What changed in this filing

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Item 9A. Controls and Procedures

2023-03-16 compared with 2022-03-18 · 260 added, 310 removed, 1778 unchanged (24% of the section changed)

3 unchanged sentences

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.

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 period covered to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Other Information.

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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.

The exact number of directors may be fixed from time to time within the range set forth in our Bylaws 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 six of our seven 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).

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.

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.

11 unchanged sentences

Dow, age 73, 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 is a retired Certified Public Accountant and has been a Principal of Dow & Sohn CPAs for 15 years.

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.

4 unchanged sentences

Dow was a member of Choi Dow Ivan Hong & Lee Accountancy Corporation (“CDIH&L”) from August 1992 to December 2007.

Jason Hwang .

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.

Hwang obtained his Bachelor of Science degree in accounting from California State University, Los Angeles.

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.

7 unchanged sentences

He is a Member of the Board of Good Samaritan Medical Practice Association;

Good Samaritan Hospital, and Korean-American Medical Group.

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.

43 unchanged sentences

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

Chairman of the Board and Chief Executive Officer in recognition of the differences between the two roles.

Further, it is the practice of the Company to separate the roles of 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.

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

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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 Chief Risk Officer reports to the Bank's Risk and Compliance Committee.

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.

17 unchanged sentences

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:

Dow (committee chair), Soo Hun Jung, M.D., Ock Hee Kim, Myung Ja (Susan) Park, and Yong Sin Shin.

The Audit Committee met twelve times in 2022.

In 2022, the Board of Directors has determined that Ernest E.

(i) an understanding of generally accepted accounting principles and financial statements;

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Therefore, in 2022, 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.

Dow 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”).

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• 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;

employment related matters such as hiring, compensation, promotions, terminations or severance payments for all senior vice presidents;

• 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 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;

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• 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.

The members of the Human Resources & Compensation Committee are Brian Choi, Ernest E.

Dow, 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.

The Committee met eight times in 2022.

Nomination & Governance Committee

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• 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;

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;

2 unchanged sentences

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.

Dow, Soo Hun Jung, M.D, Ock Hee Kim, Myung Ja (Susan) Park, and Yong Sin Shin.

The Committee met four times during 2022.

E XECUTIVE O FFICERS OF THE C OMPANY

5 unchanged sentences

Ki Won Yoon 62 Executive Vice President and Chief Lending Officer of the Bank

Kathrine Duncan 65 Executive Vice President and Chief Risk Officer of the Bank

Bang 56 Executive Vice President and Chief Banking Officer of the Bank

Ryan Shin 49 Executive Vice President and Chief SBA Officer of the Bank

Park 44 Executive Vice President and Chief Risk Officer of the Bank

The business experience of each of our executive officers, other than Ms.

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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.

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.

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 .

Duncan joined the Bank in April 2010 as Executive Vice President and Chief Risk Officer.

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.

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.

Bang has served as Executive Vice President and Chief Banking Officer of the Bank since October 2020.

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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.

Shin has served as Executive Vice President and Chief SBA Officer of the Bank since February 2022.

Shin has over 24 years of banking experience including 12 years as Senior Vice President & SBA Manager of Open Bank during which he led the Bank’s SBA lending by establishing the department structure and expanding the loan production.

Prior to joining the Bank, he served as Senior Vice President & SBA Manager of US Metro Bank, Mirae Bank and Pacific Union Bank.

Shin has a Bachelor of Science in Business Administration with Accounting concentration from California State University, Fullerton.

Park joined the Bank as Executive Vice President and Chief Risk Officer in June 2022, bringing with him two decades of banking experience and specialized expertise in regulatory compliance, anti-money laundering/bank secrecy act, Community Reinvestment Act, and risk management.

Prior to his current role, Mr.

Park served as Executive Vice President and Chief Risk Officer at Sunwest Bank and EVP/Chief Compliance Officer at First Choice Bank.

He holds a Bachelor of Arts degree in Mathematics from the University of Washington and has completed the Executive Leadership Training from University of Washington Foster School of Business Executive Education, as well as the Pacific Coast Banking School.

Park's professional credentials include Certified Regulatory Compliance Manager (CRCM), Certified Advanced AML Audit Specialist (CAMS-Audit), Certified AML and Fraud Professional (CAFP), and Certified Information Privacy Professional (CIPP/US).

C ORPORATE G OVERNANCE AND B OARD M ATTERS

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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:

In 2022, six out of seven 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

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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.

