparable companies; • annually review and recommend to the Board the annual director’s compensation and any additional compensation for services on committees of the Board, service as a committee or Board chairman, meeting fees or any other benefit payable by virtue of the director’s position as a member of the Board; • evaluate and approve recommendations from the Chief Executive Officer regarding compensation and other employment related matters such as hiring, promotions, terminations or severance payments for all executive vice presidents, and post review of recommendations from the CEO regarding compensation and other 86 employment related matters such as hiring, compensation, promotions, terminations or severance payments for all senior vice presidents; • periodically review and recommend to the Board all matters pertaining to broad based benefit plans of the Company, equity plans, senior management or director bonus plans and pension plans and performance based plans; • review, establish and modify, as it sees fit, all employment policies and procedures related to officers and directors; • administer the annual executive incentive compensation plan in a manner consistent with the Company’s compensation strategy including the following incentive plan elements: eligibility and participation; annual allocation and actual award of equity incentive grants paid to the Chief Executive Officer and the members of the management team; corporate financial goals as they relate to total compensation; total funds reserved for payment under the plan; and annual review of the incentive equity and cash management incentive plan; • recommend to the Board for approval of the submission to shareholders of all new equity-related incentive plans, and administer the Company’s long term incentive programs in a manner consistent with the terms of the plans including the following: eligibility; vesting terms and conditions; and total shares reserved for grants; • annually review the Chief Executive Officer and management succession plan; • in consultation with management, oversee regulatory compliance with respect to compensation matters, including overseeing the Company’s policies on structuring compensation programs to preserve tax deductibility; • perform any other duties or responsibilities the Board may expressly delegate to the committee from time to time on matters relating to the Company’s compensation programs; and • review and approve general employee welfare benefit plans and other plans on an as needed basis. The members of the Human Resources & Compensation Committee are Brian Choi, Jason Hwang, Soo Hun Jung, M.D. (committee chair), Ock Hee Kim, Myung Ja (Susan) Park, and Yong Sin Shin. The Committee met four times in 2021. Nomination & Governance Committee The Company has a separately designated the Nomination & Governance Committee, which consists of entirely independent directors as defined by the applicable rules and regulations of the Nasdaq Stock Market. The Nomination & Governance Committee has adopted a charter, which is available on the Company’s website at www.myopenbank.com under the “Investor Relations” tab. The purposes of the Nomination & Governance Committee include the following responsibilities: • identify individuals qualified to become Board members; • recommend to the Board director nominees for election at each annual meeting of shareholders or to fill vacancies on the Board; • formulate and recommend for adoption by the full Board a policy for consideration of nominees for election to the Board who are recommended by shareholders of the Company; • consider candidates recommended by the shareholders of the Company in accordance with the Board’s policy for such consideration; • consider the certain qualifications and factors when evaluating and selecting potential new directors in accordance with the Corporate Governance Guidelines, see “Corporate Governance and Board Matters – Nomination of Directors”; • in considering diversity of the Board (in all aspects of the term) as a criteria for selecting nominees to the Board the committee shall take into account various factors and perspectives, including differences of viewpoint, high quality business and professional experience, education, skills and other individual qualities and attributes that contribute to Board heterogeneity, as well as race, gender and national origin; and 87 • consider the impact of a material change in qualifications of a director arising from the retirement or a change in the principal occupation, position or responsibility of a director as such a change relates to continued service on the Board; • evaluate Board performance and annually review the appropriate skills and characteristics required of Board members in the context of the current make-up or the Board, including such factors as business and professional experience, diversity and personal skills in finance, real estate capital markets, government regulation, financial reporting and other areas that are expected to contribute to an effective Board; • review the effectiveness, structure and operation of committees of the Board and the qualifications of members of the Board committees, and recommend to the Board the directors to serve or be removed as members of each committee and to recommend additional committee members to fill any vacancies; • develop for Board approval a set of corporate governance guidelines applicable to the Company and its subsidiary, periodically review and assess these and their application, and recommend to the Board any changes that the Committee deems appropriate; and • develop for Board approval the Code of Business Conduct and Business Ethics Policy and periodically review and assess the codes and their application, and recommend to the Board any changes that the committee deems appropriate. The members of the Nomination & Governance Committee are Brian Choi (committee chair), Ernest E. Dow, Jason Hwang, Soo Hun Jung, M.D, and Ock Hee Kim. The Committee met three times during 2021. E XECUTIVE O FFICERS OF THE C OMPANY The following table sets forth certain information regarding our executive officers, including their names, ages and positions: Name Age Position Min J. Kim 62 President and Chief Executive Officer of the Company and the Bank Christine Y. Oh 54 Executive Vice President and Chief Financial Officer of the Company and the Bank Sang K. Oh 49 Executive Vice President and Chief Credit Officer of the Company and the Bank Ki Won Yoon 61 Executive Vice President and Chief Lending Officer of the Bank Kathrine Duncan 65 Executive Vice President and Chief Risk Officer of the Bank Ihnsuk J. Bang 55 Executive Vice President and Chief Banking Officer of the Bank The business experience of each of our executive officers, other than Ms. Kim, is set forth below. Biographical information for Ms. Kim is included under “The Board of Directors” section above. No executive officer has any family relationship, as defined in Item 401 of Regulation S-K, with any other executive officer or any of our current directors. There are no arrangements or understandings between any of the officers and any other person pursuant to which he or she was selected as an officer. Christine Y. Oh . Ms. Oh was appointed Executive Vice President and Chief Financial Officer of the Bank in July 2010 and of the Company in March 2016. Ms. Oh has over 30 years of banking experience. Prior to joining the Bank, from January 2010 to July 2010 she served as Interim Chief Financial Officer and Controller of Nara Bancorp and Nara Bank (now Bank of Hope and Hope Bancorp Inc), headquartered in Los Angeles, California. Prior to assuming those positions, Ms. Oh served as Senior Vice President and Controller of Nara Bancorp and Nara Bank. Ms. Oh served as Interim Chief Financial Officer of Nara Bancorp and Nara Bank from March 2005 to July 2005. She joined Nara Bank in 1993. Prior to joining Nara Bank, Ms. Oh was a credit analyst at Center Bank where she started her banking in 1991. She has been serving as a director at Korean-American Family Services, a non-profit organization since 2014. Ms. Oh has a Bachelor of Science in Accounting from California State University, Northridge. Sang K. Oh . Mr. Oh has served as Executive Vice President and Chief Credit Officer of the Company and the Bank since October 2020. Mr. Oh has over 23 years of banking experience, all with Bank of Hope, Los Angeles, California. Prior to joining the Bank, he served as Senior Vice President and Senior Credit Administrator at Bank of Hope since 2007, and served in a various senior lending positions with Bank of Hope since 1997. Mr. Oh has a Bachelor of Arts in Business Economics with Minor in Accounting from the University of California, Los Angeles, and a graduate of Pacific Coast Banking School. 88 Ki Won Yoon . Ms. Yoon has served as Executive Vice President and Chief Lending Officer since October 2013. Ms. Yoon has over 33 years of relevant lending experience, with strong ties in the Korean-American business community. Prior to joining Open Bank, Ms. Yoon was District Manager at BBCN Bank (now Bank of Hope and Hope Bancorp Inc), which she joined in 1999, and where she managed a loan portfolio of over $450 million. Ms. Yoon has a Bachelor of Arts in Food & Nutrition from Sook Myung Women’s University and a graduate of Pacific Coast Banking School. Kathrine Duncan . Ms. Duncan joined the Bank in April 2010 as Executive Vice President and Chief Risk Officer. Ms. Duncan has over 39 years of banking experience. Prior to joining the Bank, Ms. Duncan had a consulting business performing audits, compliance/CRA reviews and writing policies. From 2005 to 2009, she was Senior Vice President, Chief Corporate Services Officer at Nara Bank (now Bank of Hope and Hope Bancorp Inc.) Los Angeles, California. Prior to joining Nara Bank, she was Senior Vice President and Director of General and Administrative Services at Pacific Premier Bank from 2000 to 2005. Prior to joining Pacific Premier Bank, Ms. Duncan was Senior Vice President, Risk Management Group at Hawthorne Savings (acquired) from 1994 to 2000. Prior to 1994, she was Vice President, Audit, Compliance, CRA at East-West Bank. Ms. Duncan has a Master of Arts in Leadership and Organizational Studies from Azusa Pacific University and a Bachelor of Science in Business Administration from California State University, Los Angeles. Ihnsuk J. Bang . Mr. Bang has served as Executive Vice President and Chief Banking Officer of the Bank since October 2020. Mr. Bang has over 22 years of lending experience. Prior to joining the Bank, he served as President at Hana Small Business Lending, Inc., a nationally ranked, non-bank SBA lender, since 2011, and served in various senior lending positions with Hanmi Bank, Wells Fargo Bank, and Bank of Hope from 1991 through 2003. Mr. Bang has a Bachelor of Arts in Business Economics with Minor in Mathematics from the University of California, Santa Cruz, and a Master’s in Business Administration in Finance from the Marshall School of Business at the University of Southern California. C ORPORATE G OVERNANCE AND B OARD M ATTERS The Board of Directors is committed to good business practices, transparency in financial reporting and the highest level of corporate governance. To that end, the Board continually reviews its governance policies and practices, as well as the requirements of the Sarbanes‑Oxley Act of 2002 and the listing standards of the Nasdaq Stock Market, to help ensure that such policies and practices are compliant and up to date. Board of Directors Board Independence In 2021, seven out of eight members of the Board of Directors were independent directors, as defined by the applicable rules and regulations of the Nasdaq Stock Market, as follows: Brian Choi, Chairman of the Board Ernest E. Dow Jason Hwang Soo Hun Jung, M.D. Ock Hee Kim Myung Ja (Susan) Park Yong Sin Shin Board and Committee Meeting Attendance During the fiscal year ended December 31, 2021, our Board of Directors held a total of thirteen meetings. Each incumbent director who was a director during 2021 attended each such meeting and each meeting held by the standing committees of the Board on which such director served. Director Attendance at Annual Meetings of Shareholders The Board believes it is important for all directors to attend the Annual Meeting of Shareholders in order to show their support for the Company and to provide an opportunity for shareholders to communicate any concerns to them. The Company’s policy is to encourage, but not require, attendance by each director at the Company’s Annual Meeting of Shareholders. All of the directors of the Company are encouraged to attend the Annual Meeting of Shareholders and at the 2021 Annual Meeting of Shareholders all of our directors were in attendance. 89 Communications with the Board Shareholders may communicate with the Board of Directors, including a committee of the Board or individual directors, by writing to the Corporate Secretary, OP Bancorp, 1000 Wilshire Boulevard, Suite 500, Los Angeles, CA 90017 or delivered via e-mail to christine.oh@myopenbank.com. Each communication from a shareholder should include the following information in order to permit shareholder status to be confirmed and to provide an address to forward a response if deemed appropriate: • if the person submitting the communication is a security holder, a statement of the type and amount of the securities of the Company that the person holds; • if the person submitting the communication is not a security holder and is submitting the communication to the non-management directors as an interested party, the nature of the person’s interest in the Company; • any special interest, meaning an interest not in the capacity of a shareholder of the Company, of the person in the subject matter of the communication; and • the address, telephone number and e-mail address, if any, of the person submitting the communication. Upon receipt, each communication shall be entered into an intake record maintained for this purpose, including the name of the person submitting the communication, the date and time of receipt of the communication, the information concerning the person submitting the communication required to accompany the communication and a brief statement of the subject matter of the communication. The record shall also indicate the action taken with respect to the communication. The Corporate Secretary or her personnel will review all communications to determine whether the communication satisfies the procedural requirements for submission and whether the substance of the communication is of a type that is appropriate for delivery to the Board of Directors under the criteria set forth in our procedures for communications with directors. Communications determined to be appropriate for delivery to directors, shall be assembled and delivered to the directors on a periodic basis. Our procedures regarding the handling of security holder communications were approved by a majority of our independent directors. Nomination of Directors The Company has a Nomination & Governance Committee. The duties of the Nomination & Governance Committee include the recommendation of candidates for election to the Company’s Board of Directors. The Nomination & Governance Committee’s minimum qualifications for a director are persons of high ethical character who have both personal and professional integrity, which is consistent with the image and values of the Company. The Corporate Governance & Nominating Committee considers some or all of the following criteria in considering candidates to serve as directors: • commitment to ethical conduct and personal and professional integrity as evidenced through the person’s business associations, service as a director or executive officer or other commitment to ethical conduct and personal and professional integrity as evidenced organizations and/or education; • objective perspective and mature judgment developed through business experiences and/or educational endeavors; • the candidate’s ability to work with other members of the Board and management to further the Company’s goals and increase shareholder value; • the ability and commitment to devote sufficient time to carry out the duties and responsibilities as a director; • experience at policy making levels in various organizations and in areas that are relevant to the Company’s activities; • the skills and experience of the potential nominee in relation to the capabilities already present on the Board; • broad experience in business, finance or administration, and familiarity with national and international business matters; • familiarity with the commercial banking industry; • prominence and reputation, and ability to enhance the reputation of the Company; 90 • activities and associations of each candidate to ensure that there is no legal impediment, conflict of interest, or other consideration that might hinder or prevent service on the Board; • in considering diversity of the Board (in all aspects of the term) as a criteria for selecting nominees to the Board the committee shall take into account various factors and perspectives, including differences of viewpoint, high quality business and professional experience, education, skills and other individual qualities and attributes that contribute to Board heterogeneity, as well as race, gender and national origin; and • consider the impact of a material change in qualifications of a director arising from the retirement or a change in the principal occupation, position or responsibility of a director as such a change relates to continued service on the Board. The Nomination & Governance Committee does not have a separate policy for consideration of any director candidates recommended by shareholders. Instead, the Nomination & Governance Committee considers any candidate meeting the requirements for nomination by a shareholder set forth in the Company’s Bylaws (as well as applicable laws and regulations) in the same manner as any other director candidate. The Nomination & Governance Committee believes that requiring shareholder recommendations for director candidates to comply with the requirements for nominations in accordance with the Company’s Bylaws ensures that the Nomination & Governance Committee receives at least the minimum information necessary for it to begin an appropriate evaluation of any such director nominee. Section 2.4 of the Company’s Bylaws provides that any shareholder must give advance written notice to the Company of an intention to nominate a director at a shareholder meeting. Notice of intention to make any nominations must be made in writing and delivered to the Chief Executive Officer or President at the principal executive offices of the Company no more than 60 days prior to any meeting of shareholders called for the election of directors, and no more than 10 days after the date of notice of such meeting is sent to the shareholders, provided, however, that if only 10 days’ notice of the meeting is given to shareholders such notice of intention to nominate shall be received by the Chief Executive Officer or President of the Company not later than the time fixed in the notice of meeting for the opening of the meeting. Such notification shall contain the following information to the extent known to the notifying shareholder: (i) the name and address of each proposed nominee; (ii) the principal occupation of each proposed nominee; (iii) the number of shares of voting stock of the Company owned by each proposed nominee; (iv) the name and residence address of the notifying shareholder; and (v) the number of shares of voting stock of the Company owned by the notifying shareholder. Nominations not made in accordance with the Bylaws shall be disregarded by the chairman of the meeting, and the inspectors of election shall then disregard all votes cast for each such nominee. Diversity of the Board of Directors In considering diversity of the Board (in all aspects of that term) as a criteria for selecting nominees in accordance with its charter, the Nomination & Governance Committee takes into account various factors and perspectives, including differences of viewpoint, high quality business and professional experience, education, skills and other individual qualities and attributes that contribute to Board heterogeneity, as well as race, gender and national origin. The Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. The Committee seeks persons with leadership experience in a variety of contexts and industries. The Committee believes that this expansive conceptualization of diversity is the most effective means to implement Board diversity. The Nomination & Governance Committee will assess the effectiveness of this approach as part of its annual review of its charter. Term of Office Directors serve for a one-year term or until their successors are elected. The Board does not have term limits, instead preferring to rely upon the evaluation procedures described herein as the primary methods of ensuring that each director continues to act in a manner consistent with the best interests of the shareholders and the Company. Board Committees The Board may delegate portions of its responsibilities to committees of its members. These standing committees of the Board meet at regular intervals to attend to their particular areas of responsibility. These committees include: Audit Committee, the Human Resource & Compensation Committee, and the Nomination & Governance Committee. Each member of these committees is independent, as defined by the applicable rules and regulations of the Nasdaq Stock Market. 