What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-18 · 185 added, 263 removed, 600 unchanged (43% of the section changed)

10 unchanged sentences

We rely primarily on locally-generated deposits, mostly from the Korean-American market within California, to fund our loan activities.

We currently operate seven branches in Los Angeles County and Orange County, one branch in Santa Clara County, and one branch in Carrollton, Texas.

We anticipate opening our tenth full service branch in Cerritos, located in Los Angeles County, California, in the first quarter of 2022.

We have four loan production offices in Atlanta, Georgia, Aurora, Colorado, and Lynnwood and Seattle, Washington.

As of December 31, 2021, we had total assets of $1.73 billion, gross loans of $1.31 billion, total deposits of $1.53 billion, and total consolidated shareholders’ equity of $165 million.

For the years ended December 31, 2021, 2020 and 2019, we recorded net income of $28.8 million, $13.1 million and $16.8 million, respectively.

The following significant items are of note for the year ended December 31, 2021 compared to the year ended December 31, 2020:

• Net income totaled $28.8 million or $1.88 per diluted common share for 2021, compared to $13.1 million or $0.85 per diluted common share

• Net interest income increased to $61.0 million, up 34.5% from $45.4 million

• Total assets of $1.73, a 26.3% increase

• Gross loans of $1.31 billion, a 19.5% increase

• Total deposits of $1.53 billion, a 27.8% increase

• Shareholders’ equity of $165.2 million, a 15.2% increase

We currently operate eight branches in Los Angeles County and Orange County, California, one branch in Santa Clara County, California, and one branch in Carrollton, Texas.

We have four loan production offices in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynnwood, Washington.

The following significant items are of note as of or for the periods presented:

As of December 31, 2022 compared to as of 2021

• Total assets were $2.09 billion, an increase of $367.8 million, or 21.3%, from $1.73 billion.

• Gross loans were $1.68 billion, an increase of $364.3 million, or 27.7%, from $1.31 billion.

• Total deposits were $1.89 billion, an increase of $351.7 million, or 22.9%, from $1.53 billion.

• Shareholders’ equity was $176.9 million, an increase of $11.7 million, or 7.1%, from $165.2 million.

For the year ended December 31, 2022 compared to 2021

• Net income was $33.3 million or $2.14 per diluted common share, an increase of $4.5 million, or 15.5%, from $28.8 million or $1.88 per diluted common share.

• Net interest income increased to $76.9 million, an increase of $15.9 million, or 26.0%, from $61.0 million.

For the year ended December 31, 2021 compared to 2020

• Net income was $28.8 million or $1.88 per diluted common share, an increase of $15.7 million, or 119.7%, from $13.1 million or $0.85 per diluted common share.

• Net interest income increased to $61.0 million, an increase of $15.7 million, or 34.5%, from $45.4 million.

Selected Financial Data

8 unchanged sentences

Noninterest expense 44,830 35,865 31,940

Income before taxes $ 40,656 $ 18,234 $ 22,076

Provision for income taxes $ 11,816 $ 5,107 $ 5,319

Income before income taxes 46,724 40,656 18,234

Income tax expense 13,414 11,816 5,107

Net income 33,310 28,840 13,127

2 unchanged sentences

Diluted income per share $ 2.14 $ 1.88 $ 0.85

Book value per share (at period end) $ 9.55 $ 9.55 $ 8.95

Book value per share $ 11.59 $ 10.92 $ 9.55

Shares of common stock outstanding 15,270,344 15,137,808 15,016,700

Weighted average diluted shares 15,155,347 15,223,888 15,935,314

Balance Sheet Data:

Gross loans receivable $ 1,314,019 $ 1,099,736 $ 990,138

Loans held for sale $ 89,428 $ 26,659 $ 2,100

Allowance for loan losses $ 16,123 $ 15,352 $ 10,050

Total assets $ 1,726,691 $ 1,366,826 $ 1,179,520

Deposits $ 1,534,066 $ 1,200,090 $ 1,020,711

Shareholders’ equity $ 165,222 $ 143,366 $ 140,576

Performance Ratios:

7 unchanged sentences

Efficiency ratio (1)

Asset Quality Data (at Period End):

47.42 % 46.55 % 56.90 %

Balance Sheet Data:

Gross loans receivable $ 1,678,292 $ 1,314,019 $ 1,099,736

Loans held for sale 44,335 89,428 26,659

Allowance for loan losses 19,241 16,123 15,352

Total assets 2,094,497 1,726,691 1,366,826

Deposits 1,885,771 1,534,066 1,200,090

Shareholders’ equity 176,916 165,222 143,366

Asset Quality Data:

Net charge-offs to average gross loans receivable 0.00 % 0.02 % 0.00 %

Nonperforming assets to gross loans receivable plus OREO 0.24 % 0.09 % 0.16 %

Nonperforming loans to gross loans receivable 0.18 % 0.24 % 0.09 %

Allowance for loan losses to nonperforming loans 624.51 % 503.84 % 1558.58 %

8 unchanged sentences

Total risk-based capital ratio 13.06 % 13.66 % 14.81 %

(1) Represents noninterest expense divided by the sum of net interest income and noninterest income.

COVID-19 Update

The COVID-19 pandemic has caused significant, unprecedented disruption around the world that has affected daily living and negatively impacted the local, state, national and global economies.

It has caused significant economic and financial disruption that have adversely affected or otherwise impacted our businesses.

The COVID-19 has not yet been globally contained and the number of cases continues to increase in many locations, including in the United States in which we operate.

During the course of the continuing pandemic, there have been varying governmental and other responses to slow or control the spread of the COVID-19 and to mitigate the adverse impact of the COVID-19, such as stay at home orders, restrictions on business activities, health and safety guidelines, economic relief for individuals and businesses, and monetary policy measures, such responses have met varying degrees of success, and it remains uncertain whether these actions will be successful in a sustained manner.

We cannot predict at this time the scope and duration of the pandemic.

Despite the continuing challenges in recent months, there has been some improvement in the economic environment and resilience in the markets in which we operate.

With the seemingly wider availability and distribution of vaccinations and the easing of some restrictions in the United States, we have seen steps towards broader containment.

However, there still remains much uncertainty around containment of the pandemic, which will depend on various factors, including but not limited to, the extent and spread of variants of the virus;

efficacy of vaccines;

and government and other actions to mitigate the spread of COVID-19.

Through the COVID-19 pandemic, the Company was able to react quickly to these changes because of the commitment and flexibility of its workforce coupled with a well-prepared business continuity plan.

The Company has taken various steps to help our customers, employees, and communities, while maintaining safe and sound banking operations.

The Company has been assisting customers with loan deferrals and the PPP loans and has provided employees remote working environment while maintaining fully functioning operations in all areas.

Loan Payment Deferrals

(1) Represent noninterest expense divided by the sum of net interest income and noninterest income.

Loan Payment Deferrals Related to the COVID-19 Pandemic

In early 2020, we began providing payment deferrals of up to 12 months for our commercial and consumer borrowers who had been adversely impacted by the COVID-19 pandemic and had not been delinquent over 30 days on payments at the time of the borrowers’ deferral requests.