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 2022 Annual Meeting of Shareholders all of our directors were in attendance.

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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.

member of these committees is independent, as defined by the applicable rules and regulations of the Nasdaq Stock Market.

The committee chair determines the agenda, the frequency and the length of the meetings and receives input from committee members.

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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.

Oh, and each non-officer director were not timely filed.

Executive Compensation.

8 unchanged sentences

Oh 2022 294,340 129,000 (1)

140,000 20,060 583,400

Executive Vice President and Chief Financial Officer 2021 303,288 — 140,000 19,863 463,151

3 unchanged sentences

Executive Vice President and Chief Banking Officer 2021 250,000 445,500 105,000 16,200 816,700

(1) On June 24, 2021, the Company granted an aggregate 154,219 shares of stock awards to the named executive officers.

(1) On February 24, 2022, the Company granted 10,000 shares of stock awards to Ms.

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 $12.90.

(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.

Amounts for 2022 were determined and paid in March 2023.

(3) Other Compensation for the named executive officers for our fiscal year ended December 31, 2022 includes the following:

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The Management Incentive Plan for 2022 and 2021 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.

The limits for the Management Incentive Plan for 2022 and 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.

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%.

In addition, the Board has the discretion to approve any additional cash bonuses or adjustments to the accrual and/or distribution under the Management Incentive Plan 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% of performance goals set forth in the Management Incentive Plan for 2022 and 2021, 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.

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The Bank Goals consisted of achieving three financial targets:

ROA of 1.00%, ROE of 8.90% and an efficiency ratio of 60.78%.

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.

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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.

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.

Benefits and Other Perquisites

5 unchanged sentences

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

eligible during 2021, may elect to participate in the 401(k) Plan on the same basis as all other employees.

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 eligible during 2022, 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.

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As of December 31, 2022, 317,366 restricted stock units at an average issue price of $ 11.60 were outstanding.

There were no stock options granted under the 2021 Plan.

There were no stock options

granted under the 2021 Plan.

As of December 31, 2022, 1,130,583 shares were available for future grants in either stock options or restricted stock awards under the 2021 Plan.

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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.

Options granted to directors and employees vest either immediately or 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.

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Kim, 64,219 restricted stock units vest 1/3rd per year from the date of grant of June 24, 2021, subject to continuing service.

With regard to 10,000 restricted stock units for Ms.

Oh, 10,000 restricted stock units vest at the end of three years from the date of grant of February 24, 2022, subject to continuing service.

With regard to 36,000 restricted stock units for Mr.

11 unchanged sentences

Jason Hwang (3)

15,000 30,007 45,007

Soo Hun Jung, M.D.

6 unchanged sentences

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 $10.28.

Hwang passed away on April 25, 2022, and the Board reduced the number of directors from 8 to 7 at its meeting on May 10, 2022.

(4) The following table presents the number of shares underlying unvested stock awards held by each of our directors as of December 31, 2022.

Name Number of Shares Underlying Unvested Stock Awards

Brian Choi 4,086

Soo Hun Jung, M.D.

Ock Hee Kim 2,919

Myung Ja (Susan) Park 2,919

Yong Sin Shin 2,919

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.

11 unchanged sentences

Dow 244,594 1.60 %

Jason Hwang 148,055 0.98 %

Soo Hun Jung, M.D.

5 unchanged sentences

Oh 127,778 0.84 %

Oh 9,000 0.06 %

Bang 11,000 0.07 %

All directors and executive officers as a group (13 individuals) 3,689,167 (5) 23.89 %

EJF Capital LLC 859,130 (6) 5.68 %

Manulife Financial Corporation 887,695 (6) 5.81 %

AllianceBernstein L.P.

846,677 (7) 5.54 %

(1) Except as otherwise noted, the address for all persons is c/o OP Bancorp, 1000 Wilshire Boulevard, Suite 500, Los Angeles, California 90017.

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(4) Consists of 463,645 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.

Kim individually and 150,000 shares that are subject to options that are currently exercisable or are exercisable within 60 days of December 31, 2022.

(5) Includes 170,000 shares that are subject to options that are currently exercisable or are exercisable within 60 days of December 31, 2022.

(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.

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.

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.

(6) 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”).

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The foregoing information has been obtained from the shareholder’s Schedule 13G filed with the SEC on February 14, 2023.

(7) Represents the number of common shares beneficially owned by AllianceBernstein L.P.