91 The committee chair determines the agenda, the frequency and the length of the meetings and receives input from committee members. Executive Sessions Independent directors meet in executive sessions throughout the year including meeting annually to consider and act upon the recommendation of the Human Resource & Compensation Committee regarding the compensation and performance of the Chief Executive Officer. Evaluation of Board Performance A Board assessment is conducted annually in accordance with an established evaluation process and includes performance of committees. The Nomination & Governance Committee oversees this process and reviews the assessment with the full Board. Management Performance and Compensation The Human Resource and Compensation Committee reviews and approves the Chief Executive Officer’s evaluation of the top management team on an annual basis. The Board (largely through the Human Resource & Compensation Committee) evaluates the compensation plans for senior management and other employees to ensure they are appropriate, competitive and properly reflect the Company’s objectives and performance. Code of Business Conduct and Business Ethics Policy Our Board of Directors has adopted a Code of Business Conduct and Business Ethics Policy that applies to all of our directors and employees. The code provides fundamental ethical principles to which these individuals are expected to adhere to and will operate as a tool to help our directors, officers and employees understand the high ethical standards required for employment by, or association with, our Company. Our Code of Business Conduct and Business Ethics Policy is available on our website at www.myopenbank.com under the “Investor Relations” tab. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website, as well as any other means required by Nasdaq Stock Market rules. Reporting of Complaints/Concerns Regarding Accounting or Auditing Matters The Company’s Board of Directors has adopted procedures for receiving and responding to complaints or concerns regarding accounting and auditing matters. These procedures were designed to provide a channel of communication for employees and others who have complaints or concerns regarding accounting or auditing matters involving the Company. Employee concerns may be communicated in a confidential or anonymous manner to the Audit Committee of the Board. The Audit Committee Chairman will make a determination on the level of inquiry, investigation or disposal of the complaint. All complaints are discussed with the Company’s senior management and monitored by the Audit Committee for handling, investigation and final disposition. The Chairman of the Audit Committee will report the status and disposition of all complaints to the Board of Directors. Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires the Company’s officers, as defined by Section 16, directors, and persons or entities who own more than 10% of a registered class of the Company’s equity securities, to file initial reports of ownership and reports of changes in ownership with the SEC. Such persons or entities are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To our knowledge, based on our review of the copies of such filings and based on written representations, we believe that all such persons and entities complied on a timely basis with all Section 16(a) filing requirements during the fiscal year ended December 31, 2021, except the Form 4 filings to report the June 24, 2021 grant of restricted stock units to Ms. Kim, Mr. Oh, and each non-officer director were not timely filed. 92 Item 11. Executive Compensation. The following table sets forth information regarding the compensation paid, awarded to, or earned for our fiscal years ended December 31, 2021 and 2020 for each of our named executive officers. Name and Principal Position Year Salary ($) Stock Awards (1) Non Equity Incentive Plan Compensation (2) Other Compensation ($) (3) Total Compensation ($) Min J. Kim 2021 $ 525,486 $ 635,768 $ 550,000 $ 19,800 $ 1,731,054 President and Chief Executive Officer 2020 $ 493,800 $ — $ 510,000 $ 19,500 $ 1,023,300 Christine Y. Oh 2021 $ 303,288 $ — $ 140,000 $ 19,863 $ 463,151 Executive Vice President and Chief Financial Officer 2020 $ 285,000 $ — $ 130,000 $ 19,500 $ 434,500 Sang K. Oh 2021 $ 260,417 $ 445,500 $ 112,000 $ 16,775 $ 834,692 Executive Vice President and Chief Credit Officer 2020 $ 40,720 $ — $ — $ 391 $ 41,111 Ihnsuk J. Bang 2021 $ 250,000 $ 445,500 $ 105,000 $ 16,200 $ 816,700 Executive Vice President and Chief Banking Officer 2020 $ 39,091 $ — $ — $ 391 $ 39,482 (1) On June 24, 2021, the Company granted an aggregate 154,219 shares of stock awards to the named executive officers. The grant date fair value was based on the number of shares granted and the closing price of the Company's stock on the grant date, which was $9.90. (2) Cash bonuses awarded under the Company's Management Incentive Plan, described below. Amounts for 2021 were determined and paid in March 2022 for fiscal year of 2021. (3) Other Compensation for the named executive officers for our fiscal year ended December 31, 2021 includes the following: Name Perquisites (i) Company 401(k) Match (ii) Total “Other Compensation” Min J. Kim $ 2,400 $ 17,400 $ 19,800 Christine Y. Oh $ 2,400 $ 17,463 $ 19,863 Sang K. Oh $ 2,400 $ 14,375 $ 16,775 Ihnsuk J. Bang $ 2,400 $ 13,800 $ 16,200 (i) Amounts reflect cell phone allowance (ii) Amounts reflect Company matching contribution under the 401(k) Plan. General We compensate our named executive officers through a combination of base salary, annual bonuses, equity awards, and other benefits including perquisites. Our Human Resources & Compensation Committee, sometimes referred to as the HRCC, believes the executive compensation packages that we provide to our executives, including the named executive officers, should include both cash and equity compensation that reward performance as measured against established corporate goals. Each element of compensation is designed to achieve a specific purpose and to contribute to a total package that is competitive with similar packages provided by other institutions that compete for the services of individuals like our named executive officers. 2021 Risk Assessment Each year, the Company performs a risk analysis of each of its compensation programs. If warranted, the HRCC will recommend changes to address concerns or considerations raised in the risk review process. Changes may be recommended for the program design or its oversight and administration in order to mitigate unreasonable risk, if any is determined to exist. The HRCC has concluded that the Company’s compensation arrangements do not encourage any employees to take unnecessary and excessive risks. We do not believe that any risks arising from our compensation policies and practices are reasonably likely to have a material adverse effect on the Company. 93 Chief Executive Officer Agreement On November 1, 2017, we entered into an employment agreement with Ms. Kim, our President and Chief Executive Officer. The agreement provides for an initial three-year term and automatically renewal each subsequent year for a one-year term thereafter unless terminated by either party upon 45 days written notice prior to the end of the then-current term. An addendum to this agreement was executed on June 24, 2021, which extended the initial term to December 31, 2024. Under the terms of the agreement, Ms. Kim was initially entitled to an annual base salary of $410,000 subject to annual minimum increases of 3%, the actual amount as determined by the Board of Directors’ annual review of executive salaries. Her salary was last increased to $508,614 in April 2021. In addition to her salary, she is eligible to participate in the annual Management Incentive Plan, and will be entitled to equity award grants in accordance with the Company’s equity incentive plans and as approved by the Board of Directors. The Company provides Ms. Kim, at the same level of cost to other employees, group life, health, accident and disability insurance coverage for herself and her dependents. She is entitled to six weeks paid vacation annually. She received an automobile allowance in the amount of $1,200 per month in 2018 and for the first quarter of 2019. Effective April 2019, the monthly automobile allowance in the amount of $1,200 was rolled into Ms. Kim’s base salary. If Ms. Kim’s employment is terminated without Cause she will be entitled to 175% of her base salary paid over a period of 12 months and the Company will pay her COBRA health insurance premiums for 12 months. If Ms. Kim’s employment is terminated by the Company without Cause or she resigns for Good Reason within six months before or two years after a Change in Control, she will be paid 225% of her base salary over 12 months and the Company will pay her COBRA health insurance premiums for 24 months. The agreement provides that if any payments to Ms. Kim are limited by Section 280G of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code” or the “Code”), our obligations will be limited to such amounts that results in the greatest amount of the payment that is deductible for federal minimum tax purposes after taking into account all other compensation payments to or for the benefit of Ms. Kim that are included in determining the deductibility of such payments under Section 280G. The agreement contains a non-solicitation provision, whereby Ms. Kim may not solicit the Company’s employees for two years after the termination of her employment. For purposes of Ms. Kim’s contract the following terms are defined as follows: “Cause” means: (i) the willful and continuing failure to perform her obligations to the Company; (ii) the conviction of, or plea of nolo contendere to, a crime of embezzlement or fraud or any felony under the laws of the United States or any state thereof; (iii) the breach of fiduciary responsibility; (iv) an act of dishonesty that is injurious to the Company; (v) engagement in one or more unsafe or unsound banking practices that has an adverse effect on the Company; (vi) removal or permanent suspension from banking pursuant to regulatory and other applicable state or federal laws; (vii) an act or omission that leads to a harm (financial or reputational or otherwise) to the Company; or (viii) a material breach of Company policies as may be in effect from time to time. “ Change in Control ” means the first to occur of (a) the consummation of the acquisition by any “person” (as such term is defined in Section 13(d) or 14(d) of the Exchange Act) of “beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the Company; or (b) the consummation by the Company of: (i) a merger, consolidation, or similar transaction if the Company’s shareholders immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the entity resulting from such merger, consolidation or similar transaction in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Company outstanding immediately before such merger or consolidation; or (ii) a complete liquidation or dissolution of, or an agreement for the sale or other disposition of all or substantially all of the assets of, the Company (including a transaction described in clause (a) or (b) as if applicable to the Bank or a sale of substantially all of the Bank’s assets). Notwithstanding any provision of this definition to the contrary, a Change in Control shall not be deemed to have occurred solely because more than fifty percent (50%) of the combined voting power of the then outstanding securities of the Company are acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or an affiliate thereof or (ii) any corporation that, immediately prior to such acquisition, is owned directly or indirectly by the Company’s shareholders in the same proportion as their ownership of “Voting Securities” immediately prior to such acquisition. Further, notwithstanding any provision of this definition to the contrary, in the event that any amount or benefit under the agreement constitutes deferred compensation under the Section 409A of the Internal Revenue Code and the settlement of or distribution of such amount or benefit is to be triggered by a change in control, then such settlement or distribution shall be subject to the event constituting the change in control also constituting a “change in control event” (as defined in Section 409A). “ Good Reason ” means the occurrence of any one of the following events, unless Ms. Kim agrees in writing that such event shall not constitute “Good Reason”: (i) a material, adverse change in the nature, scope, or status of Ms. Kim’s 94 position, authorities, or duties from those in effect immediately prior to the applicable change in control; (ii) a material reduction in her aggregate compensation or benefits in effect immediately prior to the applicable Change in Control; or (iii) a relocation of Ms. Kim’s primary place of employment of more than fifty (50) miles from the her primary place of employment immediately prior to the applicable Change in Control. Prior to the Ms. Kim’s termination of service for Good Reason, Ms. Kim must give the Company written notice of the existence of the condition that gives rise to an event of a Good Reason within 90 days of its occurrence and then the Company has 30 days to cure the situation. Management Incentive Plan The Company offers eligible executives an opportunity to earn cash bonuses in addition to their annual base salaries. Each year the management incentive plan (“Management Incentive Plan”) is reviewed and approved by the HRCC. The Management Incentive Plan for 2021 and 2020 provides an opportunity for the executive officers and key employees to earn a bonus up to their designated percentage cap based on their base salary. The limits for the Management Incentive Plan for 2021 were up to 110% of the annual base salary for the President and Chief Executive Officer and up to 45% of their annual base salary for the other executive officers. The limits for the Management Incentive Plan for 2020 were up to 125% of the annual base salary for the President and Chief Executive Officer and up to 55% of their annual base salary for the other executive officers. Specific bonuses payouts are recommended by the President and Chief Executive Officer to the HRCC. The HRCC reviews the recommendations and based on its evaluation, recommends the final bonus amounts paid. In addition, the Board has the discretion to approve any additional cash bonuses as they deem appropriate and in line with the profits and the growth of the Company. However, no eligible executive would receive a bonus if he or she achieved less than 70% and 80% of performance goals set forth in the Management Incentive Plan for 2021 and 2020, respectively, and/or the return on assets (“ROA”) for the Plan Year is less than 1%. The availability of bonuses and the amounts earned is based on various metrics approved by the HRCC. These metrics may change from year to year. For 2021, the President and Chief Executive Officer and the other executive officers were each assigned Bank Goals and Individual Goals with different weight allocations. The Bank Goals consisted of achieving three financial targets: ROA of 1.25%, return on equity (“ROE”) of 13.50% and an efficiency ratio of 51.00%. The Individual Goals were customized to each individual’s respective responsibilities. For the President and Chief Executive Officer and the other executive officers the weight allocation was 70% in Bank Goals and 30% in Individual Goals. In 2021, our ROA was 1.83%, ROE was 18.90%, and the efficiency ratio was 46.55%. Based on the Bank and Individual performance, the HRCC determined that Ms. Kim should receive a bonus amount of $550,000, equal to 110% of her annual base salary for 2021, Ms. Oh should receive $112,000, equal to 45% of her annual base salary for 2021, Mr. Oh should receive $112,000, equal to 45% of his annual base salary for 2021, and Mr. Bang should receive $105,000, equal to 44% of his annual base