For the loans modified under this program, in accordance with the provisions of Section 4013 of the CARES Act and the interagency statement issued by bank regulatory agencies, we elected to not apply troubled debt structuring classification who were current as of December 31, 2019.

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 CARES Act.

As of December 31, 2021, total outstanding balance of remaining in deferment status balance was $5.0 million and represented 0.4% of the total portfolio, down from 2.7% as of December 31, 2020.

The following tables summarize loan portfolio breakdown by industry and loan deferment as of December 31, 2021:

Loan Portfolio Breakdown by Industry

Excluding home mortgage and consumer loans

($ in thousands)

As of December 31, 2021

Industry Number of

Accounts % of Total Balance % of Total

Hotel / motel 249 11.5 % $ 186,534 15.2 %

Wholesale 154 7.2 70,181 5.7

Food services / restaurant 298 13.9 45,707 3.7

Real estate lessor 239 11.1 412,641 33.6

Gas station 243 11.3 207,295 16.8

Other 967 45.0 306,921 25.0

Total 2,150 100.0 % $ 1,229,279 100.0 %

Loan Deferment Summary by Industry

Excluding home mortgage and consumer loans

($ in thousands)

As of December 31, 2021

Industry Number of

Accounts % of Deferment % of Total

Loans Balance % of Deferment % of Total

Hotel / motel 1 33.4 % 0.4 % $ 4,546 90.1 % 2.4 %

Wholesale 1 33.3 0.6 467 9.3 0.7

Food services / restaurant 1 33.3 0.3 31 0.6 0.1

Total 3 100.0 % 0.1 % $ 5,044 100.0 % 0.4 %

Loan Deferment Summary by Loan Type

($ in thousands) As of December 31, 2021

Number of Accounts Loan Balance

Loan Type Number of

Accounts % of Deferment % of Total

Loans Balance % of Deferment % of Total

Real estate 1 33.3 % 0.1 % $ 4,546 90.1 % 0.5 %

Commercial and industrial 2 66.7 0.2 498 9.9 0.2

Loans, excluding home mortgage and consumer 3 100.0 0.1 5,044 100.0 0.4

Home mortgage 0 — — — — —

Total 3 100.0 % 0.1 % $ 5,044 100.0 % 0.4 %

Loan Deferment Status Change by Loan Type

($ in thousands) Total Deferments

under the CARES Act

through December 31 2021 Payment Resumed

through December 31 2021 Remaining Deferments

as of December 31 2021

Loan Type 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

As of December 31, 2022, we had no loan in deferment status, compared to total outstanding loans remaining in deferment status of $5.0 million, or 0.4% of the total portfolio, as of December 31, 2021.

Paycheck Protection Program

2 unchanged sentences

To the extent not forgiven, loans are subject to terms of the program.

Since the PPP’s inception through December 31, 2021, we have funded $154.5 million, and $118.7 million of principal forgiveness has

been provided on qualifying PPP loans.

As of December 31, 2021, there were unamortized net deferred fees and unaccreted discounts of $1.2 million to be recognized over the estimated life of the loan as a yield adjustment on the loans.

Since the PPP’s inception through December 31, 2022, we have funded $154.5 million, and $154.0 million of principal forgiveness has been provided on qualifying PPP loans.

As of December 31, 2022, there were unamortized net deferred fees and unaccreted discounts of $8 thousand to be recognized over the estimated life of the loan as a yield adjustment on the loans.

If a loan is paid off or forgiven by the SBA prior to its projected estimated life, the remaining unamortized deferred fees will be recognized as interest income in that period.

19 unchanged sentences

Results of Operations

We reported net income for the year ended December 31, 2021 of $28.8 million, compared to net income of $13.1 million for the year ended December 31, 2020.

We reported net income for the year ended December 31, 2022 of $33.3 million, compared to net income of $28.8 million for the same period of 2021.

The increase was primarily due to a $15.9 million increase in net interest income, partially offset by a $9.0 million increase in noninterest expense and a $2.5 million increase in provision for loan losses.

We reported net income for the year ended December 31, 2021 of $28.8 million, compared to net income of $13.1 million for the same period of 2020.

The increase was primarily due to a $15.7 million increase in net interest income and $5.4 million decrease in provision for loan losses, partially offset by a $6.7 million increase in provision for income taxes.

We reported net income for the year ended December 31, 2020 of $13.1 million, compared to net income of $16.8 million for the year ended December 31, 2019.

The decrease was primarily due to a $4.9 million increase in provision for loan losses, offset by a $1.1 million increase in net interest income.

Year Ended December 31,

3 unchanged sentences

Net interest income 76,911 15,885 61,026 15,662 45,364

Provision for loan losses 522 (5,439) 5,961 4,859 1,102

Provision for (reversal of) loan losses 2,976 2,454 522 (5,439) 5,961

Noninterest income 17,619 1,602 16,017 5,246 10,771

Noninterest expense 44,830 8,965 35,865 3,925 31,940

Income before taxes 40,656 22,422 18,234 (3,842) 22,076

Provision for income taxes 11,816 6,709 5,107 (212) 5,319

Income before income tax expense 46,724 6,068 40,656 22,422 18,234

Income tax expense 13,414 1,598 11,816 6,709 5,107

Net income $ 33,310 $ 4,470 $ 28,840 $ 15,713 $ 13,127

8 unchanged sentences

(i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields, (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates, (iii) net interest income, (iv) the interest rate spread, and (v) the net interest margin.

For the Year Ended

December 31, 2021 December 31, 2020

Year Ended December 31,

($ in thousands) Average

4 unchanged sentences

Interest-earning assets:

Interest-bearing deposits in other banks $ 79,482 $ 1,399 1.76 % $ 132,090 $ 170 0.13 %

Federal funds sold and other investments (1)

11,810 598 5.06 10,755 455 4.23

Available-for-sale debt securities 170,479 3,351 1.97 108,346 1,085 1.00

Total investments 261,771 5,348 2.04 251,191 1,710 0.68

Real estate loans 672,045 30,645 4.56 636,809 30,616 4.81

Commercial real estate loans 777,776 37,861 4.87 672,045 30,645 4.56

SBA loans 321,757 24,073 7.48 355,114 21,760 6.13

C & I loans 114,628 4,463 3.89 93,490 3,887 4.16

Commercial and industrial loans 142,630 7,217 5.06 114,628 4,463 3.89

Home mortgage loans 334,984 13,660 4.08 122,465 5,520 4.51

Consumer & other loans 1,071 53 4.95 1,095 60 5.51

Loans (2) 1,265,347 62,448 4.94 1,054,706 51,829 4.91

1,578,218 1,578,218 82,864 5.25 1,265,347 62,448 4.94

Total interest-earning assets 1,839,989 88,212 4.79 1,516,538 64,158 4.23

19 unchanged sentences

(2) Average loan balances include non-accrual loans and loans held for sale.