The address of AllianceBernstein L.P.

is 1345 Avenue of the Americas, New York, NY 10105.

The foregoing information has been obtained from the shareholder’s Schedule 13G filed with the SEC on February 14, 2023.

The following table summarizes our equity compensation plans as of December 31, 2022:

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(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,

shareholder or executive officer;

(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, shareholder or executive officer;

(iii) the availability of other sources for comparable products or services;

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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.

As of December 31, 2022, 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 $810 thousand 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.

10 unchanged sentences

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.

The selection committee has four members annually selected by the Foundation Board of Directors.

We do not control the Foundation’s activities, and accordingly, we do not consolidate the financial statements of the Foundation.

1 unchanged sentence

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.

Principal Accounting Fees and Services.

Principal Accountant Fees and Services.

The following table summarizes the aggregate fees billed to the Company by its independent auditor:

2 unchanged sentences

Audit fees (1)

$ 524,000 $ 452,279

Audit-related fees — —

Tax fees (2) 39,350 52,367

61,172 39,350

All other fees — —

31 unchanged sentences

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)

10.4* 2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.6 to the Registrant’s Form S-1 Registration Statement (Registration No.

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DOW Director March 16, 2023

/s/ JASON HWANG Director March 18, 2022

/s/ SOO HUN JUNG Director March 16, 2023

5 unchanged sentences

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm (PCA OB ID Number 173 )

Report of Independent Registered Public Accounting Firm (PCAOB ID Number 173 )

Consolidated Balance Sheets at December 31, 202 2 and 20 21

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of OP Bancorp and subsidiary

Shareholders and the Board of Directors of OP Bancorp

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.

We have audited the accompanying consolidated balance sheets of OP Bancorp (the "Company") as of December 31, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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CONSOLIDATED BALANCE SHEETS

($ in thousands, except share data) December 31,

($ in thousands) 2022 2021

Cash and cash equivalents $ 82,972 $ 115,459

17 unchanged sentences

Time deposits greater than $250

356,197 207,288

Other time deposits 301,669 171,798

Total deposits 1,885,771 1,534,066

Federal Home Loan Bank advances — 5,000

Accrued interest payable 2,771 558

12 unchanged sentences

Retained earnings 105,690 79,056

Accumulated other comprehensive (loss) income ( 1,197 ) 840

Accumulated other comprehensive loss ( 17,843 ) ( 1,197 )

Total shareholders’ equity 176,916 165,222

3 unchanged sentences

CONSOLIDATED STATEMENTS OF INCOME

($ in thousands, except per share data) Year Ended December 31,

2021 2020 2019

Year Ended December 31,

($ in thousand, except per share data) 2022 2021 2020

INTEREST INCOME

5 unchanged sentences

Interest on deposits 11,210 3,132 8,292

Interest on borrowings 91 — —

Total interest expense 11,301 3,132 8,292

27 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ in thousands) Year Ended December 31,

2021 2020 2019

Year Ended December 31,

($ in thousands) 2022 2021 2020

NET INCOME $ 33,310 $ 28,840 $ 13,127

Other comprehensive (loss) income:

Change in unrealized gains (losses) on available-for-sale debt securities

Change in unrealized (loss) gain on securities available for sale

( 23,634 ) ( 2,891 ) 925

5 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

($ in thousands, except shares) Common Stock Additional

($ in thousands, except per share data) Common Stock Additional

Comprehensive

12 unchanged sentences

Balance at December 31, 2020 15,016,700 $ 78,657 $ 8,521 $ 55,348 $ 840 $ 143,366

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 — — — 28,840 — 28,840

Other comprehensive income

Other comprehensive loss

— — — — ( 2,037 ) ( 2,037 )

6 unchanged sentences

Balance at December 31, 2021 15,137,808 $ 78,718 $ 8,645 $ 79,056 $ ( 1,197 ) $ 165,222

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 — — — 33,310 — 33,310

4 unchanged sentences

Stock-based compensation, net — — 1,179 — — 1,179

Repurchase of common stock ( 3,830 ) ( 28 ) — — — ( 28 )

Cash dividends declared ($ 0.44 per share)

1 unchanged sentence

Balance at December 31, 2022 15,270,344 $ 79,326 $ 9,743 $ 105,690 $ ( 17,843 ) $ 176,916