salary for 2021. For 2020, the President and Chief Executive Officer and the other executive officers were each assigned Bank Goals and Individual Goals with different weight allocations. The Bank Goals consisted of achieving three financial targets: ROA of 1.00%, ROE of 8.90% and an efficiency ratio of 60.78%. The Individual Goals were customized to each individual’s respective responsibilities. For the President and Chief Executive Officer and the other executive officers the weight allocation was 70% in Bank Goals and 30% in Individual Goals. In 2020, our ROA was 1.03%, ROE was 9.35%, and the efficiency ratio was 56.90%. Based on the Bank and Individual performance, the HRCC determined that Ms. Kim should receive a bonus amount of $510,000, equal to 103% of her annual base salary for 2020, and Ms. Oh should receive $130,000, equal to 46% of her annual base salary for 2020. Benefits and Other Perquisites The named executive officers are eligible to participate in the same benefit plans designed for all of our full-time employees, including health, dental, vision, disability and basic group life insurance coverage. We also provide our employees, including our named executive officers, with various retirement benefits. Our retirement plans are designed to assist our employees in planning for retirement and securing appropriate levels of income during retirement. The purpose of our retirement plans is to attract and retain quality employees, including executives, by offering benefit plans similar to those typically offered by our competitors. Open Bank Employee’s 401(k) Plan . The Open Bank Employee’s 401(k) Plan is designed to provide retirement benefits to all eligible full-time and part-time employees of the Company and its subsidiary. The 401(k) Plan provides employees with the opportunity to save for retirement on a tax-favored basis. Named executive officers, all of whom were 95 eligible during 2021, may elect to participate in the 401(k) Plan on the same basis as all other employees. Employees may defer 1% to 100% of their compensation to the 401(k) Plan up to the applicable IRS limit. We currently match employee contributions on the first 6% of employee compensation ($1 for each $1). The Company match is contributed in the form of cash and is invested according to the employee’s current investment allocation. No discretionary profit sharing contribution was made to the 401(k) Plan for 2021 or 2020. Company Owned Life Insurance or COLI Policies . In 2014, the Company purchased single premium COLI Policies for certain executives and senior officers of the Company and to use the income from the COLI Policies to offset benefit expenses. Further, the Company benefits from any future death benefits paid out under these COLI Policies. The Company entered into arrangements with certain executive and senior officers to pay their beneficiaries a death benefit. The amount of the arrangement for executive officers was equal to 20% of the net amount of insurance, and for senior officers between 10% and 15% of the net amount of insurance. If the officer or director retires or is terminated, the arrangement terminates. Health and Welfare Benefits . Our named executive officers are eligible to participate in our standard health and welfare benefits program, which offers medical, dental, vision, life, accident, and disability coverage to all of our eligible employees. We do not provide the named executive officers with any health and welfare benefits that are not generally available to our other employees. Perquisites . We provide our named executive officers with certain perquisites that we believe are reasonable and consistent with our overall compensation program to better enable us to attract and retain superior employees for key positions. The HRCC periodically reviews the levels of perquisites and other personal benefits provided to named executive officers. Based on this periodic review, perquisites are awarded or adjusted on an individual basis. The perquisites received by our named executive officers in 2021 included a cell phone allowance. Executive Change in Control Plan In connection with our initial public offering, our Board of Directors adopted an Executive Change in Control Plan, or Severance Plan. Participants in the Severance Plan are selected by the HRCC and the Board of Directors. Our Chief Executive Officer is not eligible to participate in the Severance Plan. If a participant in the Severance Plan is terminated without cause or resigns for a “good reason” within a determined period of time before or following a “change in control”, the participant will be paid an individually determined severance amount and benefits. Upon termination of the participant’s employment in a manner that results in severance to the participant under the Severance Plan, the participant agrees not to solicit employees and not solicit customers to terminate their relationships with the Company for a period of one year. Ms. Christine Oh is a participant in the Severance Plan. If she is terminated without cause within six months before or 12 months after a change in control (the “change in control period”) or she resigns for good reason during the change in control period, she would be entitled to 150% her base salary and the Company will pay her COBRA health insurance premiums for 12 months. The terms “cause,” “change in control” and “good reason” have substantially the same meanings as provided in Ms. Min J. Kim’s employment agreement, as described above. Equity Based Plans 2021 Equity Incentive Plan On June 24, 2021, the shareholders of Open Bank approved the 2021 Equity Incentive Plan (the “2021 Plan”). The purpose of the 2021 Plan is to advance the interest of the Company and its shareholders by providing an incentive to attract, retain and reward key employees, officers, and non-employee directors of the Company and the Bank. The 2021 Plan authorized up to 1,500,000 shares of the Company's common stock for issuance of equity awards including stock options and restricted stock units. Option exercise prices are the fair market value of the underlying stock as of the grant date. Restricted stock units are valued at the fair market value on the date of grant. As of December 31, 2021, 176,641 restricted stock units at an average issue price of $ 9.90 were outstanding. There were no stock options granted under the 2021 Plan. As of December 31, 2021, 1,323,207 shares were available for future grants in either stock options or restricted stock awards under the 2021 Plan. 96 2010 Equity Incentive Plan On August 19, 2010, the shareholders of Open Bank approved the 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan was amended by the Board and shareholders of Open Bank in 2013 to increase the number of authorized shares for issuance from 1,350,000 shares to 2,500,000 shares of common stock. In June 2016, OP Bancorp assumed the 2010 Plan in connection with the formation of the bank holding company. The shares of common stock are authorized and reserved for issuance for equity awards including stock options and restricted stock units. Option exercise prices are the fair market value of the underlying stock as of the grant date. Restricted stock units are valued at the fair market value on the date of grant. As of December 31, 2021, we had options outstanding to purchase a total of 210,000 shares of our common stock under the 2010 Plan, at an average exercise price of $8.00 per share, and 21,000 restricted stock units at an average issue price of $7.95 were outstanding. The 2010 Plan expired in August 2020 and no future grants can be made under the 2010 Plan. 2005 Director and Employee Stock Option Plan On February 10, 2005, the Board of Directors of Open Bank adopted and on December 21, 2005 shareholders of Open Bank approved the Director and Employee Stock Option Plan (the “2005 Plan”). In June 2016, OP Bancorp assumed the 2005 Plan in connection with the formation of the bank holding company. The 2005 Plan provided for the issuance of up to 770,000 shares of common stock. Option exercise prices were the fair market value of the underlying stock as of the grant date. Options granted to employees vest at the rate of 20% per year. The 2005 Plan expired in February of 2015 and no future grants can be made under the 2005 Plan. As of December 31, 2021, the Company had options outstanding to purchase a total of 52,000 shares of common stock under the 2005 Plan, at an average exercise price of $6.37 per share. Outstanding Equity Awards The following table provides information for each of our named executive officers regarding outstanding stock awards held by the officers as of December 31, 2021. Option Awards Stock Awards Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested (#) (1) Market Value of Shares or Units of Stock That Have Not Vested ($) (2) Min J. Kim 210,000 — $ 8.00 4/1/2024 64,219 $ 819,434 Christine Y. Oh — — — — — $ — Sang K. Oh — — — — 45,000 $ 574,200 Ihnsuk J. Bang — — — — 45,000 $ 574,200 (1) This column represents the unvested restricted stock units granted. With regard to 64,219 restricted stock units for Ms. Kim, restricted stock units vest 1/3rd per year from the date of grant of June 24, 2021, subject to continuing service. With regard to 45,000 restricted stock units for Mr. Oh and 45,000 restricted stock units for Mr. Bang, restricted stock units vest 1/5th per year from the date of grant of June 24, 2021, subject to continuing service. (2) The market value of the shares of restricted stock units that have not vested is calculated by multiplying the number of shares of stock underlying the restricted stock units that have not vested by the closing price of our common stock at December 31, 2021. 97 Director Compensation The following table sets forth compensation paid or awarded to, or earned by, each of our directors (except for Min J. Kim, whose compensation is disclosed under “—Summary Compensation Table”) during 2021. Officers do not earn additional compensation for director service. Name Fees Earned or Paid in Cash ($) (1) Stock Awards (2) Total Brian Choi $ 84,000 $ 41,996 $ 125,996 Ernest E. Dow $ 60,000 $ 29,997 $ 89,997 Jason Hwang $ 60,000 $ 29,997 $ 89,997 Soo Hun Jung, M.D. $ 60,000 $ 29,997 $ 89,997 Ock Hee Kim $ 60,000 $ 29,997 $ 89,997 Myung Ja (Susan) Park $ 60,000 $ 29,997 $ 89,997 Yong Sin Shin $ 60,000 $ 29,997 $ 89,997 (1) Excludes reimbursement for traveling and other expenses and stock-based expenses relating to equity awards granted in prior years under our equity plans. (2) On June 24, 2021, the Company granted an aggregate 22,422 shares of stock awards to directors (excluding Ms. Kim). The grant date fair value was based on the number of shares granted and the closing price of the Company's stock on the grant date, which was $9.90. The Company paid fees to the non-officer directors for attendance at Board of Directors and Board of Directors’ committee meetings or for performing other services in connection with operation of the Company. The Chairman of the Board received $7,000 per month and all other directors received $5,000 per month. Directors receive reimbursement for their out-of-pocket expenses incurred in connection with their duties as directors, including their attendance at director meetings. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Beneficial Ownership of Common Stock The following table sets forth information as of December 31, 2021, pertaining to beneficial ownership of the Company’s common stock by persons known to the Company to own 5% or more of the Company’s common stock, nominees to be elected to the Board of Directors, the executive officers named in the Summary Compensation Table presented in this proxy statement, and all directors and executive officers of the Company, as a group. This information has been obtained from the Company’s records, or from information furnished directly by the individual or entity to the Company. 98 For purposes of the following table, shares issuable pursuant to stock options which may be exercised within 60 days of December 31, 2021, are deemed to be issued and outstanding and have been treated as outstanding in determining the amount and nature of beneficial ownership and in calculating the percentage of ownership of those individuals possessing such interest, but not for any other individuals. Name of Beneficial Owner (1) Shares Beneficially Owned (2) (3) Percent of Class (3) Directors and Executive Officers: Brian Choi 962,800 6.36 % Ernest E. Dow 240,844 1.59 % Jason Hwang 148,055 0.98 % Soo Hun Jung, M.D. 229,438 1.52 % Ock Hee Kim 514,935 3.40 % Myung Ja (Susan) Park 51,659 0.34 % Yong Sin Shin 478,000 3.16 % Min J. Kim 599,642 (4) 3.91 % Christine Y. Oh 127,778 0.84 % Sang K. Oh — — % Ihnsuk J. Bang 2,000 0.01 % All directors and executive officers as a group (13 individuals) 3,456,991 (5) 22.47 % EJF Capital LLC 859,130 (6) 5.68 % Manulife Financial Corporation 887,671 (7) 5.86 % (1) Except as otherwise noted, the address for all persons is c/o OP Bancorp, 1000 Wilshire Boulevard, Suite 500, Los Angeles, California 90017. (2) Subject to applicable community property laws and shared voting and investment power with a spouse, the persons listed have sole voting and investment power with respect to such shares unless otherwise noted. (3) Includes shares beneficially owned (including options exercisable and restricted stock units vesting within 60 days of December 31, 2021). (4) Consists of 389,642 shares held by Ms. Kim individually, 210,000 shares that are subject to options that are currently exercisable or are exercisable within 60 days of December 31, 2021. (5) Includes 250,000 shares that are subject to options that are currently exercisable or are exercisable within 60 days of December 31, 2021. (6) Represents the number of common shares beneficially owned by EJF Sidecar Series LLC - Small Financial Equities Series ("EJF Sidecar Series SFE"), EJF Capital LLC and Emanuel J. Friedman. EJF Sidecar Series LLC - Small Financial Equities Series ("EJF Sidecar Series SFE") is the record and direct beneficial owner of 859,130 shares. EJF Capital LLC is the managing member of EJF Sidecar Series SFE, and the investment manager of an affiliate thereof, and may be deemed to share beneficial ownership of the shares of Common Stock of which EJF Sidecar Series SFE is the record owner. Emanuel J. Friedman is the controlling member of EJF Capital LLC and may be deemed to share beneficial ownership of the shares of Common Stock over which EJF Capital LLC may share beneficial ownership. The address for each of EJF Sidecar Series SFE, EJF Capital LLC and Emanuel J. Friedman is 2107 Wilson Boulevard, Suite 410, Arlington, VA 22201. The foregoing information has been obtained from the shareholder's Schedule 13G filed with the SEC on November 5, 2018. (7) Represents the number of common shares beneficially owned by Manulife Financial Corporation (“MFC”) and MFC’s indirect, wholly-owned subsidiaries, Manulife Investments (US) LLC (“MIM (US)”) and Manulife Investment Management Limited (“MIML”). The address of MFC and MIMIL is 200 Bloor Street East, Toronto, Ontario, Canada, M4W 1E5 and the address of MIM (US) is 197 Clarendon Street, Boston, Massachusetts 02116. The foregoing information has been obtained from the shareholder’s Schedule 13G filed with the SEC on February 14, 2022. 99 The following table summarizes our equity compensation plans as of December 31, 2021: Securities Authorized for Issuance Under Equity Compensation Plans Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in Column (a) (c) Equity compensation plans approved by security holders 459,641 $ 8.54 1,323,207 Equity compensation plans not approved by security holders — — — Total 459,641 $ 8.54 1,323,207 Item 13. Certain Relationships and Related Transactions, and Director Independence. Policy and Procedures Regarding Related Party Transactions Our Board of Directors has adopted a written Statement of Policy with Respect to Related Party Transactions. Under this policy, any “related party transaction” may be consummated or may continue only if the Audit Committee approves or ratifies the transaction in accordance with the guidelines in the policy and if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party. For purposes of this policy, a “related person” means: (i) any person who is, or at any time since the beginning of the Company’s last fiscal year was, a director or executive officer of the Company or a nominee to become a director of the Company; (ii) any person who is known to be the beneficial owner of more than 5% of any class of the Company’s voting securities; (iii) any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the director, executive officer, nominee or more than 5% beneficial owner, and any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee or more than 5% beneficial owner; and (iv) any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner, principal or in a similar position, or in which such person has a 10% or greater beneficial ownership interest. A “related party transaction” is a transaction in which the Company or its subsidiary is a participant and in which a related person had or will have a direct or indirect interest, other than transactions involving: (i) less than $5,000 when aggregated with all similar transactions; (ii) customary bank deposits and accounts (including certificates of deposit); and (iii) loans and commitments to lend included in such transactions that are made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with other persons of similar creditworthiness, and do not involve more than the normal risk of collectability or present other unfavorable features to the Company. A related party who has a position or relationship with a firm, corporation, or other entity that engaged in a transaction with the Company shall not be deemed to have an indirect material interest within the meaning of this policy where the interest in the transaction arises only: (i) from such related party’s position as a director of another corporation or organization that is party to the transaction; (ii) from the direct or indirect ownership by the related party of less than a 10% equity interest in another person (other than a partnership) which is a party to the transaction; or (iii) from the related party’s position as a limited partner in a partnership in which the related party has an interest of less than 10%, and the related party is not a general partner of and does not hold another position in the partnership. The Board of Directors has determined that the Audit Committee is best suited to review and approve related party transactions. The Committee considers all of the relevant facts and circumstances available to the Committee, including (if applicable) but not limited to: (i) the benefits to the Company; (ii) the impact