For the Year Ended

December 31, 2020 December 31, 2019

Year Ended December 31,

($ in thousands) Average

4 unchanged sentences

Interest-earning assets:

Interest-bearing deposits in other banks $ 132,090 $ 170 0.13 % $ 81,997 $ 281 0.34 %

Federal funds sold and other investments (1)

10,755 455 4.23 9,853 369 3.74

Available-for-sale debt securities 108,346 1,085 1.00 73,410 1,177 1.60

Total investments 251,191 1,710 0.68 165,260 1,827 1.10

Real estate loans 636,809 30,616 4.81 565,617 31,139 5.51

Commercial real estate loans 672,045 30,645 4.56 636,809 30,616 4.81

SBA loans 355,114 20,760 6.13 200,110 11,231 5.61

C & I loans 93,490 3,887 4.16 103,097 6,020 5.84

Commercial and industrial loans 114,628 4,463 3.89 93,490 3,887 4.16

Home mortgage loans 122,465 5,520 4.51 122,195 5,977 4.89

Consumer & other loans 1,095 60 5.51 2,102 118 5.61

Loans (2) 1,054,706 51,829 4.91 935,245 55,720 5.96

1,265,347 61,448 4.94 1,054,706 51,829 4.94

Total interest-earning assets 1,516,538 63,158 4.23 1,219,966 53,656 4.40

17 unchanged sentences

Cost of funds 0.22 % 0.75 %

(1) Includes income and average balances for FHLB and PCBB stock, CRA qualified mutual fund, term federal funds, interest-earning time deposits and other miscellaneous interest-earning assets.

(1) Includes income and average balances for Federal Home Loan Bank (“FHLB”) and Pacific Coast Bankers Bank (“PCBB”) stock, CRA qualified mutual fund, term federal funds, interest-earning time deposits and other miscellaneous interest-earning assets.

(2) Average loan balances include non-accrual loans and loans held for sale.

7 unchanged sentences

Interest-earning assets:

Interest-bearing deposits in other banks $ (497) $ 1,726 $ 1,229

Federal funds sold and other investments 78 65 143

1 unchanged sentence

Total investments 504 3,134 3,638

Real estate loans 1,650 (1,622) 28

Commercial real estate loans 4,983 2,233 7,216

SBA loans (3,276) 5,589 2,313

C & I loans 851 (275) 576

Commercial and industrial loans 734 2,020 2,754

Home mortgage loans 8,602 (462) 8,140

13 unchanged sentences

Interest-earning assets:

Interest-bearing deposits in other banks $ 118 $ (229) $ (111)

Federal funds sold and other investments 49 37 86

1 unchanged sentence

Total investments 611 (728) (117)

Real estate loans 3,681 (4,204) (523)

Commercial real estate loans 1,650 (1,622) 28

SBA loans 8,959 1,569 10,528

C & I loans (522) (1,611) (2,133)

Commercial and industrial loans 851 (275) 576

Home mortgage loans 13 (469) (456)

10 unchanged sentences

2022 Compared to 2021

Net interest income increased $15.9 million, or 26.0%, to $76.9 million for the year ended December 31, 2022 from $61.0 million for the same period of 2021, primarily due to higher interest income on loans.

A $20.4 million increase in interest income on loans for the year ended December 31, 2022, compared with the same period of 2021, was primarily due to higher average loan balance from loan growth in home mortgage loans, commercial real estate loans, and C&I loans and rate increases in SBA loans, C&I loans and commercial real estate loans.

Average yield on interesting-bearing deposits in other banks was 1.76% for the year ended December 31, 2022, a 163 basis point increase from 0.13% for the same period of 2021, primarily due to the Federal Reserve’s rate increases.

Average yield on available-for-sale debt securities was 1.97% for the year ended December 31, 2022, a 97 basis point increase from 1.00% for the same period of 2021, primarily due to purchases of securities that earn higher yields than existing investment portfolio.

Average loan yield was 5.25% for the year ended December 31, 2022, a 31 basis point increase from 4.94% for the same period of 2021.

The increase was primarily due to higher average loan balance from loan growth of $212.5 million, $105.7 million and $28.0 million in home mortgage loans, commercial real estate loans, and C&I loans, respectively, and rate increases of 135 basis points in SBA loans, 117 basis points in C&I loans, and 31 basis points in commercial real estate loans.

Average cost of interest-bearing deposits was 1.22% for the year ended December 31, 2022, an 80 basis point increase from 0.42% for the same period of 2021, primarily due to the Federal Reserve’s rate increases.

Average cost of deposits was 0.65% for the year ended December 31, 2022, a 43 basis point increase from 0.22% for the same period of 2021, primarily due to the Federal Reserve’s rate increases, partially offset by higher average balance of noninterest-bearing deposits.

Net interest margin was 4.18% for the year ended December 31, 2022, a 16 basis point increase from 4.02% for the same period of 2021, primarily due to a 56 basis point increase in average yield on interest-earning assets.

2021 Compared to 2020

Net interest income for the year ended December 31, 2021 was $61.0 million compared to $45.4 million for the year ended December 31, 2020, an increase of $15.7 million, or 34.5%.

11 unchanged sentences

The average balance of interest-bearing liabilities increased $39.0 million to $743.5 million at December 31, 2021 from $704.5 million at December 31, 2020.

Net interest margins for the years ended December 31, 2021 and 2020 were 4.02% and 3.72%, respectively.

2020 Compared to 2019

Net interest income for the year ended December 31, 2020 was $45.4 million compared to $44.3 million for the year ended December 31, 2019, an increase of $1.1 million, or 2.5%.

This increase was primarily due to a $6.2 million decrease in interest expense from a 95 basis point decrease in the average rate paid on interest-bearing liabilities, partially offset by a $5.1 million decrease in interest income from a 105 basis point decrease in the average yield on loans, and a 139 basis point decrease in the average yield on investments.

The significant decreases in the average rates were primarily due to the Federal Reserve’s cumulative market rate cuts of 150 basis points through three rate cuts in January and March of 2020.

Total interest income was $53.7 million in 2020, compared to $58.8 million in 2019, a decrease of $5.1 million, or 8.7%.

This decrease was primarily due to a decrease in interest earned on our loan portfolio and a decrease in interest earned on federal funds sold.

Interest and fees on loans was $51.8 million in 2020, compared to $55.7 million in 2019, a decrease of $3.9 million, or 7.0%.

This decrease in interest income on loans was primarily due to a 105 basis point decrease in the average yield on loans, partially offset by a $119.5 million, or 12.8%, increase in the average balance of loans outstanding.

Interest income on total investments was $1.8 million in 2020, compared to $3.1 million in 2019.

Interest income on the securities portfolio decreased $176 thousand, or 13.0%, to $1.2 million in 2020, compared to $1.4 million in 2019.

The decrease in interest income on the securities portfolio was primarily due to an 86 basis point decrease in the average yield on the securities portfolio, offset by 33.5% increase in the average balance of securities available for sale held by the Company.