15,137,808 $ 78,718 $ 8,645 $ 79,056 $ ( 1,197 ) $ 165,222

See accompanying notes to consolidated financial statements

14 unchanged sentences

Deferred income taxes 1,081 ( 2,312 ) ( 2,326 )

Gain on sales of loans ( 11,313 ) ( 6,092 ) ( 5,905 )

Gain on sale of loans ( 12,285 ) ( 11,313 ) ( 6,092 )

Gain on sales of other assets — — ( 213 )

14 unchanged sentences

32,191 35,941 30,321

Proceeds from company owned life insurance — — 2,288

Purchase of loans and servicing assets ( 97,631 ) — —

Purchase of company owned life insurance ( 10,000 ) — —

Purchase of loans ( 225,133 ) ( 97,631 ) —

Purchase of securities available for sale ( 115,819 ) ( 98,368 ) ( 65,226 )

20 unchanged sentences

Interest 9,088 3,595 9,957

Supplemental noncash disclosure:

Supplemental non-cash disclosure:

Initial recognition of right-of-use assets $ 1,961 $ 3,708 $ —

$ 3,708 $ — $ 8,254

New commitments to low income housing partnership investments 5,000 3,500 3,477

See accompanying notes to consolidated financial statements

OP BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

Business and Summary of Significant Accounting Policies

Business Description:

5 unchanged sentences

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.

OP Bancorp is operating with ten full-service branches.

Basis of Presentation:

3 unchanged sentences

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:

5 unchanged sentences

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.

Net cash flows are reported for customer loan and deposit transactions.

Asset Purchase :

6 unchanged sentences

Recognized amounts of identifiable assets purchased:

Loans (1) $ 100,003

Loan discounts ( 8,867 )

4 unchanged sentences

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,

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.

Accounting Standards Update (“ASU”) 2017-01, 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 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.

36 unchanged sentences

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

Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

The recorded investment in loans includes accrued interest receivable, deferred loan fees and costs, and unearned income.

2 unchanged sentences

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.

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.

26 unchanged sentences

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.

1 unchanged sentence

levels of and trends in delinquencies and impaired loans;

levels of and trends in charge-offs and

levels of and trends in charge-offs and recoveries;

trends in volume and terms of loans;

6 unchanged sentences

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.

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.

71 unchanged sentences

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.

Recent Accounting Pronouncements Not Yet Effective

In June 2016, Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326):

In June 2016, Financial Accounting Standards Board (" FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments — Credit Losses (Topic 326) :

Measurement of Credit Losses on Financial Instruments.

4 unchanged sentences

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).

In addition, credit losses on available-for-sale 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.

The Company has established a committee to oversee the implementation of ASU 2016-13 and has engaged a third-party software vendor to assist the Company to develop a new expected credit loss model.

The Company has completed development of its methodologies, data gathering and validation, and initial testing of its models.

The Company has completed parallel runs in the third and fourth quarters of 2022 and its internal reviews of model results, including model development documentation and model validation by a third-party adviser.

The Company adopted ASU 2016-13 on January 1, 2023 without electing the fair value option on eligible financial instruments.

ASU 2016-13 was adopted using a modified retrospective approach through a cumulative effect adjustment to retained earnings.

The Company's adoption of this ASU will result in an increase of approximately 10% to 15% in the allowance for credit losses.

The adjustment recorded upon adoption to record the allowance for credit losses may fall outside of management’s estimated increase based on material changes in the economic forecast and conditions and composition of the loan portfolio used in calculating the allowance for credit losses upon adoption.

In March 2022, FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) :

Troubled Debt Restructurings and Vintage Disclosures.

("ASU 2022-02").

ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in Accounting Standards Codification (“ASC”) Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty.

Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost.

ASU 2022-02 will be effective on January 1, 2023, and we adopted ASU 2022-02 on that date .

The adoption of ASU 2022-02 did not have a significant impact on our consolidated financial statements.

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.

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:

Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform.

The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

The ASU is intended to help stakeholders during the global market-wide reference rate transition period.

Therefore, this standards update is in effect from March 12, 2020 through December 31, 2022 and as extended by ASU 2022-06 to December 31, 2024 after which entities will no longer be permitted to apply the relief of Topic 848.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) :

Scope." This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

The Company is currently evaluating the impact of this pronouncement and the adoption of ASU 2020-04 is not expected to have a significant impact on our consolidated financial statements.