on a director’s independence in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, 100 shareholder or executive officer; (iii) the availability of other sources for comparable products or services; (iv) the terms of the transaction; and (v) the terms available to unrelated third parties or to employees generally. No member of the Audit Committee may participate in any review, consideration or approval of any related person transaction with respect to which such member or any of his or her immediate family members is the related person. The Committee will approve only those related person transactions that are in, or are not inconsistent with, the best interests of the Company and its shareholders, as the Committee determines in good faith. The Audit Committee will convey its decision to the Board of Directors. The Chief Executive Officer will convey the decision to the appropriate persons within the Company. Ordinary Banking Relationships Certain of our officers, directors and principal shareholders, as well as their immediate family members and affiliates, are customers of, or have or have had transactions with us in the ordinary course of business. These transactions include deposits, loans and other financial services related transactions. Related party transactions are made in the ordinary course of business, on substantially the same terms, including interest rates and collateral (where applicable), as those prevailing at the time for comparable transactions with persons not related to us, and do not involve more than normal risk of collectability or present other features unfavorable to us. Any loans we originate with officers, directors and principal shareholders, as well as their immediate family members and affiliates, are approved by our Board of Directors in accordance with the bank regulatory requirements As of December 31, 2021, our officers and directors as well as their immediate families and affiliated companies, taken as a group, were not indebted directly or indirectly to us, while deposits from this group totaled $ 1.2 million as of such date. We expect to continue to enter into transactions in the ordinary course of business on similar terms with our officers, directors and principal shareholders, as well as their immediate family members and affiliates. Open Stewardship Foundation In 2011, the Open Stewardship Foundation, a non-profit organization, was created to actively support civic organizations, schools and other eligible charitable non-profit organizations that provide public benefit services in the communities we serve. We have committed to fund the Foundation in an amount equal to 10% of our consolidated annual income after taxes each year. We also permit the Foundation to use our premises for activities on behalf of non-profit organizations. This commitment is included in our annual operating budget each year and the Board of Directors and management believe that such activities have benefited us through stronger and expanded business relationships within the Korean-American community. Since inception, we have donated over $6.1 million to the Foundation, aiding over 190 local non-profits. The Foundation’s Board of Directors is comprised of five of our directors, Brian Choi, Ernest E. Dow, Min J. Kim, Ock Hee Kim, and Myung Ja (Susan) Park. Our Chief Financial Officer serves as the president of the Foundation. Our directors and officers receive no additional compensation for their service at the Foundation. The Board of Directors of the Foundation maintains a selection committee that is responsible for reviewing and recommending grant applications from local nonprofits. The selection committee has four members annually selected by the Foundation Board of Directors, which is traditionally comprised of Min J. Kim and three customers of Open Bank. We do not control the Foundation’s activities, and accordingly, we do not consolidate the financial statements of the Foundation. Other Related Party Transactions Other than the compensation arrangements with directors and executive officers described in “Executive Compensation” and the ordinary banking relationships described above, none of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or their immediate family members or entities affiliated with them, had or will have a direct or indirect material interest, in any transactions to which we have been a party. 101 Item 14. Principal Accounting Fees and Services. The following table summarizes the aggregate fees billed to the Company by its independent auditor: Category of Services Fiscal Year 2021 Fiscal Year 2020 Audit fees (1) $ 452,279 $ 410,717 Audit-related fees — — Tax fees (2) 39,350 52,367 All other fees — — Total accounting fees $ 491,629 $ 463,084 (1) Audit fees relate to professional services rendered in connection with the audit of the Company’s annual financial statements, quarterly review of financial statements included in the Company’s Quarterly Reports on Form 10-Q, and audit services provided in connection with other statutory and regulatory filings. (2) Tax fees were related to tax services provided to Company, including annual Federal and State tax return, quarterly tax estimates, and any assistance, review, or resolution of tax notice. The ratio of Tax fees and All other fees to Total accounting fees was 8.0% for 2021 and 11.3% for 2020. In considering the nature of the services provided by the independent registered public accounting firm, the Audit Committee determined that such services are compatible with the provision of independent audit services. The Audit Committee discussed these services with the independent registered public accounting firm and Company management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC and the Public Company Accounting Oversight Board. 102 PART IV Item 15. Exhibits, Financial Statement Schedules. (a)(1) Financial Statements : The financial statements listed under Part II-Item 8. “Financial Statements and Supplementary Data” are filed as part of this Item 15 of this 10-K. (a)(2) Financial Statement Schedules : All financial statement schedules have been omitted as such the required information is not applicable or has been included in the Financial Statements and related notes. (a)(3) List of Exhibits : The exhibits required by Item 601 of Regulation S-K are included under Item 15(b) below. (b) Exhibits Exhibit Number Description 3.1 Articles of Incorporation of OP Bancorp (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 3.2 Amended and Restated Bylaws of OP Bancorp (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 3.3 First Amendment to the Amended and Restated Bylaws of OP Bancorp (incorporated herein by reference to Exhibit 3.3 to the Registrant’s Annual Report on Form 10-K (File No. 001-38437) filed on March 15, 2021) 4.1 Specimen common stock certificate of OP Bancorp (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 4.2 Description of Securities Registered under Section 12 of Securities Exchange Act of 1934, as amended (incorporated herein by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K (File No. 001-38437) filed on March 16, 2020) 10.1* Employment Agreement, dated November 1, 2017, between OP Bancorp and Min J. Kim (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.2* Employment Offer Letter, dated June 10, 2010, from First Standard Bank to Christine Oh (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.3* Employment Offer Letter, dated September 9, 2013, from First Standard Bank to Ki Won Yoon (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.4* Employment Offer Letter, dated April 27, 2010, from First Standard Bank to Kathrine Duncan (incorporated herein by reference to Exhibit 10.5 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.5* 2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.6 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.6* First Amendment to the 2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.7 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.7* Form of Stock Option Award under the 2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.8 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.8* Form of Restricted Stock Unit Agreement under the 2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.9 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.9* 2005 Director and Employee Stock Option Plan (incorporated herein by reference to Exhibit 10.10 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.10* Form of Stock Option Award under the 2005 Director and Employee Stock Option Plan (incorporated herein by reference to Exhibit 10.11 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 103 10.11* OP Bancorp 2017 Management Incentive Plan (incorporated herein by reference to Exhibit 10.12 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.12* OP Bancorp Change in Control Severance Plan (incorporated herein by reference to Exhibit 10.13 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.13* Form of Indemnification Agreement entered into with all of the directors and executive officers of OP Bancorp (incorporated herein by reference to Exhibit 10.14 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.14 Coexistence Agreement with Open Bank S.A. (incorporated herein by reference to Exhibit 10.15 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.15* Employment Offer Letter, dated September 24, 2020, from Open Bank to Sang Kyo Oh (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38437) filed on October 1, 2020) 10.16 Asset Purchase Agreement, dated January 28, 2021, by and between Open Bank and Hana Small Business Asset Lending, Inc. (incorporated herein by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K/A (File No. 001-38437) filed on February 5, 2021) 10.17* Employment Offer Letter, dated September 18 , 2020, from Open Bank to Ihnsuk J . Bang 10.18* Addendum to Employee Agreement, dated June 24, 2021, between OP Bancorp, Open Bank and Min J. Kim (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38437) filed on June 25, 2021) 10.19* 2021 Equity Incentive Plan (incorporated herein by reference to Exhibit 4.6 to the Registrant’s Form S-8 Registration Statement (Registration No. 333-257362) filed on June 24, 2021 10.20* Form of Restricted Stock Unit Agreement under the OP Bancorp 2021 Equity Incentive Plan 21.1 Subsidiaries of OP Bancorp (incorporated herein by reference to Exhibit 21.1 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 23.1 Consent of Crowe LLP 24.1 Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K) 31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document __________________ * Indicates management contract or compensatory plan or arrangement Item 16. Form 10-K Summary. None. 104 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized . OP Bancorp Date: March 18, 2022 By: /s/ MIN J. KIM Min J. Kim President and Chief Executive Officer POWER OF ATTORNEY AND SIGNATURES KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints each of Min J. Kim and Christine Y. Oh, his or her attorney-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Signature/Name Title Date /s/ MIN J. KIM President and Chief Executive Officer March 18, 2022 Min J. Kim /s/ CHRISTINE Y. OH Executive Vice President & Chief Financial Officer March 18, 2022 Christine Y. Oh /s/ BRIAN CHOI Director March 18, 2022 Brian Choi /s/ ERNEST E. DOW Director March 18, 2022 Ernest E. Dow /s/ JASON HWANG Director March 18, 2022 Jason Hwang /s/ SOO HUN JUNG Director March 18, 2022 Soo Hun Jung /s/ OCK HEE KIM Director March 18, 2022 Ock Hee Kim /s/ MYUNG JA (SUSAN) PARK Director March 18, 2022 Myung Ja (Susan) Park /s/ YONG SIN SHIN Director March 18, 2022 Yong Sin Shin 105 Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCA OB ID Number 173 ) F- 1 Consolidated Balance Sheets at December 31, 2021 , and 20 20 F- 2 Consolidated Statements of Income for the Years Ended December 31, 2021, 2020 , and 2019 F- 3 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, 2020 , and 2019 F- 4 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2021, 2020 , and 2019 F- 5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 , and 2019 F- 6 Notes to Consolidated Financial Statements for the Years Ended December 31, 2021, 2020 , and 2019 F- 7 Report of Independent Registered Public Accounting Firm Shareholders and the Board of Directors of OP Bancorp and subsidiary Los Angeles, California Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of OP Bancorp and subsidiary (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Crowe LLP We have served as the Company's auditor since 2010. Costa Mesa, California March 18, 2022 F-1 OP BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS ($ in thousands, except share data) December 31, 2021 2020 ASSETS Cash and cash equivalents $ 115,459 $ 106,310 Available-for-sale debt securities, at fair value 150,444 91,791 Other investments 10,999 10,101 Loans held for sale 89,428 26,659 Loans receivable, net of allowance of $ 16,123 in 2021 and $ 15,352 in 2020 1,297,896 1,084,384 Premises and equipment, net 4,355 4,544 Accrued interest receivable, net of allowance of $ 205 in 2021 and $ 643 in 2020 4,579 3,985 Servicing assets 12,720 7,360 Company owned life insurance 11,134 10,879 Deferred tax assets, net 8,409 5,242 Operating right-of-use assets 8,905 6,786 Other assets 12,363 8,785 Total assets $ 1,726,691 $ 1,366,826 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities Deposits: Noninterest bearing $ 774,754 $ 522,754 Interest bearing: Money market and others 380,226 328,323 Time deposits greater than $250,000 207,288 200,210 Other time deposits 171,798 148,803 Total deposits 1,534,066 1,200,090 Federal Home Loan Bank advances — 5,000 Accrued interest payable 558 1,021 Operating lease liabilities 10,307 8,429 Other liabilities 16,538 8,920 Total liabilities 1,561,469 1,223,460 Shareholders’ equity Preferred stock – no par value; 10,000,000 shares authorized; no shares issued or outstanding in 2021 and 2020 — — Common stock – no par value; 50,000,000 shares authorized; 15,137,808 and 15,016,700 shares issued and outstanding in 2021 and 2020, respectively 78,718 78,657 Additional paid-in capital 8,645 8,521 Retained earnings 79,056 55,348 Accumulated other comprehensive (loss) income ( 1,197 ) 840 Total shareholders’ equity 165,222 143,366 Total liabilities and shareholders' equity $ 1,726,691 $ 1,366,826 See accompanying notes to consolidated financial statements F-2 OP BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME ($ in thousands, except per share data) Year Ended December 31, 2021 2020 2019 INTEREST INCOME Interest and fees on loans $ 62,448 $ 51,829 $ 55,720 Interest on available-for-sale debt securities 1,085 1,177 1,353 Other interest income 625 650 1,706 Total interest income 64,158 53,656 58,779 Interest expense Interest on deposits 3,132 8,292 14,507 Total interest expense 3,132 8,292 14,507 Net interest income 61,026 45,364 44,272 Provision for loan losses 522 5,961 1,102 Net interest income after provision for loan losses 60,504 39,403 43,170 NONINTEREST INCOME Service charges on deposits 1,562 1,431 2,015 Loan servicing fees, net of amortization 1,953 1,856 1,186 Gain on sale of loans 11,313 6,092 5,905 Other income 1,189 1,392 2,320 Total noninterest income 16,017 10,771 11,426 NONINTEREST EXPENSE Salaries and employee benefits 21,253 20,041 20,267 Occupancy and equipment 5,213 4,974 4,648 Data processing and communication 2,000 1,682 1,530 Professional fees 1,192 1,101 980 FDIC insurance and regulatory assessments 583 449 259 Promotion and advertising 684 467 806 Directors’ fees 593 700 908 Foundation donation and other contributions 2,890 1,335 1,586 Other expenses 1,457 1,191 1,536 Total noninterest expense 35,865 31,940 32,520 INCOME BEFORE INCOME TAX EXPENSE 40,656 18,234 22,076 Income tax expense 11,816 5,107 5,319 NET INCOME $ 28,840 $ 13,127 $ 16,757 EARNINGS PER SHARE - BASIC $ 1.89 $ 0.85 $ 1.04 EARNINGS PER SHARE - DILUTED $ 1.88 $ 0.85 $ 1.03 See accompanying notes to consolidated financial statements F-3 OP BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ($ in thousands) Year Ended December 31, 2021 2020 2019 NET INCOME $ 28,840 $ 13,127 $ 16,757 Other comprehensive (loss) income: Change in unrealized gains (losses) on available-for-sale debt securities ( 2,891 ) 925 1,045 Tax effect 854 ( 273 ) ( 309 ) Total other comprehensive (loss) income ( 2,037 ) 652 736 COMPREHENSIVE INCOME $ 26,803 $ 13,779 $ 17,493 See accompanying notes to consolidated financial statements. F-4 OP BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY ($ in thousands, except shares) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Shares Outstanding Amount Balance at January 1, 2019 15,860,306 $ 91,209 $ 6,249 $ 32,877 $ ( 548 ) $ 129,787 Net income — — — 16,757 — 16,757 Other comprehensive income — — — — 736 736 Stock issued under stock-based compensation plans 425,489 563 — — — 563 Stock-based compensation, net — — 1,275 — — 1,275 Repurchase of common stock ( 582,519 ) ( 5,391 ) — — — ( 5,391 ) Cash dividends declared ($ 0.20 per share) — — — ( 3,151 ) — ( 3,151 ) Balance at December 31, 2019 15,703,276 $ 86,381 $ 7,524 $ 46,483 $ 188 $ 140,576 Balance at January 1, 2020 15,703,276 $ 86,381 $ 7,524 $ 46,483 $ 188 $ 140,576 Net income — — — 13,127 — 13,127 Other comprehensive income — — — — 652 652 Stock issued under stock-based compensation plans 298,591 380 — — — 380 Stock-based compensation, net — — 997 — — 997 Repurchase of common stock ( 985,167 ) ( 8,104 ) — — — ( 8,104 ) Cash dividends declared ($ 0.28 per share) — — — ( 4,262 ) — ( 4,262 ) Balance at December 31, 2020 15,016,700 $ 78,657 $ 8,521 $ 55,348 $ 840 $ 143,366 Balance at January 1, 2021 15,016,700 $ 78,657 $ 8,521 $ 55,348 $ 840 $ 143,366 Net income — — — 28,840 — 28,840 Other comprehensive loss — — — — ( 2,037 ) ( 2,037 ) Stock issued under stock-based compensation plans 124,938 89 — — — 89 Stock-based compensation, net — — 124 — — 124 Repurchase of common stock ( 3,830 ) ( 28 ) — — — ( 28 ) Cash dividends declared ($ 0.34 per share) — — — ( 5,132 ) — ( 5,132 ) Balance at December 31, 2021 15,137,808 $ 78,718 $ 8,645 $ 79,056 $ ( 1,197 ) $ 165,222 See accompanying notes to consolidated financial statements F-5 OP BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, ($ in thousands) 2021 2020 2019 Cash flows from operating activities Net income $ 28,840 $ 13,127 $ 16,757 Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities: Provision for loan losses 522 5,961 1,102 Depreciation and amortization of premises and equipment 1,314 1,301 1,146 Amortization of net premiums on securities 882 587 248 Amortization of servicing assets 3,536 1,737 2,084 Accretion of loan discounts ( 4,847 ) ( 1,978 ) ( 2,518 ) Amortization of low income housing partnerships 522 262 223 Stock-based compensation 558 1,102 1,470 Deferred