Interest income on federal funds sold and other investments decreased $1.1 million, or 61.9%, to $650 thousand in 2020 from $1.7 million in 2019, due to a 183 basis point decrease in the average yield on the federal funds sold and other investments, offset by 35.6% increase in the average balance of federal funds sold and other investments held by the Company.

Total interest expense was $8.3 million in 2020, compared to $14.5 million in 2019, a decrease of $6.2 million, or 42.8%.

The decrease was primarily due to decreases in interest expense on deposits as result of the downward adjustments of the Company’s rates paid on interest-bearing deposits in response to the rate decreases by the Federal Reserve.

The average balance of interest-bearing liabilities increased $24.2 million to $704.5 million at December 31, 2020 from $680.3 million at December 31, 2019.

Net interest margins for the years ended December 31, 2020 and 2019 were 3.72% and 4.19%, respectively.

Provision for Loan Losses

5 unchanged sentences

The provision for loan losses and level of allowance for each period are dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, management’s assessment of the quality of the loan portfolio, the valuation of problem loans and the general economic conditions in our market area.

2022 Compared to 2021

The provision for loan losses was $3.0 million for the year ended December 31, 2022, compared to $522 thousand for the same period of 2021.

The changes in quantitative reserves from loan growth in real estate and home mortgage loans accounted for an increase of $5.8 million in the provision for loan losses for the year ended December 31, 2022.

The changes in quantitative reserves included a $205 thousand decrease in the provision for accrued interest receivables on deferred loans.

The changes in qualitative factors, primarily due to improvements in economic conditions and commercial real estate concentration, accounted for a decrease of $2.8 million in the provision for loan losses for the year ended December 31, 2022.

2021 Compared to 2020

The provision for loan losses was $522 thousand for the year ended December 31, 2021, compared to $6.0 million for the year ended December 31, 2020.

2 unchanged sentences

The changes in quantitative factors included a $439 thousand decrease in the provision for accrued interest receivables on deferred loans.

The allowance for loan losses as a percentage of gross loans was 1.23% at December 31, 2021 and 1.40% at December 31, 2020.

The allowance for loan losses as a percentage of gross loans was 1.15% and 1.23% as of December 31, 2022 and 2021, respectively.

Noninterest Income

1 unchanged sentence

A portion of our noninterest income is associated with SBA lending activity, consisting of gains on the sale of loans sold in the secondary market and servicing income from loans sold with servicing retained.

Other sources of noninterest income include loan servicing fees, service charges and fees, and gains on the sale of securities.

Other sources of noninterest income include service charges on deposit.

2022 Compared to 2021

The following table sets forth the various components of our noninterest income for the years ended December 31, 2022 and 2021:

7 unchanged sentences

Total noninterest income $ 17,619 $ 16,017 $ 1,602 10.0 %

Noninterest income for the year ended December 31, 2021 was $16.0 million, an increase of $5.2 million, or 48.7%, compared to $10.8 million for the year ended December 31, 2020.

Income from service charges on deposit accounts was $1.6 million for 2021, compared to $1.4 million for 2020, an increase of $131 thousand, or 9.2%.

The increase was primarily due to higher account analysis charges and wire transaction fees, partially offset by lower overdraft charges in the year ended December 31, 2021, compared to the same period in 2020.

Total gain on sale of loans was $11.3 million in the year ended December 31, 2021, compared to $6.1 million for the same period of 2020, an increase of $5.2 million or 85.7%.

Gain on sale of SBA loans totaled $11.0 million in the year ended December 31, 2021, compared to $5.9 million for the same period of 2020.

We sold $110.3 million of SBA loans with an average premium of 11.0% in the year ended December 31, 2021, compared to the sale of $85.0 million of SBA loans with an average premium of 8.8% in the same period of 2020.

We originated $304.9 million of SBA loans, including $88.1 million of SBA PPP loans, in 2021, compared to $204.1 million of SBA loans, including $66.3 million of SBA PPP loans, in 2020.

Gain on sale of other loans for both periods were immaterial.

Other income for 2021 were $1.2 million, compared to $1.4 million for 2020, a decrease of $203 thousand, or 14.6%.

The decrease was primarily due to a $187 thousand decrease in fair value of equity investment in a mutual fund that the Company invested for CRA purposes.

Noninterest income for the year ended December 31, 2022 was $17.6 million, an increase of $1.6 million, or 10.0%, compared to $16.0 million for the same period of 2021.

Loan servicing fees, net of amortization, were $2.4 million, for the year ended December 31, 2022, compared to $2.0 million for the same period of 2021.

The increase was primarily due to an increase in loan servicing portfolio and lower amortization of loan servicing fees as a result of lower SBA loan payoffs.

Our total SBA loan servicing portfolio was $702.1 million as of December 31, 2022, compared to $667.0 as of the same period of 2021.

Gain on sale of loans was $12.3 million for the year ended December 31, 2022, compared to $11.3 million for the same period of 2021, an increase of $1.0 million or 8.6%.

The increase was primarily due to higher sales volume partially offset by lower average premium on loan sales.

We sold $181.9 million of SBA loans with an average premium of 7.45% for the year ended December 31, 2022, compared to a sale of $110.3 million of SBA loans with an average premium of 11.04% in the same period of 2021.

2021 Compared to 2020

The following table sets forth the various components of our noninterest income for the years ended December 31, 2021 and 2020:

7 unchanged sentences

Total noninterest income $ 16,017 $ 10,771 $ 5,246 48.7 %

Noninterest income for the year ended December 31, 2020 was $10.8 million, a decrease of $655 thousand, or 5.7%, compared to $11.4 million for the year ended December 31, 2019.

Income from service charges on deposit accounts was $1.4 million for 2020, compared to $2.0 million, a decrease of $584 thousand, or 29.0%.

This decrease was primarily due to lower overdrafts in the year ended December 31, 2020, compared to the same period in 2019, reflecting higher balances and lower transaction activities on deposit accounts amid the COVID-19 pandemic.

Total gain on sale of loans was $6.1 million in the year ended December 31, 2020, compared to $5.9 million for the same period of 2019, an increase of $187 thousand or 3.2%.

Noninterest income for the year ended December 31, 2021 was $16.0 million, an increase of $5.2 million, or 48.7%, compared to $10.8 million for the year ended December 31, 2020.

Income from service charges on deposit accounts was $1.6 million for 2021, compared to $1.4 million for 2020, an increase of $131 thousand, or 9.2%.

Total gain on sale of loans was $11.3 million in the year ended December 31, 2021, compared to $6.1 million for the same period of 2020, an increase of $5.2 million or 85.7%.

Gain on sale of SBA loans totaled $11.0 million in the year ended December 31, 2021, compared to $5.9 million for the same period of 2020.

We originated $204.1 million of SBA loans, including $66.3 million of SBA PPP loans, in 2020, compared to $110.5 million of SBA loans in 2019.

We originated $304.9 million of SBA loans, including $88.1 million of SBA PPP loans, in 2021, compared to $204.1 million of SBA loans, including $66.3 million of SBA PPP loans, in 2020.

Gain on sale of other loans for both periods were immaterial.