The following table summarizes the amortized cost, the corresponding amounts of gross unrealized gains and losses, and estimated fair value of available-for-sale ("AFS") debt securities as of December 31, 2022 and 2021:

December 31, 2022

6 unchanged sentences

($ in thousands) Amortized

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

Government agencies or sponsored agency securities:

3 unchanged sentences

There were no sales of AFS debt securities during the years ended December 31, 2022 and 2021.

The amortized cost and estimated fair value of AFS debt securities at December 31, 2021, by contractual maturity, are shown below:

The amortized cost and estimated fair value of AFS debt securities as of December 31, 2022, by contractual maturity, are shown below:

($ in thousands) Amortized

4 unchanged sentences

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.

As of December 31, 2022 and 2021, 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.

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, 2022

25 unchanged sentences

Accordingly, the Company does not consider these securities to be OTTI as of December 31, 2022.

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.

As of December 31, 2022 or 2021, 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, and for other purposes required or permitted by law.

The following table presents the other investment securities, which are included in Other investments on the Consolidated Balance Sheets as of December 31, 2022 and 2021:

($ in thousands) December 31, 2021 December 31, 2020

($ in thousands) 2022 2021

FHLB stock $ 8,483 $ 7,006

3 unchanged sentences

Total other investments $ 12,098 $ 10,999

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 has equity investment in a mutual fund with readily determinable fair value of $ 3.3 million and $ 3.7 million, as of December 31, 2022 and 2021, 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.

For the mutual fund, the Company recorded a $ 431 thousand and a $ 108 thousand unrealized loss for the years ended December 31, 2022 and 2021, respectively, and a $ 79 thousand unrealized gain for the year ended December 31, 2020.

The unrealized losses (gains) of the mutual fund are included in Other income in the Consolidated Statements of Income.

Loans and Allowance for Loan Losses

The following table presents the composition of the loan portfolio as of December 31, 2022 and 2021:

($ in thousands) December 31, 2021 December 31, 2020

($ in thousands) 2022 2021

Commercial real estate $ 842,208 $ 701,450

1 unchanged sentence

SBA loans—non-real estate (1)

13,377 55,759

Commercial and industrial ("C&I") 116,951 162,543

4 unchanged sentences

Loans receivable, net (2)

(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.

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

(1) Includes SBA Paycheck Protection Program ("PPP") loans of $ 442 thousand and $ 40.6 million as of December 31, 2022 and 2021, respectively.

(2) 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.

No loans were outstanding to related parties as of December 31, 2022 and 2021.

The following table summarizes the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2022, 2021 and 2020:

3 unchanged sentences

Provision for (reversal of) loan losses (1)

2,505 863 174 1,274 518 ( 16 ) 5,318

Charge-offs — — ( 45 ) — — — ( 45 )

1 unchanged sentence

Balance at December 31, 2020 $ 8,505 $ 1,802 $ 278 $ 2,563 $ 2,185 $ 19 $ 15,352

Provision for (reversal of) loan losses (1) 2,505 863 174 1,274 518 ( 16 ) 5,318

(Reversal of) provision for loan losses (1)

( 355 ) 279 54 285 706 ( 10 ) 959

Charge-offs — ( 59 ) ( 136 ) — — — ( 195 )

2 unchanged sentences

(Reversal of) provision for loan losses (1)

( 1,199 ) ( 409 ) 66 ( 1,205 ) 5,935 ( 7 ) 3,181

Charge-offs — ( 14 ) ( 127 ) — — — ( 141 )

1 unchanged sentence

Balance at December 31, 2022 $ 6,951 $ 1,607 $ 207 $ 1,643 $ 8,826 $ 7 $ 19,241

(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.

(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.

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, 2022 and 2021:

34 unchanged sentences

Total $ 1,124 $ 1,312,895 $ 1,314,019

(1) Excludes allowance for uncollectible accrued interest receivable of $ 205 thousand and $ 643 thousand as of December 31, 2021, and 2020, respectively.

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

(2) Excludes accrued interest receivables of $ 6.4 million and $ 4.4 million as of December 31, 2022, and 2021 , respectively.

The following table presents the recorded investment of individually impaired loans and the specific allowance for loan losses as of December 31, 2022 and 2021:

December 31, 2021 (1) December 31, 2020 (1)

December 31, 2022 (1)

December 31, 2021 (1)

($ in thousands) Unpaid Principal Balance Recorded

11 unchanged sentences

The difference between interest income recognized and cash basis interest recognized was immaterial.