income taxes ( 2,312 ) ( 2,326 ) 174 Gain on sales of loans ( 11,313 ) ( 6,092 ) ( 5,905 ) Gain on sales of other assets — ( 213 ) — Earnings on company owned life insurance ( 255 ) ( 261 ) ( 1,512 ) Net change in fair value of equity investment with readily determinable fair value 108 ( 79 ) ( 140 ) Origination of loans held for sale ( 177,042 ) ( 111,015 ) ( 89,778 ) Proceeds from sales of loans held for sale 122,520 92,448 92,213 Net change in: Accrued interest receivable 242 ( 1,462 ) ( 98 ) Other assets 5,793 2,531 2,707 Accrued interest payable ( 463 ) ( 1,665 ) 971 Other liabilities 3,117 1,184 ( 164 ) Net cash provided by (used in) operating activities ( 28,278 ) ( 4,851 ) 18,980 Cash flows from investing activities Net change in loans receivable ( 123,069 ) ( 109,470 ) ( 115,767 ) Proceeds from matured, called, or paid-down securities available for sale 35,941 30,321 14,549 Proceeds from company owned life insurance — — 2,288 Purchase of loans and servicing assets ( 97,631 ) — — Purchase of securities available for sale ( 98,368 ) ( 65,226 ) ( 14,964 ) Purchase of equity investments — — ( 1,000 ) Purchase of Federal Home Loan Bank stock ( 963 ) ( 685 ) ( 776 ) Purchase of premises and equipment, net ( 1,125 ) ( 619 ) ( 1,739 ) Investment in low income housing partnerships ( 829 ) ( 1,389 ) ( 622 ) Net cash used in investing activities ( 286,044 ) ( 147,068 ) ( 118,031 ) Cash flows from financing activities Net change in deposits 333,976 179,379 115,535 Cash received from stock option exercises 89 380 563 Proceeds from Federal Home Loan Bank advances — 10,000 — Repayment of Federal Home Loan Bank advances ( 5,000 ) ( 5,000 ) — Repurchase of common stock ( 28 ) ( 8,104 ) ( 5,391 ) Cash dividend paid on common stock ( 5,132 ) ( 4,262 ) ( 3,151 ) Payments related to tax-withholding for vested restricted stock awards ( 434 ) ( 107 ) ( 196 ) Net cash provided by financing activities 323,471 172,286 107,360 Net change in cash and cash equivalents 9,149 20,367 8,309 Cash and cash equivalents at beginning of period 106,310 85,943 77,634 F-6 Cash and cash equivalents at end of period $ 115,459 $ 106,310 $ 85,943 Supplemental cash flow information Cash paid during the period for: Income taxes $ 10,778 $ 6,125 $ 4,205 Interest $ 3,595 $ 9,957 $ 13,535 Supplemental noncash disclosure: Initial recognition of right-of-use assets $ 3,708 $ — $ 8,254 New commitments to low income housing partnership investments $ 3,500 $ 3,477 $ — See accompanying notes to consolidated financial statements F-7 OP BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies Business Description: OP Bancorp is a California corporation that was formed to acquire 100 % of the voting equity of Open Bank (the “Bank”) and commenced operation as a bank holding company on June 1, 2016. This transaction was treated as an internal reorganization as all shareholders of the Bank became shareholders of OP Bancorp. OP Bancorp has no operations other than ownership of the Bank. The Bank is a California state-chartered and FDIC-insured financial institution, which began its operations on June 10, 2005. Headquartered in downtown Los Angeles, California, OP Bancorp operates primarily in the traditional banking business arena that includes accepting deposits and making loans and investments. OP Bancorp’s primary deposit products are demand and time deposits, and the primary lending products are commercial business loans to small to medium sized businesses. OP Bancorp is operating with nine full-service branches. Basis of Presentation: The consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Use of Estimates: To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The COVID-19 pandemic has created economic and financial disruptions that could adversely affect our business, financial condition, and results of operations. Even as efforts to contain the pandemic, including vaccinations, have made progress and some restrictions have relaxed, the extent to which the COVID-19 pandemic may impact the accuracy of our significant estimates, including the allowance for loan losses, is highly uncertain and cannot be predicted at this time. Concentration of Risk: Most of the Company’s customers are located within Los Angeles County and the surrounding area. The concentration of loans originated in this area may subject the Company to the risk of adverse impacts of economic, regulatory or other developments that could occur in Southern California. The Company has significant concentration in commercial real estate loans. The Company obtains what it believes to be sufficient collateral to secure potential losses. The extent and value of the collateral obtained varies based upon the details underlying each loan agreement. Cash Flows: Cash and cash equivalents include cash, deposits with other financial institutions with original maturities less than 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions and Federal Home Loan Bank advances transactions. Asset Purchase : On May 24, 2021, the Company completed the purchase of loan portfolio from Hana Small Business Lending, Inc. ("Hana") and paid approximately $ 97.6 million that included loans of $ 100.0 million at a fair value discount of $ 8.9 million, servicing assets of $ 6.1 million and accrued interest receivable of $ 398 thousand. The following table summarizes the consideration paid for the loan portfolio and the amounts of assets purchased: ($ in thousands) Consideration Cash $ 97,631 Recognized amounts of identifiable assets purchased: Loans (1) $ 100,003 Loan discounts ( 8,867 ) Accrued interest receivable 398 Servicing assets 6,097 Total recognized identifiable assets $ 97,631 (1) Consists of $ 92.2 million of SBA loans, $ 6.9 million of PPP loans and $ 919 thousand of real estate loans. The Company follows the guidance in Accounting Standards Codification (“ASC”) 805, Business Combination , for determining the appropriate accounting treatment for acquisition. Accounting Standards Update (“ASU”) 2017-01, F-7 Business Combinations (Topic 805) Clarifying the Definition of a Business , provides an initial fair value screen to determine if substantially all of the fair value of the assets acquired is concentrated in a single asset or group of similar assets. If the initial test is met, the assets acquired would not represent a business combination, but rather an asset acquisition. If the transaction is deemed to be an asset acquisition, the cost accumulation and allocation model is used in which the cost of the acquisition is allocated on a relative fair value basis to the assets acquired. The Company concluded that the Hana transaction did not qualify as a business combination and was accounted for as an asset acquisition in accordance with the “Acquisition of Assets Rather Than a Business” subsections of ASC 805-50 using a cost accumulation model. The Company records purchased performing loans in the Hana transaction at fair value including a discount and recognizes discount accretion using the contractual cash flow method. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans in accordance with the provisions of ASC 310-20, Nonrefundable Fees and Other Costs. There was no allowance for loan losses established as of June 30, 2021 for the purchased performing loans in the Hana transaction. A provision for loan losses is recorded for any further deterioration in these loans subsequent to the acquisition. Securities: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available-for-sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments. Gains and losses on sales are recorded on the trade date and determined using the specific identification method. Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement, and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. Other investments: Other investments includes the followings : (i) Federal Home Loan Bank (“FHLB”) Stock - the Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income; (ii) Pacific Coast Bankers Bank (“PCBB”) Stock - the Bank is a member of PCBB. PCBB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income; and (iii) the Company’s investment in a mutual fund to satisfy the Company’s requirements under the Community Reinvestment Act (“CRA”). CRA mutual fund is reported at fair value. Unrealized gains and losses on a CRA fund are recognized in other income in the Consolidated Statements of Income. Loans Held for Sale: Certain Small Business Administration (“SBA”) loans that may be sold prior to maturity are designated as held for sale at origination and are recorded at the lower of their cost or fair value less costs to sell, determined on an aggregate basis. A valuation allowance is established if the market value of such loans is lower than their cost, and operations are charged or credited for valuation adjustments. Origination fees on loans held for sale, net of certain costs of processing and closing the loans, are deferred until the time of sale and are included in the computation of the gain or loss from the sales of the related loans. A portion of the premium on sale of SBA loans is recognized as gains on sales of loans at the time of the sale. These loans are generally sold with servicing retained. Loans Receivable: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating F-8 prepayments. The recorded investment in loans includes accrued interest receivable, deferred loan fees and costs, and unearned income. The accrual of interest income on commercial real estate and other commercial and industrial loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer loans are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. All interest accrued but not received for loans placed on nonaccrual status is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that in management’s judgment should be charged off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial real estate and construction loans. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Income recognition on impaired loans materially conforms to the method the Company uses for income recognition on nonaccrual loans. Allowance for impaired loans is determined based on the present value of the estimated cash flows or on the fair value of the collateral if the loan is collateral dependent, less costs to sell. If the measured fair value is less than the recorded investment in the loan, the deficiency will be charged off against the allowance for loan losses, or alternatively, a specific allocation will be established. For consumer loans, management will generally charge off the balance if the loan is 90 days or more past due. The general component of the allowance covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent two years. For those portfolio segments that the Company does not have sufficient historical data available to track the loss migration, the loss factors are based on the actual loss history experienced by the Company over the most recent five years. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and F-9 recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified in the Company’s loan portfolio, and are also representative of the classes within the portfolio: commercial real estate, SBA loans—real estate, SBA loans—non-real estate, commercial and industrial, home mortgage, and consumer. The Company reviews the credit risk exposure of all its portfolio segments by internally assigned grades. The Company categorizes loans into risk grades based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. For the home mortgage and consumer portfolio segments, the Company’s primary monitoring tool is reviewing past due listings to determine if the loans are performing. The determination of the allowance for loan losses is based on estimates that are particularly susceptible to changes in the economic environment and market conditions. Servicing Assets: When SBA loans are sold with servicing retained, servicing assets are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, prepayment speeds, and default rates and losses. The Company compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. Servicing assets are subsequently measured using the amortization method which requires servicing assets to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Servicing assets are evaluated for impairment based upon the fair value of the assets as compared to their carrying amount. Impairment is recognized through a valuation allowance to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the valuation allowance may be recorded as an increase to income. Changes in the valuation allowances are reported with other income on the income statement. The fair values of servicing rights are subject to fluctuations as a result of changes in estimated and actual prepayment speeds, default rates, and losses. Servicing fee income, which is reported on the income statement as other income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal and are recorded as income when earned. The amortization of servicing assets is netted against loan servicing fee income. Late fees and ancillary fees related to loan servicing are not material. Company Owned Life Insurance: The Company has purchased life insurance policies on certain key executives. Company owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Premises and Equipment: Premises and equipment are stated at cost, less accumulated depreciation. Equipment and furnishings are depreciated over 3 to 10 years, and leasehold improvements are amortized over the lesser of the terms of the respective leases or the estimated useful lives. The straight-line method of depreciation is used for financial reporting purposes. Repairs and maintenance are charged to operating expenses as incurred. Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. F-10 Low Income Housing Partnership Investments: The Company records the low income housing partnership investments, net of amortization, using the proportional amortization method and the Company reports it to other assets on the Consolidated Balance Sheets. The Company recognizes tax credits in income tax expense on the Consolidated Statement of Income. The commitments to fund the low income housing partnership investments are also recorded and included to other liabilities on the Consolidated Balance Sheets. The Company utilizes the year to date tax credits on the Company’s income tax returns for the year. Stock-Based Compensation: Compensation cost is recognized for stock options and restricted stock awards issued to employees based on the fair value of the awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of the grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Earnings per Common Share: Basic and diluted earnings per share is based on the two-class method prescribed in ASC Topic 260, Earnings Per Share (ASC 260). Stock options and restricted stock awards are considered outstanding for this calculation unless unearned. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock-based compensation plans. Earnings and dividends per share are restated for all stock splits and stock dividends through the date of issuance of the financial statements. Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. There were no interest or penalties recognized in the years ended December 31, 2021 or 2020. Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on available-for-sale ("AFS") debt securities, which are also recognized as separate components of shareholders’ equity, net of tax. Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements. Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 13—Fair Value of Financial Instruments. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates. Operating Segments: While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Discrete financial information is not available other than on a Company-wide basis. New Accounting Pronouncements Adopted in 2021: During the year ended December 31, 2021, there were no significant accounting pronouncements applicable to the Company that became effective. F-11 Recent Accounting Pronouncements Not Yet Effective: In June 2016, Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The objective of ASU 2016-13 is to provide financial statement users with decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit. ASU 2016-13 includes provisions that require financial assets measured at amortized cost (such as loans and held-to-maturity debt securities) to be presented at the net amount expected to be collected. This will be accomplished through recognition of an estimate of all current expected credit losses. The estimate will include forecasted information for the timeframe that an entity is able to develop reasonable and supportable forecasts. This is a change from the current practice of recognizing incurred losses based on the probable initial recognition threshold under current GAAP. In addition, credit losses on available-for-sale (“AFS”) debt securities will be recorded through an allowance for credit losses rather than as a write-down recognized in other comprehensive income (loss). Under ASU 2016-13, an entity will be able to record reversals of credit losses in current period income when the estimate of credit losses declines, whereas current GAAP prohibits reflecting those improvements in current period earnings. In July 2019, the FASB proposed the effective date delay to January 2020 for SEC filers, excluding smaller reporting companies (“SRCs”) and emerging growth companies (“EGCs”), and January 2023 for all other entities including SRCs and EGCs, and in October 2019, the FASB voted to approve the proposed delay. The Company expects the adoption date of ASU 2016-13 will be January 2023. ASU 2016-13 will be applied using a modified retrospective approach through a cumulative effect adjustment to retained earnings, except for debt securities that an other-than-temporary impairment had been previously recognized will be applied using the prospective transition approach. The Company is currently evaluating the effects of ASU 2016-13 on its Consolidated Financial Statements and disclosures, including software solutions, data requirements and loss estimation methodologies. The company has engaged a third-party advisor to develop a new expected loss model. While the effects cannot yet be quantified, the Company expects ASU 2016-13 to add complexity and costs to its current credit loss evaluation process. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU is a new accounting standard related to contracts or hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or other reference rates that are expected to be discontinued. The new standard provides temporary optional expedients and exceptions regarding existing accounting requirements related to contractual modifications of contracts, hedging relationships, and other transactions that are affected by reference rate reform. In January 2021, the FASB issued ASU 2021-01, as subsequent amendments, which permits entities to apply optional expedients in Topic 848 to derivative instruments modified because of discounting transition resulting from referent rate reform. ASU 2020-04 became effective upon issuance and may be applied prospectively to contract modifications made on or before December 31, 2022. ASU 2021-01 became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or subsequent to March 12, 2020 or prospectively for contract modifications made on or before December 31, 2022. The Company adopted this guidance on a prospective basis in January 2021 and the guidance did not have a material impact on the Company’s Consolidated Financial Statements. The Company will assess the impact in conjunction with the reference rate transition as it occurs. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This amendment simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The effective date will be January 2023. The Company does not expect the adoption of this guidance will be material to its Consolidated Financial Statements. F-12 Note 2 . Securities The following table summarizes the amortized cost, the corresponding amounts of gross unrealized gains and losses, and estimated fair value of AFS debt securities as of December 31, 2021 and 2020: December 31, 2021 ($ in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 37,555 $ 178 $ ( 321 ) $ 37,412 Residential collateralized mortgage obligations 114,588 253 ( 1,809 ) 113,032 Total AFS debt securities $ 152,143 $ 431 $ ( 2,130 ) $ 150,444 December 31, 2020 ($ in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Government-sponsored agency securities $ 1,000 $ 5 $ — $ 1,005 U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities 19,281 430 ( 7 ) 19,704 Residential collateralized mortgage obligations 70,318 814 ( 50 ) 71,082 Total AFS debt securities $ 90,599 $ 1,249 $ ( 57 ) $ 91,791 There were no sales of AFS debt securities during the years ended December 31, 2021 and 2020. The amortized cost and estimated fair value of AFS debt securities at December 31, 2021, by contractual maturity, are shown below: ($ in thousands) Amortized Cost Fair Value After one year through five years $ 1,122 $ 1,159 After five years through ten years 3,143 3,221 After ten years 147,878 146,064 Total AFS debt securities $ 152,143 $ 150,444 Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At December 31, 2021 and 2020, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity. F-13 The following table presents the fair value and the associated gross unrealized losses on AFS debt securities by length of time those individual securities in each category have been in a continuous loss at December 31, 2021 and 2020: December 31, 2021 Less Than 12 Months 12 Months or Longer Total ($ in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 31,120 $ ( 321 ) $ — $ — $ 31,120 $ ( 321 ) Residential collateralized mortgage obligations 93,607 ( 1,578 ) 7,212 ( 231 ) 100,819 ( 1,809 ) Total AFS debt securities $ 124,727 $ ( 1,899 ) $ 7,212 $ ( 231 ) $ 131,939 $ ( 2,130 ) December 31, 2020 Less Than 12 Months 12 Months or Longer Total ($ in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 3,089 $ ( 7 ) $ — $ — $ 3,089 $ ( 7 ) Residential collateralized mortgage obligations 13,593 ( 50 ) — — 13,593 ( 50 ) Total AFS debt securities $ 16,682 $ ( 57 ) $ — $ — $ 16,682 $ ( 57 ) Management evaluates securities for other-than-temporary impairment (“OTTI”) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, along with the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or whether it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components, as follows: (i) OTTI related to credit loss, which must be recognized in the income statement, and (ii) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. The unrealized losses were primarily attributable to interest rate movement, not credit quality. These securities (Fannie Mae, Ginnie Mae, and Freddie Mac) are guaranteed or sponsored by agencies of the U.S. government, and the issuers of the securities are of high credit quality. The Company believes that the gross unrealized losses presented in the previous tables are temporary and no credit losses are expected. As a result, the Company expects full collection of the carrying amount of these securities, does not intend to sell the securities in an unrealized loss position, and it was more-likely-than-not the Company will not have to sell these securities prior to recovery of amortized cost. Accordingly, the Company does not consider these securities to be OTTI as of December 31, 2021. As of December 31, 2021 or 2020, there were no pledged securities to secure public deposits, borrowing and letters of credit from FHLB and the Board of Governors of the Federal Reserve System (“FRB”), and for other purposes required or permitted by law. F-14 The following table presents the other investment securities, which are included in Other investments on the Consolidated Balance Sheets as of December 31, 2021 and 2020: ($ in thousands) December 31, 2021 December 31, 2020 FHLB stock $ 7,006 $ 6,043 PCBB stock 190 190 Mutual fund - CRA qualified 3,708 3,773 Time deposits placed in other banks 95 95 Total other investments $ 10,999 $ 10,101 The Company has equity investment in a mutual fund with readily determinable fair value of $ 3.7 million and $ 3.8 million, as of December 31, 2021 or 2020, respectively, which is measured at fair value with changes in fair value recorded in net income. The Company invested in the mutual fund for CRA purposes. For the mutual fund, the Company recorded a $ 108 thousand unrealized loss and a $ 79 thousand unrealized gain for the years ended December 31, 2021 and 2020, respectively. The unrealized gains (losses) of the mutual fund are included in Other income in the statements of income. Note 3. Loans and Allowance for Loan Losses The following table presents the composition of the loan portfolio as of December 31, 2021 and 2020: ($ in thousands) December 31, 2021 December 31, 2020 Commercial real estate $ 701,450 $ 651,684 SBA loans—real estate 220,099 136,224 SBA loans—non-real estate (1) 55,759 75,151 Commercial and industrial ("C&I") 162,543 107,307 Home mortgage 173,303 128,212 Consumer 865 1,158 Gross loans receivable 1,314,019 1,099,736 Allowance for loan losses ( 16,123 ) ( 15,352 ) Loans receivable, net (2) $ 1,297,896 $ 1,084,384 (1) As of December 31, 2021 and 2020, SBA loans - non-real estate balances include SBA Paycheck Protection Program ("PPP") loans of $ 40.6 million and $ 64.9 million, respectively. (2) Includes net deferred loan fees or costs, unamortized premiums and unaccreted discounts of $( 7.0 ) million and $( 5.9 ) million as of December 31, 2021 and 2020, respectively. No loans were outstanding to related parties as of December 31, 2021 or 2020. F-15 The following table summarizes the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2021, 2020, and 2019: ($ in thousands) Commercial Real Estate SBA Loans— Real Estate SBA Loan s— Non- Real Estate C&I Home Mortgage Consumer Total Balance at January 1, 2019 $ 4,805 $ 894 $ 505 $ 1,746 $ 1,653 $ 33 $ 9,636 Provision for (reversal of) loan losses (1) 1,195 734 ( 384 ) ( 457 ) 14 — 1,102 Charge-offs — ( 689 ) — — — — ( 689 ) Recoveries — — — — — 1 1 Balance at December 31, 2019 $ 6,000 $ 939 $ 121 $ 1,289 $ 1,667 $ 34 $ 10,050 Provision for (reversal of) loan losses (1) 2,505 863 174 1,274 518 ( 16 ) 5,318 Charge-offs — — ( 45 ) — — — ( 45 ) Recoveries — — 28 — — 1 29 Balance at December 31, 2020 $ 8,505 $ 1,802 $ 278 $ 2,563 $ 2,185 $ 19 $ 15,352 (Reversal of) provision for loan losses (1) ( 355 ) 279 54 285 706 ( 10 ) 959 Charge-offs — ( 59 ) ( 136 ) — — — ( 195 ) Recoveries — — 3 — — 4 7 Balance at December 31, 2021 $ 8,150 $ 2,022 $ 199 $ 2,848 $ 2,891 $ 13 $ 16,123 (1) Excludes provision for (reversal of) uncollectible accrued interest receivable of $ 205 thousand and $ 643 thousand for the years ended December 31, 2021, and 2020, respectively. There was no provision for uncollectible accrued interest receivable for the year ended December 31, 2019. F-16 The following table presents the allowance for loan losses and recorded investment (not including accrued interest receivable) by portfolio segment and impairment methodology as of December 31, 2021 and 2020: ($ in thousands) Individually Evaluated for Impairment Collectively Evaluated for Impairment Total As of December 31, 2021 Allowance for loan losses (1): Commercial real estate $ — $ 8,150 $ 8,150 SBA loans—real estate — 2,022 2,022 SBA loans—non-real estate — 199 199 C&I 312 2,536 2,848 Home mortgage — 2,891 2,891 Consumer — 13 13 Total $ 312 $ 15,811 $ 16,123 Loans (2): Commercial real estate $ — $ 701,450 $ 701,450 SBA loans—real estate 812 219,287 220,099 SBA loans—non-real estate — 55,759 55,759 C&I 312 162,231 162,543 Home mortgage — 173,303 173,303 Consumer — 865 865 Total $ 1,124 $ 1,312,895 $ 1,314,019 As of December 31, 2020 Allowance for loan losses (1): Commercial real estate $ — $ 8,505 $ 8,505 SBA loans—real estate — 1,802 1,802 SBA loans—non-real estate 87 191 278 C&I 330 2,233 2,563 Home mortgage — 2,185 2,185 Consumer — 19 19 Total $ 417 $ 14,935 $ 15,352 Loans (2): Commercial real estate $ — $ 651,684 $ 651,684 SBA loans—real estate — 136,224 136,224 SBA loans—non-real estate 174 74,977 75,151 C&I 330 106,977 107,307 Home mortgage — 128,212 128,212 Consumer — 1,158 1,158 Total $ 504 $ 1,099,232 $ 1,099,736 (1) Excludes allowance for uncollectible accrued interest receivable of $ 205 thousand and $ 643 thousand as of December 31, 2021, and 2020, respectively. (2) Excludes accrued interest receivables of $ 4.4 million and $ 4.4 million as of December 31, 2021, and 2020, respectively. F-17 The following table presents the recorded investment of individually impaired loans and the specific allowance for loan losses as of December 31, 2021 and 2020: December 31, 2021 (1) December 31, 2020 (1) ($ in thousands) Unpaid Principal Balance Recorded Investment With No Allowance Recorded Investment With Allowance Related Allowance Unpaid Principal Balance Recorded Investment With No Allowance Recorded Investment With Allowance Related Allowance SBA loans—real estate $ 812 $ 812 $ — $ — $ — $ — $ — $ — SBA loans—non-real estate — — — — 174 — 174 87 C&I 313 — 313 313 330 — 330 330 Total $ 1,125 $ 812 $ 313 $ 313 $ 504 $ — $ 504 $ 417 (1) The difference between the unpaid principal balance (net of partial charge-offs) and the recorded investment in the loans was not considered to be material. F-18 The following table presents the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans by portfolio segment for the years ended December 31, 2021, 2020, and 2019. The difference between interest income recognized and cash basis interest recognized was immaterial. ($ in thousands) Average Recorded Investment Interest Income Recognized 2021 SBA loans—real estate $ 597 $ — Commercial and industrial 322 — Total $ 919 $ — 2020 SBA loans—non-real estate $ 182 $ 41 C&I 331 14 Total $ 513 $ 55 2019 SBA loans—real estate $ 503 $ — SBA loans—non-real estate 45 — C&I 338 20 Total $ 886 $ 20 The following table presents the recorded investment in nonaccrual loans and loans past due 90 or more days and still accruing interest, by portfolio as of December 31, 2021 and 2020: ($ in thousands) Nonaccrual 90 or More Days Past Due & Still Accruing Total As of December 31, 2021 SBA loans—real estate $ 812 $ — $ 812 SBA loans—non-real estate 837 200 1,037 Commercial and industrial 313 — 313 Home mortgage 1,038 — 1,038 Total $ 3,000 $ 200 $ 3,200 As of December 31, 2020 SBA loans—real estate $ 56 $ — $ 56 SBA loans—non-real estate 330 — 330 Home mortgage 599 — 599 Total $ 985 $ — $ 985 Nonaccrual loans and loans past due 90 or more days and still accruing interest include both homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. F-19 The following table represents the aging analysis of the recorded investment in past due loans at December 31, 2021 and 2020: ($ in thousands) 30-59 Days Past Due 60-89 Days Past Due > 90 Days Past Due Total Past Due Loans Not Past Due Total (1) As of December 31, 2021 Commercial real estate $ — $ — $ — $ — $ 701,450 $ 701,450 SBA—real estate — — 419 419 219,680 220,099 SBA—non-real estate 76 336 881 1,293 54,466 55,759 C&I — — — — 162,543 162,543 Home mortgage — — 893 893 172,410 173,303 Consumer — — — — 865 865 Total $ 76 $ 336 $ 2,193 $ 2,605 $ 1,311,414 $ 1,314,019 As of December 31, 2020 Commercial real estate $ — $ — $ — $ — $ 651,684 $ 651,684 SBA—real estate — — — — 136,224 136,224 SBA—non-real estate — — — — 75,151 75,151 C&I — — — — 107,307 107,307 Home mortgage — — 599 599 127,613 128,212 Consumer — — — — 1,158 1,158 Total $ — $ — $ 599 $ 599 $ 1,099,137 $ 1,099,736 (1) Excludes accrued interest receivables of $ 4.4 million and $ 4.4 million as of December 31, 2021, and 2020, respectively. Troubled Debt Restructurings : When, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession for other than an insignificant period of time to a borrower that the Company would not otherwise consider, the related loan is classified as a troubled debt restructuring (“TDR”), the balance of which totaled $ 313 thousand and $ 333 thousand as of December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, the Company has allocated $ 313 thousand and $ 333 thousand of specific reserves to the loans classified as TDRs, respectively. The Company has not committed to lend any additional amounts to customers with outstanding loans that are classified as TDRs. Modifications made were primarily extensions of existing payment modifications on loans previously identified as TDRs. There were no new loans identified as TDRs during the years ended December 31, 2021, 2020, or 2019. There were no payment defaults during the years ended December 31, 2021, 2020, or 2019 of loans that had been modified as TDRs within the previous twelve months. Loan Payment Deferrals: Through December 31, 2021, the Company has processed loan deferments for borrowers across multiple industries representing 226 loan accounts, with an aggregate loan balance of $ 250.8 million under the interagency guidance and Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). COVID-19 related modifications are generally not classified as TDRs due to the relief under the CARES Act and the interagency guidance, both of which the Company elected to apply. Additionally, the Company’s election to apply the TDR relief provided by the CARES Act and the interagency guidance impacts our regulatory capital ratios as these loan modifications related to COVID-19 are not adjusted to a higher risk-weighting normally required with TDR classification. Through December 31, 2021, 223 loans with an aggregate balance of $ 245.7 million, including 69 home mortgage loans with an aggregate balance of $ 30.2 million, have resumed regular payments. As of December 31, 2021, 3 loans with an aggregate balance of $ 5.0 million remain in deferments. F-20 The following table represents the loan deferment status change by loan type as of December 31, 2021: December 31, 2021 ($ in thousands) Total deferments under the CARES Act Payment resumed or paid off Remaining deferments Loan Type Number of Accounts Balance Number of Accounts Balance Number of Accounts Balance Loans, excluding home mortgage and consumer 157 $ 220,553 154 $ 215,509 3 $ 5,044 Home mortgage 69 30,205 69 30,205 — — Total 226 $ 250,758 223 $ 245,714 3 $ 5,044 Paycheck Protection Program loans : A provision in the CARES Act created the PPP, which is administered by the SBA. The PPP is intended to provide loans to small businesses to pay expenses related to their employees, rent, mortgage interest, and utilities. The loans may be forgiven conditioned upon the client providing applicable documentation evidencing their compliant with the terms of the program, including compliance regarding the use of funds. The Bank is an approved SBA lender and began accepting applications for the program on April 3, 2020. As of December 31, 2021, the Company had loans outstanding with a carrying value of $ 40.6 million, which were recorded in the SBA – non-real estate. Since the PPP’s inception through December 31, 2021, the Company has funded $ 154.5 million, and $ 118.7 million of principal forgiveness has been provided on qualifying PPP loans. Credit Quality Indicators : The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. For consumer loans, a credit grade is established at inception, and generally only adjusted based on performance. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings: Special Mention—Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date. Substandard—Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful—Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. F-21 As of December 31, 2021 and 2020, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: ($ in thousands) Pass Special Mention Substandard Doubtful Total (1) As of December 31, 2021 Commercial real estate $ 701,450 $ — $ — $ — $ 701,450 SBA loans—real estate 218,408 — 1,691 — 220,099 SBA loans—non-real estate 54,762 — 966 31 55,759 C&I 162,230 — 313 — 162,543 Home mortgage 172,265 — 1,038 — 173,303 Consumer 865 — — — 865 Total $ 1,309,980 $ — $ 4,008 $ 31 $ 1,314,019 As of December 31, 2020 Commercial real estate $ 651,684 $ — $ — $ — $ 651,684 SBA loans—real estate 134,166 535 1,523 — 136,224 SBA loans—non-real estate 74,953 — 198 — 75,151 C&I 102,302 — 5,005 — 107,307 Home mortgage 127,613 — 599 — 128,212 Consumer 1,158 — — — 1,158 Total $ 1,091,876 $ 535 $ 7,325 $ — $ 1,099,736 (1) Excludes accrued interest receivables of $ 4.4 million and $ 4.4 million as of December 31, 2021, and 2020, respectively. Note 4. Leases As a lessee, the Company enters into leases of buildings and our real estate leases primarily relate to bank branches and office space from nonaffiliated parties with remaining lease terms ranging from 1 to 10 years as of December 31, 2021. Certain lease arrangements contain extension option which are typically around 5 years. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. At December 31, 2021 and 2020 , operating right-of-use (“ROU”) assets were $ 8.9 million and $ 6.8 million, respectively, and related liabilities were $ 10.3 million and $ 8.4 million, respectively. Short-term operating leases, which are defined as leases with term of twelve months or less, were not recognized as ROU assets with related lease liabilities as permitted under ASU No. 2016-02. The lease payments on short-term operating leases are immaterial. The Company did not have any finance leases at December 31, 2021 and 2020 . Operating lease ROU assets represent the Company’s right to use the underlying asset during the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at least commencement based on the present value of the remaining lease payments using the Company’s incremental borrowing rate at the lease commencement date. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in occupancy expense in the consolidated statements of income. The Company’s occupancy expense also includes variable lease costs which is comprised of the Company's share of actual costs for utilities, common area maintenance, property taxes, and insurance that are not included in lease liabilities and are expensed as incurred. Variable lease costs can also include rent escalations based on changes to indices, such as the Consumer Price Index, where the Company estimates future rent increases and records the actual difference to variable costs. F-22 The table below summarizes total lease cost for the periods indicated : Year Ended December 31, ($ in thousands) 2021 2020 Operating lease cost $ 1,852 $ 1,769 Variable lease cost 739 774 Total lease cost $ 2,591 $ 2,543 The tables below summarize other information related to the Company’s operating leases as of the associated period: Year Ended December 31, ($ in thousands) 2021 2020 Operating right-of-use assets $ 8,905 $ 6,786 Operating lease liabilities $ 10,307 $ 8,429 Weighted average remaining lease term - operating leases 6.9 years 5.0 years Weighted average discount rate - operating leases 2.02 % 2.99 % Year Ended December 31, ($ in thousands) 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 2,082 $ 2,005 Rent expense was $ 2.6 million for each of the years ended December 31, 2021 and 2020, and $ 2.5 million for the year ended December 31, 2019. The table below summarizes the remaining contractually obligated lease payments and a reconciliation to the lease liability reported on the Consolidated Balance Sheets as of December 31, 2021: ($ in thousands) December 31, 2022 $ 2,180 2023 2,028 2024 1,920 2025 1,081 2026 1,424 Thereafter 4,275 Total lease payments 12,908 Discount to present value ( 2,601 ) Total lease liability $ 10,307 F-23 Note 5. Premises and equipment The following table presents information regarding the premises and equipment as of December 31, 2021 and 2020: As of December 31, ($ in thousands) 2021 2020 Leasehold improvements $ 7,375 $ 6,878 Furniture and fixtures 3,530 3,307 Equipment and others 2,955 2,593 Total premises and equipment 13,860 12,778 Accumulated depreciation ( 9,505 ) ( 8,234 ) Total premises and equipment, net $ 4,355 $ 4,544 Total depreciation expense included in occupancy and equipment expenses for the years ended December 31, 2021, 2020, and 2019, was $ 1.3 million, $ 1.3 million, and $ 1.1 million, respectively. Note 6. Servicing Assets The Company recognizes the right to service SBA loans for others as servicing assets when the servicing income the Company receives is more than adequate compensation. Servicing assets are accounted for using the amortization method. Under this method, the Company amortizes the servicing assets over the period of the economic life of the assets arising from estimated net servicing revenue. The Company periodically stratifies its servicing assets into groupings based on risk characteristics and assesses each group for impairment based on fair value. Based on the results of the impairment test, there was no valuation allowance for impairment as of both December 31, 2021 and 2020. The following table presents an analysis of the changes in activity for loan servicing assets during the years ended December 31, 2021 and 2020: Year Ended December 31, ($ in thousands) 2021 2020 Beginning balance $ 7,360 $ 7,024 Additions from loans sold with servicing retained 2,799 2,073 Additions from purchase of servicing rights 6,097 — Amortized to expense ( 3,536 ) ( 1,737 ) Ending balance $ 12,720 $ 7,360 The fair value of the servicing assets was $ 15.5 million at December 31, 2021, which was determined using discount rates ranging from 3.75 % to 10.00 % and prepayment speeds ranging from 14.6 % to 15.0 %, depending on the stratification of the specific assets. The fair value of the servicing assets was $ 9.1 million at December 31, 2020, which was determined using discount rates ranging from 1.75 % to 10.00 % and prepayment speeds ranging from 14.3 % to 15.1 % depending on the stratification of the specific assets. Note 7. Deposits Time deposits that exceed the FDIC insurance limit of $250 thousand at December 31, 2021 and 2020 were $ 207.3 million and $ 200.2 million, respectively. F-24 The following table presents the scheduled contractual maturities of time deposits at December 31, 2021: ($ in thousands) December 31, 2022 $ 370,910 2023 5,335 2024 1,662 2025 854 2026 and thereafter 325 Total $ 379,086 Deposits from principal officers, directors, and their affiliates at December 31, 2021 and December 31, 2020 were $ 1.2 million and $ 1.5 million, respectively. Note 8. Borrowing arrangements As of December 31, 2021, the Company had no borrowings from the FHLB of San Francisco, compared with $ 5.0 million as of December 31, 2020, which had a zero interest rate under the Recovery Advance Program to support pandemic relief. The Company has a letter of credit with the FHLB in the amount of $ 67.0 million to secure a public deposit as of both December 31, 2021 and 2020. The Company had available borrowings from the following institutions as of December 31, 2021: ($ in thousands) December 31, 2021 Federal Home Loan Bank—San Francisco $ 350,585 Federal Reserve Bank 141,639 Pacific Coast Bankers Bank 50,000 Zions Bank 25,000 First Horizon Bank 25,000 Total $ 592,224 The Company has pledged approximately $ 958.3 million and $ 909.2 million of loans as collateral for these lines of credit as of December 31, 2021 and 2020, respectively. Note 9. Income Taxes The following table presents the components of income taxes expense (benefit) for the years ended December 31, 2021, 2020 and 2019: Year Ended December 31, ($ in thousands) 2021 2020 2019 Current income tax expense: Federal $ 9,243 $ 4,837 $ 3,162 State 4,885 2,596 1,983 Total current income tax expense 14,128 7,433 5,145 Deferred income tax (benefit) expense: Federal ( 1,614 ) ( 1,516 ) 228 State ( 698 ) ( 810 ) ( 54 ) Total deferred income tax (benefit) expense ( 2,312 ) ( 2,326 ) 174 Total income tax expense $ 11,816 $ 5,107 $ 5,319 F-25 The following table presents a reconciliation of the applicable statutory U.S. federal income tax rate to the effective tax rate for the periods indicated: Year Ended December 31, 2021 2020 2019 Federal statutory income tax rate 21.0 % 21.0 % 21.0 % Increase (decrease) in tax rate resulting from: Meals and entertainment — % 0.2 % 0.2 % State income taxes, net of federal tax benefit 8.5 % 8.3 % 7.3 % Stock option expense and related excess tax benefits 0.1 % ( 0.7 ) % ( 1.9 ) % Company owned life insurance ( 0.1 ) % ( 0.3 ) % ( 1.4 ) % Other, net ( 0.4 ) % ( 0.5 ) % ( 1.0 ) % Effective tax rate 29.1 % 28.0 % 24.2 % The significant components of deferred tax assets and liabilities are reflected in the following table: December 31, ($ in thousands) 2021 2020 Deferred tax assets: Organizational costs $ 22 $ 25 Allowance for loan losses 4,827 4,717 Loans held for sale 2,919 695 Stock-based compensation 211 515 Accrued compensation 238 181 Lease liability 3,047 2,492 State taxes 1,059 586 Net unrealized loss on AFS debt securities 503 — Nonaccrual loan interest income 62 7 Other 49 23 Total deferred tax assets 12,937 9,241 Deferred tax liabilities: Loan origination costs ( 1,477 ) ( 1,110 ) Depreciation ( 379 ) ( 487 ) Right of use asset ( 2,633 ) ( 2,006 ) Net unrealized gain on AFS debt securities — ( 352 ) Other ( 39 ) ( 44 ) Total deferred tax liabilities ( 4,528 ) ( 3,999 ) Net deferred tax asset $ 8,409 $ 5,242 A valuation allowance for deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and tax planning strategies which will create taxable income during the periods in which those temporary differences become deductible. Management reevaluated all positive and negative evidence that existed and concluded all deferred tax assets are realizable. Therefore, no valuation allowance was necessary as of December 31, 2021 and 2020. The Company is subject to U.S. Federal income tax as well as various state taxing jurisdictions. The Company is no longer subject to examination by Federal taxing authorities for tax years prior to 2018 and for state taxing authorities for tax years prior to 2017. F-26 There were no significant unrealized tax benefits recorded as of December 31, 2021 and 2020, and the Company does not expect any significant increase in unrealized tax benefits in the next twelve months. Note 10. Commitments and Contingencies Off-Balance-Sheet Credit Risk : In the normal course of business, the Company enters into commitments to extend credit such as loan commitments and standby letters of credits (“SBLC”s). These commitments expose the Company to varying degrees of credit and market risk and are subject to the same credit and market risk limitation reviews as those instruments recorded on the Consolidated Balance Sheets. Loan commitments represent arrangements to lend funds or provide liquidity subject to specified contractual conditions. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These commitments generally have fixed expiration dates or contain termination clauses in the event the customer’s credit quality deteriorates. Since many of the commitments are expected to expire without being drawn upon, the commitment amounts do not necessarily represent future funding requirements. The Company applies the same credit underwriting criteria to extend loans and commitments to customers. Each customer’s credit worthiness is evaluated on a case-by-case basis. Collateral may be obtained based on management’s assessment of a customer’s credit. Collateral may include securities, accounts receivable, inventory, property, plant and equipment, and income producing commercial or other properties. The following table presents the distribution of undisbursed credit-related commitments as of December 31, 2021 and 2020: As of December 31, ($ in thousands) 2021 2020 Loan commitments $ 116,511 $ 75,740 Standby letter of credit 4,477 9,212 Commercial letter of credit 1,028 1,552 Total undisbursed credit related commitments $ 122,016 $ 86,504 The majority of these off-balance sheet commitments have a variable interest rate. Management does not anticipate any material losses as a result of these transactions. Investments in low-income housing partnership : The Company invests in qualified affordable housing partnerships. The following table shows the balance of the investments in low-income housing partnerships and the total unfunded commitments related to the investments in low-income housing partnerships as of December 31, 2021 and 2020: As of December 31, ($ in thousands) 2021 2020 Investments in low-income housing partnerships $ 7,911 $ 4,932 Unfunded commitments to fund investments for low-income housing partnerships $ 4,825 $ 2,154 These balances are reflected in the other assets and other liabilities lines on the Consolidated Balance Sheets. The Company expects to finish fulfilling these commitments during the year ending 2039. Under the proportional amortization method, the Company amortizes the initial cost of the investment in proportion to the tax credit and other benefits received and recognizes the amortization in income tax expense on the Consolidated Statements of Income. The Company recognized amortization expense of $ 522 thousand, $ 262 thousand and $ 223 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. Additionally, the Company recognized tax credits and other benefits from the investments in low-income housing partnerships of $ 651 thousand, $ 313 thousand and $ 257 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. F-27 Note 11. Stock-based Compensation The Company has three stock-based compensation plans currently in effect as of December 31, 2021, as described further below. Total compensation cost that has been charged against earnings for these plans in 2021, 2020, and 2019 was $ 558 thousand, $ 1.1 million, and $ 1.5 million, respectively. 2005 Plan : In 2005, the Board of Directors and shareholders of the Bank approved a stock option plan for the benefit of directors and employees of the Bank (the “2005 Plan”). The 2005 Plan was assumed by the Company in 2016 at the time of the bank holding company reorganization. Under the 2005 Plan, the Bank was authorized to grant options to purchase up to 770,000 shares of the Company’s common stock. The exercise prices of the options may not be less than 100 percent of the fair value of the Company’s common stock at the date of grant. The options, when granted, vest either immediately or ratably over five years from the date of the grant and expire after ten years if not exercised. The 2005 Plan expired in 2015 and no future grants can be made under the 2005 Plan. A summary of the transactions under the 2005 Plan for the year ended December 31, 2021 and 2020 is as follows: ($ in thousands, except share data) Number of Options Outstanding Weighted Average Exercise Price Aggregate Intrinsic Value Outstanding, as of January 1, 2021 100,000 $ 5.77 $ 195 Options granted — — Options exercised ( 48,000 ) 1.33 Options forfeited — — Options expired — — Outstanding, as of December 31, 2021 52,000 $ 6.37 $ 333 Fully vested and expected to vest 52,000 $ 6.37 $ 333 Vested 52,000 $ 6.37 $ 333 Information related to the 2005 Plan for the periods indicated follows: Year Ended December 31, ($ in thousands) 2021 2020 2019 Intrinsic value of options exercised $ 231 $ 370 $ 592 Cash received from option exercises $ 64 $ 63 $ 179 Tax benefit realized from option exercised $ 27 $ 17 $ 5 The weighted average remaining contractual term of stock options outstanding under the 2005 Plan at December 31, 2021 was 1.76 . The weighted average remaining contractual term of stock options that were exercisable at December 31, 2021 was 1.76 . All of the stock options that are outstanding under the 2005 Plan were fully vested as of December 31, 2021. 2010 Plan : In 2010, the Board of Directors of the Bank approved a new equity incentive plan for granting stock options and restricted stock awards to key employees, officers, and non-employee directors of the Bank (the “2010 Plan”). In 2013, the 2010 Plan was amended and approved by the shareholders to increase the number of shares authorized to be issued under from 1,350,000 shares to 2,500,000 shares of common stock. The 2010 Plan was assumed by the Company in 2016 at the time of the bank holding company reorganization. The exercise prices of stock options granted under the plan may not be less than 100 percent of the fair value of the Company’s stock at the date of grant. The options, when granted, vest ratably over five years from the date of the grant and expire after ten years if not exercised. There were no stock options granted under the 2010 Plan during 2021 or 2020. F-28 Restricted stock awards issued under the 2010 Plan may or may not be subject to vesting provisions. Awards which were granted in 2021 and 2020 vest at the end of three years or five years from the date of the grant. Owners of the restricted stock awards shall have all of the rights of a shareholder including the right to vote the shares and to all dividends (cash or stock). Compensation expense related to restricted stock awards will be recognized over the vesting period of the awards based on the fair value of the Company’s common stock at the issue date. A summary of the transactions under the 2010 Plan for the year ended December 31, 2021 and 2020 is as follows: ($ in thousands, except share data) Number of Options Outstanding Weighted Average Exercise Price Aggregate Intrinsic Value Outstanding, as of January 1, 2021 220,000 $ 7.75 $ 52 Options granted — — Options exercised ( 10,000 ) 2.53 Options forfeited — — Options expired — — Outstanding, as of December 31, 2021 210,000 $ 8.00 $ 1,000 Fully vested and expected to vest 210,000 $ 8.00 $ 1,000 Vested 210,000 $ 8.00 $ 1,000 Information related to stock options exercised under the 2010 Plan for the periods indicated follows: Year Ended December 31, ($ in thousands) 2021 2020 2019 Intrinsic value of options exercised $ 86 $ 729 $ 1,728 Cash received from option exercises $ 25 $ 317 $ 385 Tax benefit realized from option exercised $ — $ 157 $ 453 The weighted average remaining contractual term of stock options outstanding under the 2010 Plan at December 31, 2021 was 2.25 years. The weighted average remaining contractual term of stock options that were exercisable at December 31, 2021 was 2.25 years. Information related to non-vested restricted stock awards under the 2010 Plan for the periods indicated follows: Year Ended December 31, ($ in thousands) 2021 2020 2019 Tax (provision) benefit realized from awards vested $ ( 85 ) $ 21 $ 144 The 2010 Plan expired in August 2020 and no future grants can be made under the 2010 Plan. As of December 31, 2021, the Company had approximately $ 67 thousand of unrecognized compensation cost related to unvested stock options and restricted stock awards under the 2010 Plan. The Company expects to recognize these costs over a weighted average period of 2.18 years. 2021 Plan : In 2021, the Board of Directors of the Company approved a new equity incentive plan for granting stock options and restricted stock awards to key employees, officers, and non-employee directors of the Company and the Bank (the “2021 Plan”). The 2021 Plan was approved by the Company’s shareholders at the 2021 Annual Meeting. The number of shares authorized to be issued under the 2021 Plan was 1,500,000 shares of the Company’s common stock. The exercise prices of stock options granted under the plan may not be less than 100 % of the fair value of the Company’s stock at the date of grant. There were no stock options granted under the 2021 Plan during 2021. Restricted stock awards issued under the 2021 Plan may or may not be subject to vesting provisions. Owners of the restricted stock awards shall have all rights of a shareholder including the right to vote the shares and to all dividends F-29 (cash or stock). Compensation expense related to restricted stock awards will be recognized over the vesting period of the awards based on the fair value of the Company’s common stock at the issue date. A summary of the changes in the Company’s non-vested restricted stock awards under the 2021 Plan for the year ended December 31, 2021 is as follows: ($ in thousands, except share data) Shares Issued Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Non-vested, as of January 1, 2021 — $ — $ — Awards granted 176,793 9.90 Awards vested ( 152 ) 9.90 Awards forfeited — — Non-vested, as of December 31, 2021 176,641 $ 9.90 $ 2,254 No tax benefits or expenses were realized from restricted stock awards under the 2021 Plan for the year ended December 31, 2021. There were 1,323,207 shares available for future grants in either stock options or restricted stock awards under the 2021 Plan as of December 31, 2021. The Company had approximately $ 1.4 million of unrecognized compensation cost related to unvested restricted stock awards under the 2021 Plan as of December 31, 2021. The Company expects to recognize these costs over a weighted average period of 3.25 years. Note 12. Employee Benefit Plan The Company sponsors a defined contribution plan, 401(k) profit sharing plan (the “401(k) Plan”), designed to provide retirement benefits financed by participant contributions, as well as contributions from the Company. Employees are eligible to participate in the 401(k) Plan as of the first day of the first calendar month after the date they have completed three months of service with the Company and have attained the age of 18 . Each employee is allowed to contribute to the 401(k) Plan up to the maximum percentage allowable, not to exceed the limits of applicable IRS Code Sections. Each year, the Company may, in its discretion, make matching contributions to the 401(k) Plan. Total employer contributions to the 401(k) Plan amounted to $ 752 thousand, $ 691 thousand, and $ 602 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. Note 13. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability on the measurement date and is determined using an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Assets and liabilities recorded at fair value on a recurring basis, such as AFS securities and equity investments. Additionally, from time to time, the Company records fair value adjustments on a nonrecurring basis. These nonrecurring adjustments typically involve application of lower of cost or fair value accounting and write-downs of individual assets. The Company classifies its assets and liabilities recorded at fair value as one of the following three categories and a financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement: Level 1—Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2—Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3—Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. F-30 Assets and Liabilities Measured at Fair Value on a Recurring Basis Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy. Securities AFS : The fair values of investment securities are determined by matrix pricing, which is a mathematical technique used to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2). Management obtains the fair values of investment securities on a monthly basis from a third-party pricing service. Other Investment: The Company has equity investment with readily determinable fair value. The fair value for the equity investment with readily determinable fair value is obtained from unadjusted quoted prices in active markets on the date of measurement and classified as Level 1. Assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020 are summarized below: Fair Value Measure on a Recurring Basis ($ in thousands) Total Fair Value Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2021 U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 37,412 $ — $ 37,412 $ — Residential collateralized mortgage obligations $ 113,032 $ — $ 113,032 $ — Other investments: Mutual fund - CRA qualified $ 3,708 $ 3,708 $ — $ — December 31, 2020 U.S. Government sponsored agency securities $ 1,005 $ — $ 1,005 $ — U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 19,704 $ — $ 19,704 $ — Residential collateralized mortgage obligations $ 71,082 $ — $ 71,082 $ — Other investments: Mutual fund - CRA qualified $ 3,773 $ 3,773 $ — $ — There were no transfers of assets or liabilities between the Level 1 and Level 2 classifications during 2021 or 2020. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or fair value and write-downs of individual assets. Impaired Loans : The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s judgment, changes in market conditions from the time of F-31 the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the credit department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. The following table presents the fair value hierarchy and fair value of assets that were still held and had fair value adjustments measured on a nonrecurring basis as of December 31, 2021 and 2020: Fair Value Measure on a Nonrecurring Basis ($ in thousands) Total Fair Value Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2021 Impaired loans $ 814 $ — $ — $ 814 December 31, 2020 Impaired loans $ 87 $ — $ — $ 87 The following table presents the increase (decrease) in value of certain assets held at the end of the respective reporting periods presented for which a nonrecurring fair value adjustment was recognized during the period presented: December 31, ($ in thousands) 2021 2020 2019 Impaired loans $ 105 $ ( 84 ) $ 13 The following table presents information about significant unobservable inputs utilized in the Company’s nonrecurring Level 3 fair value measurements as of December 31, 2021 and 2020: ($ in thousands) Fair Value Measurements (Level 3) Valuation Techniques Unobservable Inputs Range of Inputs Weighted- Average of Inputs (1) December 31, 2021 Impaired loans: SBA loans—real estate $ 419 Market approach Market data comparison 2 % to 17 % 8.7 % SBA loans—real estate $ 395 Income approach - income capitalization Capitalization rate 12.0 % 12.0 % December 31, 2020 Impaired loans: SBA loans—non-real estate $ 25 Market approach Market data comparison ( 3.5 )% to 7.1 % 2.9 % (1) Weighted-average of inputs is based on the relative fair value of the respective assets as of December 31, 2021 and 2020. (2) Applying fair value adjustments on the impaired loan through the full specific reserve allowance of the loan carrying value resulted in a zero fair value balance as of December 31, 2021 and 2020. F-32 Financial Instruments : The carrying amounts and estimated fair values of financial instruments that are not carried at fair value on a recurring basis as of December 31, 2021 and 2020 are as follows. These financial assets and liabilities are measured at amortized cost basis on the Company’s Consolidated Balance Sheets: December 31, 2021 ($ in thousands) Carrying Amount Level 1 Level 2 Level 3 Value Financial Assets: Cash and cash equivalents $ 115,459 $ 115,459 $ — $ — $ 115,459 Loans held for sale $ 89,428 $ — $ 99,301 $ — $ 99,301 Loans receivable, net $ 1,297,896 $ — $ — $ 1,291,926 $ 1,291,926 Accrued interest receivable, net $ 4,579 $ — $ 348 $ 4,231 $ 4,579 Other investments: FHLB and PCBB stock $ 7,196 N/A N/A N/A N/A Time deposits placed $ 95 $ — $ 95 $ — $ 95 Servicing assets 12,720 15,505 $ 15,505 Financial Liabilities: Deposit $ 1,534,066 $ — $ 1,534,066 $ — $ 1,534,066 FHLB Advances $ — $ — $ — $ — $ — Accrued interest payable $ 558 $ — $ 558 $ — $ 558 December 31, 2020 ($ in thousands) Carrying Amount Level 1 Level 2 Level 3 Value Financial Assets: Cash and cash equivalents $ 106,310 $ 106,310 $ — $ — $ 106,310 Loans held for sale $ 26,659 $ — $ 26,659 $ — $ 26,659 Loans receivable, net $ 1,084,384 $ — $ — $ 1,109,217 $ 1,109,217 Accrued interest receivable, net $ 3,985 $ 7 $ 249 $ 3,729 $ 3,985 Other investments: FHLB and PCBB stock $ 6,233 N/A N/A N/A N/A Time deposits placed $ 95 $ — $ 95 $ — $ 95 Servicing assets $ 7,360 $ — $ — $ 9,106 $ 9,106 Financial Liabilities: Deposit $ 1,200,090 $ — $ 1,200,789 $ — $ 1,200,789 FHLB Advances $ 5,000 $ — $ 5,000 $ — $ 5,000 Accrued interest payable $ 1,021 $ — $ 1,021 $ — $ 1,021 The methods and assumptions, not previously presented, used to estimate fair value are described as follows: (a) Cash and Cash equivalents The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1. (b) Loans Held for Sale The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification. (c) Loans Receivable, Net Fair values of loans, excluding loans held for sale, are based on the exit price notion set forth by ASU 2016-01 effective January 1, 2018 and estimated using discounted cash flow analyses. The estimation of fair values of loans results in a Level 3 classification as it requires various assumptions and considerable judgement to incorporate factors relevant F-33 when selling loans to market participants, such as funding costs, return requirements of likely buyers and performance expectations of the loans given the current market environment and quality of loans. (d) Other Investments Fair value of CRA qualified mutual fund is readily determinable using quoted prices and is classified as Level 1. It is not practical to determine the fair value of FHLB and PCBB stock due to restrictions placed on their transferability. (e) Deposits The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 2 classification. The carrying amounts of variable rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date resulting in a Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification. (f) Federal Home Loan Bank Advances The fair values of Federal Home Loan Bank Advances are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements, resulting in a Level 2 classification. (g) Accrued Interest Receivable/Payable The carrying amounts of accrued interest approximate fair value and are classified within the same fair value hierarchy level as the related asset or liability. (h) Off-balance Sheet Instruments Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material. Note 14. Regulatory Capital Matters The Bank is subject to certain risk-based capital and leverage ratio requirements under the U.S. Basel III capital rules administered by the federal and state banking agencies. Failure to be well-capitalized or to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on the Company's operations or financial condition. The Basel III capital rules also require the Bank to maintain a capital conservation buffer of 2.5 % above the minimum risk-based capital ratios in order to absorb losses during periods of economic stress, effective January 1, 2019. Banking institutions with a ratio of common equity tier 1 capital to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends. equity repurchases and compensation based on the amount of the shortfall. Management believes that as of December 31, 2021 and 2020, the Bank met all capital adequacy requirements to which they are subject to. Based on recent changes to the Federal Reserve’s definition of a “Small Bank Holding Company” that increased the threshold to $3 billion in assets, the Company is not currently subject to separate minimum capital measurements. At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank. F-34 The following table presents the regulatory capital amounts and ratios for the Company and the Bank as of dates indicated: December 31, 2021 Actual (1) Required for Capital Adequacy Purposes Minimum To be Considered "Well Capitalized" ($ in thousands) Amount Ratio Amount Ratio Amount Ratio Total capital (to risk-weighted assets) Consolidated $ 182,439 13.66 % N/A N/A N/A N/A Bank $ 179,882 13.47 % $ 106,857 8.00 % $ 133,572 10.00 % Tier 1 capital (to risk-weighted assets) Consolidated $ 165,944 12.42 % N/A N/A N/A N/A Bank $ 163,387 12.23 % $ 80,143 6.00 % $ 106,857 8.00 % Common equity Tier 1 capital (to risk-weighted assets) Consolidated $ 165,944 12.42 % N/A N/A N/A N/A Bank $ 163,387 12.23 % $ 60,107 4.50 % $ 86,822 6.50 % Tier 1 capital (to average assets) Consolidated $ 165,944 9.58 % N/A N/A N/A N/A Bank $ 163,387 9.44 % $ 69,266 4.00 % $ 86,582 5.00 % (1) The capital requirements are only applicable to the Bank, and the Company's ratios are included for comparison purpose. December 31, 2020 Actual (1) Required for Capital Adequacy Purposes Minimum To be Considered "Well Capitalized" ($ in thousands) Amount Ratio Amount Ratio Amount Ratio Total capital (to risk-weighted assets) Consolidated $ 155,287 14.81 % N/A N/A N/A N/A Bank $ 152,232 14.52 % $ 83,859 8.00 % $ 104,824 10.00 % Tier 1 capital (to risk-weighted assets) Consolidated $ 142,147 13.56 % N/A N/A N/A N/A Bank $ 139,092 13.27 % $ 62,894 6.00 % $ 83,859 8.00 % Common equity Tier 1 capital (to risk-weighted assets) Consolidated $ 142,147 13.56 % N/A N/A N/A N/A Bank $ 139,092 13.27 % $ 47,171 4.50 % $ 68,136 6.50 % Tier 1 capital (to average assets) Consolidated $ 142,147 10.55 % N/A N/A N/A N/A Bank $ 139,092 10.32 % $ 53,915 4.00 % $ 67,393 5.00 % (1) The capital requirements are only applicable to the Bank, and the Company's ratios are included for comparison purpose. Note 15. Earnings per Share Basic EPS is calculated using the two-class method. Under the two-class method, all earnings (distributed and undistributed) are allocated to common stock and participating securities. The Company grants restricted stock awards, which entitle recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to dividends paid to holders of the Company's common stock. These restricted stock awards meet the definition of participating F-35 securities based on their respective rights to receive nonforfeitable dividends, and they are treated as a separate class of securities in computing basic EPS. Participating securities are not included as incremental shares in computing diluted EPS. Diluted EPS incorporates the potential impact of contingently issuable shares. Diluted EPS is calculated under both the two-class and treasury stock methods, and the more dilutive amount is reported. For each of the periods presented in the table below, diluted EPS calculated under two-class method was more dilutive. The following table presents the calculation of net income applicable to common stockholders and basic and diluted EPS for the years ended December 31, 2021, 2020 and 2019: Year Ended December 31, ($ in thousands, except share and per share data) 2021 2020 2019 Basic Net income $ 28,840 $ 13,127 $ 16,757 Undistributed earnings allocated to participating securities ( 330 ) ( 195 ) ( 383 ) Net income allocated to common shares $ 28,510 $ 12,932 $ 16,374 Weighted average common shares outstanding 15,087,686 15,196,351 15,741,926 Basic earnings per common share $ 1.89 $ 0.85 $ 1.04 Diluted Net income allocated to common shares $ 28,510 $ 12,932 $ 16,374 Weighted average common shares outstanding for basic earnings per common share 15,087,686 15,196,351 15,741,926 Add: Dilutive effects of assumed exercises of stock options 67,661 27,537 193,388 Average shares and dilutive potential common shares 15,155,347 15,223,888 15,935,314 Diluted earnings per common share $ 1.88 $ 0.85 $ 1.03 No share of common stock was antidilutive for the year ended December 31, 2021 and 2019. For the year ended December 31, 2020, anti-dilutive stock options for 212,000 shares of common stock were excluded from the diluted EPS computation. Note 16. Parent Company Condensed Financial Statements The following tables present the Parent Company-only condensed financial statements: Condensed Balance Sheets December 31, ($ in thousands) 2021 2020 Assets Cash and cash equivalents $ 2,431 $ 3,468 Investment in bank subsidiary 162,666 140,311 Deferred tax assets 22 25 Other assets 136 9 Total assets $ 165,255 $ 143,813 Liabilities and Shareholders' Equity Other liabilities $ 33 $ 447 Shareholders’ equity 165,222 143,366 Total liabilities and shareholders' equity $ 165,255 $ 143,813 F-36 Condensed Statements of Income and Comprehensive Income Year Ended December 31, ($ in thousands) 2021 2020 2019 Income Dividends from bank subsidiary $ 5,123 $ 13,921 $ 11,390 Expense Salaries and employee benefits 226 325 785 Occupancy and equipment 65 74 110 FDIC insurance and regulatory assessments 8 1 — Directors’ fees 135 527 — Other expense 169 120 116 Total expense 603 1,047 1,011 Income before income tax benefit and undistributed net income of bank subsidiary 4,520 12,874 10,379 Income tax benefit 141 275 288 Equity in undistributed net income (loss) of bank subsidiary 24,178 ( 22 ) 6,090 Net income 28,839 13,127 16,757 Other comprehensive (loss) income, net of tax ( 2,037 ) 652 736 Comprehensive income $ 26,802 $ 13,779 $ 17,493 Condensed Statements of Cash Flows Year Ended December 31, ($ in thousands) 2021 2020 2019 Cash flows from operating activities Net income $ 28,839 $ 13,127 $ 16,757 Adjustments: Equity in undistributed net loss of bank subsidiary ( 29,301 ) ( 13,899 ) ( 17,480 ) Change in other assets ( 124 ) 107 6 Change in other liabilities ( 414 ) 359 88 Net cash used in operating activities ( 1,000 ) ( 306 ) ( 629 ) Cash flows from investing activities Net cash from investing activities — — — Cash flows from financing activities Repurchase of common stock ( 28 ) ( 8,104 ) ( 5,391 ) Cash dividend paid on common stock ( 5,132 ) ( 4,262 ) ( 3,151 ) Proceeds from subsidiaries 5,123 13,921 11,390 Net cash (used in) provided by financing activities ( 37 ) 1,555 2,848 Net change in cash and cash equivalents ( 1,037 ) 1,249 2,219 Cash and cash equivalents at beginning of year 3,468 2,219 — Cash and cash equivalents at end of year $ 2,431 $ 3,468 $ 2,219 F-37 Note 17. Quarterly Financial Data (Unaudited) Summarized quarterly financial data is shown in the following tables: 2021 Quarter Ended, ($ in thousands except per share data) March 31 June 30 September 30 December 31 Interest income $ 13,632 $ 15,349 $ 17,355 $ 17,822 Interest expense 877 763 766 726 Net interest income before provision for loan losses 12,755 14,586 16,589 17,096 Provision for (reversal of) loan losses 620 ( 1,112 ) ( 884 ) 1,898 Net interest income after provision for loan losses 12,135 15,698 17,473 15,198 Noninterest income 2,966 2,220 3,542 7,289 Noninterest expense 7,966 8,789 9,519 9,591 Income before income tax provision 7,135 9,129 11,496 12,896 Income tax expense 2,058 2,750 3,246 3,762 Net income $ 5,077 $ 6,379 $ 8,250 $ 9,134 Basic earnings per common share $ 0.33 $ 0.42 $ 0.54 $ 0.60 Diluted earnings per common share $ 0.33 $ 0.42 $ 0.54 $ 0.59 2020 Quarter Ended, ($ in thousands except per share data) March 31 June 30 September 30 December 31 Interest income $ 14,345 $ 12,920 $ 13,016 $ 13,375 Interest expense 3,229 2,272 1,597 1,194 Net interest income before provision for loan losses 11,116 10,648 11,419 12,181 Provision for loan losses 743 1,988 1,399 1,831 Net interest income after provision for loan losses 10,373 8,660 10,020 10,350 Noninterest income 2,296 2,062 3,021 3,392 Noninterest expense 8,207 7,334 7,987 8,412 Income before income tax provision 4,462 3,388 5,054 5,330 Income tax provision 1,163 972 1,459 1,513 Net income $ 3,299 $ 2,416 $ 3,595 $ 3,817 Basic earnings per common share $ 0.21 $ 0.16 $ 0.23 $ 0.25 Diluted earnings per common share $ 0.21 $ 0.16 $ 0.23 $ 0.25 Note 18. Subsequent Events The Company has evaluated subsequent events through the issuance of these financial statements and is not aware of any material items that would require disclosure in the notes to the financial statements or would be required to be recognized as of December 31, 2021. F-38