Loan servicing income, net of amortization, increased by $670 thousand to $1.9 million in 2020, compared to $1.2 million in 2019.

The increase in loan servicing income was due to a $323 thousand increase in servicing fees and a $347 thousand decrease in servicing asset amortization expense.

Our total SBA loan servicing portfolio was $388.8 million as of December 31, 2020, compared to $347.8 million as of December 31, 2019.

The servicing assets that result from the sales of SBA loans with servicing retained are amortized over the expected term of the loans using a method approximating the interest method.

Servicing income generally declines as the respective loans are repaid.

Other income for 2021 were $1.2 million, compared to $1.4 million for 2020, a decrease of $203 thousand, or 14.6%.

The decrease was primarily attributable to a one-time gain on company owned life insurance of $1.2 million in the year ended December 31, 2019, partially offset by a gain of $213 thousand from a sale of other property in the year ended December 31, 2020.

The Company sold a property that has been used for the Company’s internal use with a gain of $213 thousand during the fourth quarter of 2020.

The decrease was primarily due to a $187 thousand decrease in fair value of equity investment in a mutual fund that the Company invested for CRA purposes.

Noninterest Expense

Noninterest expense for the year ended December 31, 2021 was $35.9 million, compared to $31.9 million for the year ended December 31, 2020, an increase of $3.9 million, or 12.3%.

2022 Compared to 2021

The following table sets forth the major components of our noninterest expense for the years ended December 31, 2022 and 2021:

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Total noninterest expense $ 44,830 $ 35,865 $ 8,965 25.0 %

Salaries and employee benefits expense for the year ended December 31, 2021 was $21.3 million, compared to $20.0 million for the year ended December 31, 2020, an increase of $1.2 million, or 6.0%.

The increase was primarily due to a $1.3 million increase from an increase in the number of employees to support continued growth and a $1.3 million increase in employee incentives for higher SBA loan originations and sales in 2021, partially offset by a $1.3 million increase in deferred loan origination costs.

Noninterest expense for the year ended December 31, 2022 was $44.8 million, compared with $35.9 million for the same period of 2021, an increase of $9.0 million, or 25.0%.

Salaries and employee benefits expense for the year ended December 31, 2022 was $27.2 million, compared to $21.3 million for the same period of 2021, an increase of $5.9 million, or 27.9%.

The increase was primarily due to increased salaries as a result of additional employees to support continued growth of the Company.

The average number of full-time equivalent employees was 207.2 in 2022 compared to 181.5 in 2021.

The increase in deferred loan costs was primarily attributable to the origination of 1,979 new SBA PPP Loans, in the year ended December 31, 2021, compared to 983 new SBA PPP loans in the year ended December 31, 2020.

Data processing and communication expense for 2021 was $2.0 million, compared to $1.7 million for 2020, an increase of $318 thousand, or 18.9%.

This increase was primarily to support balance sheet growth.

Our aggregate donations to the Foundation and other charitable and community contributions for 2021 were $2.9 million, compared to $1.3 million for 2020, an increase of $1.6 million, or 116.5%.

Professional fees for the year ended December 31, 2022 was $1.6 million, compared to $1.2 million for the same period of 2021, an increase of $428 thousand, or 35.9%.

The increase was primarily due to increases in accounting fees and other consulting fees.

Occupancy and equipment expense for the year ended December 31, 2022 was $6.0 million, compared to $5.2 million for the same period of 2021, an increase of $751 thousand, or 14.4%.

The increase was primarily due to a new branch opened in the first quarter of 2022 and increased equipment expense to support our continued growth.

Foundation donation and other contributions for the year ended December 31, 2022 were $3.4 million, compared to $2.9 million for the same period of 2021, an increase of $503 thousand, or 17.4%.

The increase was primarily due to higher donation accruals for Open Stewardship Foundation as a result of higher net income.

The following table sets forth the various components of our noninterest expense for the year ended December 31, 2020 and 2019:

Other expenses for the year ended December 31, 2022 were $2.5 million, compared to $1.5 million for the same period of 2021, an increase of $1.1 million, or 74.4%.

The increase were primarily due to an increase in business development expense.

2021 Compared to 2020

The following table sets forth the major components of our noninterest expense for the years ended December 31, 2021 and 2020:

Year Ended December 31,

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Total noninterest expense $ 35,865 $ 31,940 $ 3,925 12.3 %

Noninterest expense for the year ended December 31, 2020 was $31.9 million, compared to $32.5 million for the year ended December 31, 2019, a decrease of $580 thousand, or 1.8%.

Salaries and employee benefits expense for the year ended December 31, 2020 was $20.0 million, compared to $20.3 million for the year ended December 31, 2019, a decrease of $226 thousand, or 1.1%.

This decrease was attributable to an increase in deferred loan origination cost, partially offset by an increase in the number of employees to support continued growth, annual salary adjustments and increased benefits costs.

The increase in deferred loan costs is primarily attributable to the origination of 1,300 new loans, including 983 SBA PPP Loans, in the year ended December 31, 2020, compared to 345 new loans in the year ended December 31, 2019.

Salaries and employee benefits expense for the year ended December 31, 2021 was $21.3 million, compared to $20.0 million for the year ended December 31, 2020, an increase of $1.2 million, or 6.0%.

The average number of full-time equivalent employees was 181.5 in 2021 compared to 171.3 in 2020.

Occupancy and equipment expense for 2020 was $5.0 million, compared to $4.6 million for 2019, an increase of $326 thousand, or 7.0%.

This increase was primarily due the annual increase of rent under our office leases and a new branch opened in the second quarter of 2019.

Data processing and communication expense for 2021 was $2.0 million, compared to $1.7 million for 2020, an increase of $318 thousand, or 18.9%.

This increase was primarily due to supporting increased online transaction activities and supporting increased users on authentication system along with an increase in number of employees in 2020.

Professional fees for 2020 were $1.1 million, compared to $980 thousand for 2019, an increase of $121 thousand, or 12.3%.

The increase was primarily due to an increase in internal audit costs in line with the Company’s growth.

FDIC insurance and regulatory assessment expense for 2020 was $449 thousand, compared to $259 thousand for 2019, an increase of $190 thousand or 73.4%.

The FDIC insurance and regulatory assessments for 2019 was lower due to the small bank assessment credits that was applied to offset the FDIC assessments for the second half of 2019.

Directors’ fees and expenses for 2020 were $700 thousand, compared to $908 thousand for 2019, a decrease of $208 thousand or 22.9%.

Directors’ fees and expenses include a monthly retainer fee, reimbursement for travel and other expenses, and stock-based expenses relating to equity awards granted to our directors in prior years under our equity plans.

The decrease was primarily due to a decrease in stock-based expenses resulting from the full vesting of the restricted stock units in July 2020.

Directors’ stock-based expenses for 2020 and 2019 were $252 thousand and $431 thousand, respectively.

Our aggregate donations to the Foundation and other charitable and community contributions for 2020 were $1.3 million, compared to $1.6 million for 2019, a decrease of $251 thousand, or 15.8%.