2022 2021 2020

($ in thousands) Average

Investment Interest

SBA loans—real estate $ 597 $ —

Commercial and industrial 322 —

Total $ 919 $ —

SBA loans—non-real estate $ 182 $ 41

Total $ 513 $ 55

Recognized Average

Investment Interest

Recognized Average

Investment Interest

SBA loans—real estate $ 409 $ — $ 597 $ — $ — $ —

SBA loans—non-real estate — — — — 182 41

C&I 297 — 322 — 331 14

Total $ 706 $ — $ 919 $ — $ 513 $ 55

5 unchanged sentences

SBA loans—non-real estate 657 442 1,099

Commercial and industrial 313 — 313

C&I 279 — 279

Home mortgage 1,280 — 1,280

3 unchanged sentences

SBA loans—non-real estate 838 200 1,038

C&I 312 — 312

Home mortgage 1,038 — 1,038

1 unchanged sentence

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.

The following table represents the aging analysis of the recorded investment in past due loans at December 31, 2021 and 2020:

The following table represents the aging analysis of the recorded investment in past due loans as of December 31, 2022 and 2021:

($ in thousands) 30-59

18 unchanged sentences

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 $ 279 thousand and $ 313 thousand as of December 31, 2022 and 2021, 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.

As of December 31, 2022 and 2021, the Company has allocated $ 279 thousand and $ 313 thousand of specific reserves to the loan 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.

There were no new loans identified as TDRs during the years ended December 31, 2022 and 2021.

There were no payment defaults during the years ended December 31, 2022 and 2021 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.

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

Accounts Balance Number

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, there was no loan under COVID-19 loan payment modification.

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 PPP was 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.

As of December 31, 2022, the Company had loans outstanding with a carrying value of $ 442 thousand, which were recorded in the SBA – non-real estate.

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

3 unchanged sentences

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.

The Company analyzes loans individually by

classifying the loans as to credit risk.

This analysis is performed on a quarterly basis.

27 unchanged sentences

(1) Excludes accrued interest receivables of $ 6.4 million and $ 4.4 million as of December 31, 2022, and 2021 , respectively.

Premises and Equipment

The following table presents information regarding the premises and equipment as of December 31, 2022 and 2021:

($ in thousands) 2022 2021

Leasehold improvements $ 7,998 $ 7,375

Furniture and fixtures 3,983 3,530

Equipment and others 3,288 2,955

Total premises and equipment 15,269 13,860

Accumulated depreciation ( 10,869 ) ( 9,505 )

Total premises and equipment, net $ 4,400 $ 4,355

Total depreciation expense included in occupancy and equipment expenses was $ 1.4 million, $ 1.3 million and $ 1.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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 December 31, 2022 and 2021.

The following table presents an analysis of the changes in activity for loan servicing assets during the years ended December 31, 2022 and 2021:

Year Ended December 31,

($ in thousands) 2022 2021

Beginning balance $ 12,720 $ 7,360

Additions from loans sold with servicing retained 4,424 2,799

Additions from purchase of servicing rights — 6,097

Amortized to expense ( 4,385 ) ( 3,536 )

Ending balance $ 12,759 $ 12,720

The fair value of the servicing assets was $ 16.8 million as of December 31, 2022, which was determined using discount rates ranging from 4.40 % to 9.9 % and prepayment speeds ranging from 13.1 % to 13.8 %, depending on the stratification of the specific assets.

The fair value of the servicing assets was $ 15.5 million as of December 31, 2021, which was determined using discount rates ranging from 3.75 % to 10.0 % and prepayment speeds ranging from 14.6 % to 15.0 % depending on the stratification of the specific assets.

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, 2022.

6 unchanged sentences

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.

ROU assets and operating lease liabilities are recognized at lease 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.

18 unchanged sentences

Operating cash flows from operating leases $ 2,253 $ 2,082

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.

Rent expense was $ 2.9 million, $ 2.6 million and $ 2.5 million for the years ended December 31, 2022 and 2021 and 2020, respectively.

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, 2022:

4 unchanged sentences

Total lease liability $ 10,213

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.

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.

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.

The following table presents the scheduled contractual maturities of time deposits at December 31, 2021:

Time deposits that exceed the FDIC insurance limit of $250 thousand as of December 31, 2022 and 2021 were $ 356.2 million and $ 207.3 million, respectively.