The decrease was due to decreased donation accruals for Open Stewardship Foundation, which is directly proportionate to our after-tax net income.

On an annual basis, we donate 10% of our consolidated net income after taxes to the Foundation.

Other expenses for 2020 were $1.2 million compared to $1.5 million for 2019, a decrease of $345 thousand, or 22.5%.

The decrease was primarily due to Company’s proactive management of overhead expenses amid the COVID-19 pandemic.

This increase was primarily to support balance sheet growth.

Our aggregate donations to the Foundation and other charitable and community contributions for 2021 were $2.9 million, compared to $1.3 million for 2020, an increase of $1.6 million, or 116.5%.

The increase was primarily due to higher donation accruals for Open Stewardship Foundation as a result of higher net income.

Income Tax Expense

Income tax expense was $11.8 million in 2021, compared to $5.1 million in 2020.

Effective tax rates were 29.1% and 28.0% in 2021 and 2020, respectively.

The increase in the effective tax rate was primarily attributable to less permanent differences as a percentage of pre-tax net income in 2021 compared to 2020.

These differences are primarily due to a lower amount of tax benefits resulting from the exercise of non-qualified stock options and the vesting of restricted stock units in 2021.

Income tax expense was $13.4 million for the year ended December 31, 2022, compared to $11.8 million for the same period of 2021.

The increase was primarily due to higher tax provision as a result of higher net income.

Effective tax rates were 28.7% and 29.1% for the years ended December 31, 2022 and 2021, respectively.

Some items of income and expense are recognized in different years for tax purposes than when applying GAAP, leading to timing differences between our actual tax liability and the amount accrued for liability based on book income.

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The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, including forecasts of future income, cumulative losses, applicable tax planning strategies, and assessments of current and future economic and business conditions.

We recognized net deferred tax assets of $8.4 million and $3.2 million as of December 31, 2021, and December 31, 2020, respectively.

After consideration of the matters in the preceding paragraph, we have determined that it is more likely than not that net deferred tax assets as of December 31, 2021 and December 31, 2020 will be fully realized in future years.

We recognized net deferred tax assets of $14.3 million and $8.4 million as of December 31, 2022, and 2021, respectively.

After consideration of the matters in the preceding paragraph, we have determined that it is more likely than not that net deferred tax assets as of December 31, 2022 and 2021 will be fully realized in future years.

FINANCIAL CONDITION

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government agencies or sponsored agency securities.

Securities available-for-sale increased $58.7 million, or 63.9%, to $150.4 million at December 31, 2021 from $91.8 million at December 31, 2020, primarily due to purchases of $98.4 million, partially offset by principal paydowns and maturity of $35.9 million for the year ended December 31, 2021.

No issuer of the available-for-sale securities, other

Securities available-for-sale increased $59.4 million, or 39.5%, to $209.8 million at December 31, 2022 from $150.4 million at December 31, 2021, primarily due to purchases of $115.8 million, partially offset by principal paydowns of $32.2 million and an increase in unrealized loss of $23.6 million for the year ended December 31, 2022.

No issuer of the available-for-sale securities, other than U.S.

Government and its agencies, comprised more than ten percent of our shareholders’ equity as of December 31, 2022 and 2021.

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($ in thousands) Amortized

Unrealized Gain/(Loss)

Government-sponsored agency securities $ — $ — $ — $ 1,000 $ 1,005 $ 5

Unrealized Loss

Government agencies or sponsored agency securities:

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Recognized amounts of identifiable assets purchased:

Loans (1) $ 100,003

Loan discounts (8,867)

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Loans receivable, net (1)

(1) I ncludes 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.

Gross loans increased $214.3 million, or 19.5%, to $1.31 billion at December 31, 2021, compared to $1.10 billion as of December 31, 2020.

The increase resulted mainly from $100.0 million of the Hana loan purchase and $88.2 million of PPP originations.

$ 1,659,051 $ 1,297,896

(1) Includes net deferred loan fees or costs, unamortized premiums and unaccreted discounts of $160 thousand and $7.0 million as of December 31, 2022 and 2021, respectively.

Gross loans increased $364.3 million, or 27.7%, to $1.68 billion as of December 31, 2022, compared to $1.31 billion as of December 31, 2021.

The increase was primarily attributable to new loan production of $661.8 million and home mortgage loan purchases of $225.1 million, partially offset by loan payoffs and paydowns of $254.8 million and SBA loan sales of $182.3 million.

The following tables presents the contractual loan maturities by loan category and the contractual distribution of loans to changes in interest rates as of December 31, 20221 and 2021:

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We do not have any material concentrations by industry or group of industries in the loan portfolio.

However, 83.3% of our gross loans were secured by real property at December 31, 2021, with no change in percentage from December 31, 2020.

However, 92.1% of our gross loans were secured by real property as of December 31, 2022, compared to 83.3% as of December 31, 2021.

Loans — Commercial Real Estate:

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Adjustable rate loans are based on the Wall Street Journal prime rate.

Our commercial real estate loan portfolio totaled $842.2 million at December 31, 2022 compared to $701.5 million at December 31, 2021.

During the year ended December 31, 2022, we originated $200.1 million of commercial real estate loans.

As of December 31, 2022, approximately 78.9% of the commercial real estate portfolio consisted of fixed-rate loans.

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As of December 31, 2022, our average loan to value for commercial real estate loans was 51%.

Our commercial real estate loan portfolio totaled $701.5 million at December 31, 2021 compared to $651.7 million at December 31, 2020.

Loans — SBA Loans :

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

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

As of December 31, 2021, our SBA portfolio totaled $276 million, including $40.6 million of SBA PPP loans, compared to $211.4 million, including $64.9 million of SBA PPP loans, as of December 31, 2020.

These increases were primarily due to the Hana loan purchase and continued growth of our SBA loan portfolio.

We originated $304.9 million, including $88.1 million of SBA PPP loans, and $204.1 million, including $66.3 million of SBA PPP loans, during the years ended December 31, 2021 and 2020, respectively.

We sold $110.3 million and $85.0 million of SBA loans during the years ended December 31, 2021 and 2020, respectively.

From our total SBA loan portfolio, $220.1 million is secured by real estate and $55.8 million is unsecured or secured by business assets at December 31, 2021.

Our unguaranteed SBA loans collateralized by real estate are monitored by collateral type and included in our commercial real estate Concentration Guidance.

As of December 31, 2022, our SBA portfolio totaled $234.7 million, including $442 thousand of SBA PPP loans, compared to $275.9 million, including $40.6 million of SBA PPP loans as of December 31, 2021.

We originated $192.1 million for the year ended December 31, 2022.

We sold SBA loans of $181.9 million with 7.45% average premium and $110.3 million with 11.04% average premium during the years ended December 31, 2022 and 2021, respectively.

From our total SBA loan portfolio, $221.3 million is secured by real estate and $13.4 million is unsecured or secured by business assets as of December 31, 2022.

Loans — Commercial and Industrial:

Commercial and industrial loans totaled $162.5 million at December 31, 2021, compared to $107.3 million at December 31, 2020, an increase of $55.2 million, or 51.5%.

The increase was primarily due to a $36.9 million increase in warehouse line of credits and a $11.7 million increase in commercial term loan purchases in 2021.

Commercial and industrial loans totaled $117.0 million as of December 31, 2022, compared to $162.5 million as of December 31, 2021.

We originated $115.1 million for the year ended December 31, 2022.

Loans - Home Mortgage:

We originate mainly non-qualified, alternative documentation single-family home mortgage loans (“home mortgage”) primarily through broker relationships, but also through our branch network.

product is a five-year or seven-year hybrid adjustable rate mortgage, which reprices after five years to the one-year SOFR plus certain spreads.

We originate the non-qualified single-family home mortgage loans held by us for investment.

Home mortgage loans totaled $173.3 million as of December 31, 2021, compared to $128.2 million as of December 31, 2020, an increase of $45.1 million, or 35.2%.

The increase was primarily due to a purchase of $48.9 million in home mortgage loans from third party mortgage originators in December 2021.

For the year ended December 31, 2021, we originated $57.6 million and sold $4.2 million in home mortgage loans.

Payoffs and paydowns for the same period were $40.7 million and $5.9 million, respectively.

For the same period in 2020, we originated $48.2 million and sold $9.2 million in home mortgage loans.

Payoffs and paydowns for the same period were $26.7 million and $5.5 million, respectively.

We originate mainly non-qualified, alternative documentation single-family home mortgage loans (“home mortgage”) primarily through our retail branch network and our correspondent lender network.

The primary loan product is a five-year or seven-year hybrid adjustable rate mortgage, which reprices after five years to a selected SOFR plus certain spreads.

We also purchase residential mortgage loans from third party mortgage originators based on the review of their underwriting and file quality as opportunities arise.

Home mortgage loans totaled $482.9 million as of December 31, 2022, compared to $173.3 million as of December 31, 2021.

For the year ended December 31, 2022, we originated $150.2 million of home mortgage loans and purchased $185.8 million of home mortgage loans from third party mortgage originators.

Loan Servicing

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In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructuring.

These concessions may include a reduction of the interest rate, principal or accrued interest, extension of the maturity date or other actions intended to minimize potential

These concessions may include a reduction of the interest rate, principal or accrued interest, extension of the maturity date or other actions intended to minimize potential losses.

Loans restructured at a rate equal to or greater than that of a new loan with comparable risk at the time the loan is modified may be excluded from restructured loan disclosures in years subsequent to the restructuring if the loans are in compliance with their modified terms.

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Interest income on impaired loans is accrued as earned, unless the loan is placed on non-accrual status.

The allowance for loan losses was $16.1 million at December 31, 2021, compared to $15.4 million at December 31, 2020 and $10.1 million at December 31, 2019.

The provision for loan losses was $522 thousand for the year ended December 31, 2021, compared to $6.0 million for the year ended December 31, 2020.

The allowance for loan losses was $19.2 million at December 31, 2022, compared to $16.1 million at December 31, 2021.

The provision for loan losses was $3.0 million for the twelve months ended December 31, 2022, compared to $522 thousand for the same period in 2021.

The $3.0 million in provision for loan losses was primarily due to an increase of $5.8 million in quantitative reserves from loan growth in real estate and home mortgage loans, partially

offset by a decrease of $2.8 million in qualitative assessments of our loan portfolio.

The changes in qualitative factors were primarily due to improvements in economic conditions and commercial real estate concentration.

In determining the allowance and the related provision for loan losses, we consider three principal elements:

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Year Ended December 31, 2022

($ in thousands) Beginning (Reversal of) Provision (1) Charge-offs Recoveries Ending

($ in thousands) Beginning (Reversal) Provision (1)

Charge-offs Recoveries Ending

Commercial real estate $ 8,150 $ (1,199) $ — $ — $ 6,951

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Gross loans (2)

Average loans (2) $ 1,200,367

Net charge-offs to average gross loans 0.02 %

Allowance for loan losses to gross loans 1.15 %

Average loans (2)

Net (recoveries) charge-offs to average gross loans 0.00 %

Year Ended December 31, 2021

($ in thousands) Beginning (Reversal of) Provision (1) Charge-offs Recoveries Ending

($ in thousands) Beginning (Reversal) Provision (1)

Charge-offs Recoveries Ending

Commercial real estate $ 8,505 $ (355) $ — $ — $ 8,150

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Gross loans (2)

Average loans (2) $ 1,038,387

Net charge-offs to average gross loans — %

Allowance for loan losses to gross loans 1.23 %

Average loans (2)

Net (recoveries) charge-offs to average gross loans 0.02 %

Year Ended December 31, 2020

($ in thousands) Beginning (Reversal of) Provision (1) Charge-offs Recoveries Ending

($ in thousands) Beginning Provision (Reversal) (1)

Charge-offs Recoveries Ending

Commercial real estate $ 6,000 $ 2,505 $ — $ — $ 8,505

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Gross loans (2)

Average loans (2) $ 929,720

Net charge-offs to average gross loans 0.07 %

Allowance for loan losses to gross loans 1.40 %

(1) Excludes (reversal of) provision for 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.

Average loans (2)

Net (recoveries) charge-offs to average gross loans 0.00 %

(1) Excludes (reversal of) provision for uncollectible accrued interest receivable of $(205) thousand, $(438) thousand, and $643 thousand for the years ended December 31, 2022, 2021 and 2020, respectively.

(2) Excludes loans held for sale.

The following table presents an allocation of the allowance for loan losses by portfolio as of December 31, 2021 and December 31, 2020:

The following table presents an allocation of the allowance for loan losses by portfolio as of December 31, 2022 and 2021:

December 31, 2022 December 31, 2021

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Loans on which the accrual of interest has been discontinued are designated as non-accrual loans.

Typically, the accrual of interest on loans is discontinued when principal or interest payments are 90 days past due or when, in the opinion of management, there is a reasonable doubt as to

collectability in the normal course of business.

Typically, the accrual of interest on loans is discontinued when principal or interest payments are 90 days past due or when, in the opinion of management, there is a reasonable doubt as to collectability in the normal course of business.

When loans are placed on non-accrual status, all interest previously accrued, but not collected, is reversed against current period interest income.

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Nonperforming assets consist of nonperforming loans plus OREO.

Nonperforming loans were $3.2 million at December 31, 2021, compared to $985 thousand at December 31, 2020 and $1.5 million at December 31, 2019.

The increase in nonperforming loans for the year ended December 31, 2021 was primarily due to SBA loans that were placed on non-accruals in 2021.

As of December 31, 2021, $1.0 million of non-accrual loans was the guaranteed portion of SBA loans that are in liquidation.

Nonperforming loans were $3.1 million at December 31, 2022, compared to $3.2 million at December 31, 2021.

As of December 31, 2022 and 2021, nonaccrual loans of $1.0 million and $1.0 million, respectively were the guaranteed portion of SBA loans.

Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as OREO until sold, and is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.

We had no OREO as of December 31, 2021, 2020 or 2019.