The following table presents the scheduled contractual maturities of time deposits as of December 31, 2022:

($ in thousands) December 31,

2023 $ 630,543

2026 and thereafter 325

Total $ 657,866

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.

Deposits from principal officers, directors, and their affiliates as of December 31, 2022 and 2021 were $ 810 thousand and $ 1.2 million, respectively.

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.

As of December 31, 2022, the Company had $ 50 thousand borrowings with a 4.85 % interest rate from the First Horizon Bank, which are included in Other liabilities on the Consolidated Balance Sheets, compared to no borrowings as of December 31, 2021.

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, 2022 and 2021.

The Company had available borrowings from the following institutions as of December 31, 2022:

($ in thousands) December 31, 2021

Federal Home Loan Bank—San Francisco $ 350,585

($ in thousands)

FHLB—San Francisco $ 440,358

Federal Reserve Bank 175,605

3 unchanged sentences

Total $ 715,913

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.

The Company has pledged approximately $ 1.24 billion and $ 958.3 million of loans as collateral for these lines of credit as of December 31, 2022 and 2021, respectively.

The following table presents the components of income taxes expense (benefit) for the years ended December 31, 2022, 2021 and 2020:

41 unchanged sentences

Right of use asset ( 2,689 ) ( 2,633 )

Net unrealized gain on AFS debt securities — ( 352 )

Other ( 5 ) ( 39 )

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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 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, 2022 and 2021:

As of December 31,

($ in thousands) 2022 2021

8 unchanged sentences

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, 2022 and 2021:

As of December 31,

($ in thousands) 2022 2021

1 unchanged sentence

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.

5 unchanged sentences

The Company has three stock-based compensation plans currently in effect as of December 31, 2022, 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.

Total compensation cost that has been charged against earnings for these plans for the years ended December 31, 2022, 2021 and 2020 was $ 1.2 million, $ 558 thousand and $ 1.1 million, respectively.

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”).

1 unchanged sentence

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 exercise prices of the options may not be less than 100 % 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:

A summary of the transactions under the 2005 Plan for the year ended December 31, 2022 is as follows:

($ in thousands, except share data) Number of

15 unchanged sentences

Tax benefit realized from option exercised 2 27 17

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 .

The weighted average remaining contractual term of stock options outstanding under the 2005 Plan as of December 31, 2022 was 0.7 year.

The weighted average remaining contractual term of stock options that were exercisable as of December 31, 2022 was 0.7 year.

All of the stock options that are outstanding under the 2005 Plan were fully vested as of December 31, 2022.

2 unchanged sentences

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 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.

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.

The 2010 Plan expired in August 2020, and no further grants can be made under the 2010 Plan.

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:

A summary of the stock options outstanding under the 2010 Plan for the year ended December 31, 2022 is as follows:

($ in thousands, except share data) Number of

15 unchanged sentences

Tax benefit realized from option exercised — — 157

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:

The weighted average remaining contractual term of stock options outstanding as of December 31, 2022 was 1.3 years.

The weighted average remaining contractual term of stock options that were exercisable as of December 31, 2022 was 1.3 years.

A summary of the changes in the Company's non-vested restricted stock awards under the 2010 Plan for the year ended December 31, 2022 is as follows:

($ in thousands, except share data) Shares Issued Weighted Average Grant Date Fair Value Aggregate

Non-vested, as of January 1, 2022 21,000 $ 7.95 $ 268

Awards granted — —

Awards vested — —

Awards forfeited ( 6,500 ) 6.37

Non-vested, as of December 31, 2022 14,500 $ 8.66 $ 162

Information related to vested restricted stock awards under the 2010 Plan for the periods indicated follows:

Year Ended December 31,

1 unchanged sentence

Tax (provision) benefit realized from awards vested $ — $ ( 85 ) $ 21

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.

As of December 31, 2022, the Company had approximately $ 30 thousand of unrecognized compensation cost related to unvested restricted stock awards under the 2010 Plan.

The Company expects to recognize these costs over a weighted average period of 1.5 years.

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”).

Bank (the “2021 Plan”).

The 2021 Plan was approved by the Company’s shareholders at the 2021 Annual Meeting.

1 unchanged sentence

The exercise prices of stock options granted under the plan may not be less than 100.00 % 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.

There are no stock options granted under the 2021 Plan as of December 31, 2022.

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

(cash or stock).

Owners of the restricted stock awards shall have all 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.

7 unchanged sentences

Non-vested, as of December 31, 2022 317,366 $ 11.60 $ 3,542

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.

Information related to vested restricted stock awards under the 2021 Plan for the periods indicated follows:

Year Ended Year Ended December 31,

($ in thousands) 2022 2021 2020

Tax benefit realized from awards vested $ 12 $ — $ —

There were 1,130,583 shares available for future grants of either stock options or restricted stock awards under the 2021 Plan as of December 31, 2022.

The Company had approximately $ 2.8 million of unrecognized compensation cost related to unvested restricted stock awards under the 2021 Plan as of December 31, 2022.

5 unchanged sentences

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.

Total employer contributions to the 401(k) Plan amounted to $ 867 thousand, $ 752 thousand and $ 691 thousand for the years ended December 31, 2022 and 2021 and 2020, respectively.

Fair Value of Financial Instruments

30 unchanged sentences

December 31, 2021

Government sponsored agency securities $ 1,005 $ — $ 1,005 $ —

Government agencies or sponsored agency securities:

3 unchanged sentences

Mutual fund - CRA qualified 3,708 3,708 — —

There were no transfers of assets or liabilities between the Level 1 and Level 2 classifications during 2021 or 2020.

There were no transfers of assets or liabilities between the Level 1 and Level 2 classifications for years ended December 31, 2022 or 2021.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

6 unchanged sentences

Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification.

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 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.

13 unchanged sentences

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:

Year Ended December 31,

($ in thousands) 2022 2021 2021

8 unchanged sentences

Impaired loans:

SBA loans—real estate $ 419 Market approach Market data

SBA loans—real estate $ 423 Income approach -

3 unchanged sentences

Impaired loans:

SBA loans—non-real estate $ 25 Market approach Market data

SBA loans—real estate $ 418 Market approach Market data

SBA loans—real estate $ 394 Income approach -

income capitalization

Capitalization rate 12.0 % 12.0 %

(1) Weighted-average of inputs is based on the relative fair value of the respective assets as of December 31, 2022 and 2021 .

(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.

Financial Instruments :

3 unchanged sentences

($ in thousands) Carrying

Amount Level 1 Level 2 Level 3 Value

Amount Level 1 Level 2 Level 3 Fair Value

Financial assets:

9 unchanged sentences

Deposit 1,885,771 — 1,880,508 — 1,880,508

FHLB Advances $ — $ — $ — $ — $ —

Accrued interest payable 2,771 — 2,771 — 2,771

1 unchanged sentence

($ in thousands) Carrying

Amount Level 1 Level 2 Level 3 Value

Amount Level 1 Level 2 Level 3 Fair Value

Financial assets:

9 unchanged sentences

Deposit 1,534,066 — 1,534,066 — 1,534,066

FHLB Advances $ 5,000 $ — $ 5,000 $ — $ 5,000

Accrued interest payable 558 — 558 — 558

6 unchanged sentences

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

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.

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 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

23 unchanged sentences

December 31, 2022

Actual (1) Required for

Capital Adequacy

17 unchanged sentences

December 31, 2021

Actual (1) Required for

Capital Adequacy

30 unchanged sentences

Net income $ 33,310 $ 28,840 $ 13,127

Undistributed earnings allocated to participating securities ( 330 ) ( 195 ) ( 383 )

Distributed and undistributed earnings allocated to participating securities ( 704 ) ( 330 ) ( 195 )

Net income allocated to common shares $ 32,606 $ 28,510 $ 12,932

7 unchanged sentences

Diluted earnings per common share $ 2.14 $ 1.88 $ 0.85

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.

No share of common stock was antidilutive for the years ended December 31, 2022 and 2021.

For the year ended December 31, 2020, antidilutive stock options for 212,000 shares of common stock were excluded from the diluted EPS computation.

Parent Company Condensed Financial Statements

28 unchanged sentences

Condensed Statements of Cash Flows

Year Ended December 31,

($ in thousands) 2022 2021 2020

11 unchanged sentences

Proceeds from subsidiaries 6,675 5,123 13,921

Net cash (used in) provided by financing activities ( 37 ) 1,555 2,848

Net cash provided by (used in) financing activities 1 ( 37 ) 1,555

Net change in cash and cash equivalents ( 871 ) ( 1,037 ) 1,249

1 unchanged sentence

Cash and cash equivalents at end of year $ 1,560 $ 2,431 $ 3,468

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

Subsequent Events

1 unchanged sentence

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 9A. Controls and Procedures