We had no OREO as of December 31, 2022 and 2021.

The following table sets forth the allocation of our nonperforming assets among our different asset categories as of the dates indicated.

Nonperforming loans include non-accrual loans, loans past due 90 days or more and still accruing interest, and loans modified under troubled debt restructurings.

As of December 31,

($ in thousands) 2022 2021

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We dedicate continuing effort into gathering noninterest demand deposits accounts through marketing to our existing and new loan customers, customer referrals, our marketing staff and various involvement with community networks.

The following table show the composition of deposits by type as of the dates indicated:

The following table show the composition of deposits by type as of the dates presented:

As of December 31,

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Total deposits $ 1,885,771 100.0 % $ 1,534,066 100.0 % $ 1,200,090 100.0 %

The following tables set forth the maturity of time deposits at December 31, 2021:

As of December 31, 2021 Maturity Within:

The following tables set forth the maturity of time deposits as of December 31, 2022:

Maturity Within:

($ in thousands) Three

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As of December 31, 2022 and 2021, we had maximum borrowing capacity from the FHLB of $582.8 million and $417.6 million, respectively.

As of December 31, 2021, we had no borrowings from FHLB.

At December 31, 2020, we had $5.0 million in borrowings from the FHLB, which has a 0% interest rate under the Zero-Rate Recovery Advance Program, FHLB’s pandemic relief initiatives.

We had no borrowing from FHLB as of December 31, 2022 and 2021.

Liquidity and Capital Recourses

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Deposits provide a stable source of funding and reduce the Company's reliance on the wholesale funding markets.

The following table presents the loan and deposit balances, the loans-to-deposit ratios, and deposits as a percentage of total liabilities as of December 31, 2021 and 2020:

The following table presents the loan and deposit balances, the loans-to-deposit ratios, and deposits as a percentage of total liabilities as of dates presented:

As of December 31,

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In addition to deposits, the Company has access to various sources of wholesale funding, as well as borrowing capacity at the FHLB, Federal Reserve, and correspondent banks to sustain an adequate liquid asset portfolio, meet daily cash demands and allow management flexibility to execute the business strategy.

Economic conditions and the stability of capital markets impact the access to and the cost of wholesale funding.

Economic conditions and the stability of

capital markets impact the access to and the cost of wholesale funding.

The access to capital markets is also affected by the ratings received from various credit rating agencies.

We had $100.0 million of unsecured federal funds lines with no amounts advanced as of December 31, 2021 and December 31, 2020, respectively, compared to $13.5 million at December 2019.

In addition, on such dates we had lines of credit from the Federal Reserve discount window of $141.6 million, $125.7 million and $124.0 million, respectively.

The Federal Reserve discount window lines were collateralized by a pool of commercial real estate loans and commercial and industrial loans totaling $240.6 million, $219.1 million and $206.7 million at December 31, 2021, 2020 and 2019, respectively.

We did not have any borrowings outstanding with the Federal Reserve at December 31, 2021, 2020 or 2019, and our borrowing capacity is limited only by eligible collateral.

Based on the values of loans pledged as collateral, we had $350.6 million of additional borrowing availability with the FHLB at December 31, 2021.

We had $100.0 million of unsecured federal funds lines with no amounts advanced as of December 31, 2022 and 2021.

In addition, on such dates we had lines of credit from the Federal Reserve discount window of $175.6 million and $141.6 million..

The Federal Reserve discount window lines were collateralized by a pool of commercial real estate loans and commercial and industrial loans totaling $254.7 million and $240.6 million as of December 31, 2022 and 2021, respectively.

We did not have any borrowings outstanding with the Federal Reserve as of December 31, 2022 or 2021, and our borrowing capacity is limited only by eligible collateral.

Based on the values of loans pledged as collateral, we had $440.4 million of additional borrowing availability with the FHLB as of December 31, 2022.

We also maintain relationships in the capital markets with brokers to issue certificates of deposit and money market accounts.

The Company maintains liquidity in the form of cash and cash equivalents, and unencumbered high-quality and liquid AFS debt securities.

The following table presents the Company's liquid assets as of December 31, 2021 and 2020:

The following table presents the Company's liquid assets as of dates presented:

As of December 31,

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Five Years After Five

Years Indeterminable maturity (1) Total

Deposits (2) $ 370,910 $ 6,997 $ 1,179 $ — $ 1,154,980 $ 1,534,066

Years Indeterminable maturity (1)

$ 630,543 $ 26,822 $ 501 $ — $ 1,227,905 $ 1,885,771

Operating lease commitments 2,467 4,077 3,857 3,473 — 13,874

Advances from FHLB 5,000 — — — — 5,000

Commitments to fund investment for Low Income Housing Tax Credit 3,793 4,437 45 362 111 8,748

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(1) Includes deposits with no defined maturity, such as noninterest-bearing demand, savings and money market.

(2) Deposits and borrowings exclude accrued interest.

(2) Excludes accrued interest.

In addition to contractual obligations, other commitments of the Company impact liquidity.

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The capital amounts and classifications are subject to qualitative judgments by the federal banking regulators regarding components, risk weightings and other factors.

Qualitative measures established by regulation to ensure capital adequacy required us to maintain minimum amounts and various ratios of CET1 capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets, referred to as the “leverage ratio.” For further information, see “Supervision and Regulation.”

Qualitative measures established by regulation

to ensure capital adequacy required us to maintain minimum amounts and various ratios of CET1 capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets, referred to as the “leverage ratio.”

The table below also summarizes the capital requirements applicable to us and the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as our and the Bank’s capital ratios as of December 31, 2022 and 2021.

The Bank exceeded all regulatory capital requirements under the Basel III Capital Rules and were considered to be “well-capitalized” as of the dates reflected in the table below.

At December 31, 2021, the FDIC categorized us as well-capitalized under the prompt corrective action framework.

As of December 31, 2022, the FDIC categorized us as well-capitalized under the prompt corrective action framework.

There have been no conditions or events since December 31, 2022 that management believes would change this classification.

As of December 31, 2021 Actual (1) Regulatory Capital Ratio Requirements Minimum to be Considered "Well Capitalized" Regulatory Capital Ratio Requirements, including fully phased in Capital Conservation Buffer

As of December 31, 2022 Actual (1)

Regulatory Capital Ratio Requirements Minimum to be Considered "Well Capitalized" Regulatory Capital Ratio Requirements, including fully phased in Capital Conservation Buffer

($ in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio

12 unchanged sentences

(1) The capital requirements are only applicable to the Bank, and the Company's ratios are included for comparison purpose.

As of December 31, 2020 Actual (1) Regulatory Capital Ratio Requirements Minimum to be Considered "Well Capitalized" Regulatory Capital Ratio Requirements, including fully phased in Capital Conservation Buffer

As of December 31, 2021 Actual (1)

Regulatory Capital Ratio Requirements Minimum to be Considered "Well Capitalized" Regulatory Capital Ratio Requirements, including fully phased in Capital Conservation Buffer

($ in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio

13 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis