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Item 7. Management’s Discussion and Analysis

2024-03-29 compared with 2023-03-16 · 304 added, 240 removed, 545 unchanged (50% of the section changed)

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Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.

You should review the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

You should review the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A.

Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

We are a bank holding company headquartered in Los Angeles, California.

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

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

We currently operate eight branches in Los Angeles and Orange Counties in California, one branch in Santa Clara, California, one branch in Carrollton, Texas and one branch in Las Vegas, Nevada.

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

We adopted Accounting Standards Update (“ASU”) 2016-13, which replaced the current incurred loss accounting model with the Current Expected Credit Losses approach.

The adoption of this ASU increased the allowance for credit losses by $1.9 million and allowance for off-balance sheet commitments by $184 thousand and recorded a deferred tax assets of $624 thousand and a decrease to opening retained earnings of $1.5 million on January 1, 2023.

Banking Economy and Recent Developments

Beginning in late 2021, the Federal Reserve Board Open Markets Committee, which strives to manage benchmark interest rates in the United States, began a series of upward adjustments to the “discount rate” for short-term borrowings in response to perceived increases in inflationary pressures.

Financial institutions and markets promptly followed these adjustments, significantly increasing interest rate pricing on loans and deposits.

While such adjustments are commonplace and tend to affect the banking industry as a whole, the pace and degree of these adjustments were nearly unprecedented, resulting in banks, including the Bank, experiencing substantial pressure on multiple fronts.

In particular, banks were forced to increase interest rates paid on deposits in order to meet competitive pressures from other financial institutions, as well as from treasury securities and other investment opportunities that offered greater earning capabilities for those

These increases correspondingly increased the Bank’s cost of funds and exerted downward pressure on our net interest margins.

The increases in market interest rates also were reflected in loan pricing, which had multiple effects, including a reduction in borrowing (and thus a reduction in interest paid to banks) by customers that had the ability to avoid or defer additional indebtedness, a decline in the origination of new loans, and an increase in credit risk as borrowers who faced rising interest rates found it more difficult to comply with their loan obligations.

The combination of these factors has exerted downward pressure on our fee income, the volume of our interest-earning assets and our net interest income.

Lastly, as a result of the prolonged low-interest-rate environment that had prevailed for years prior to the more recent market rate increases, the Bank, like most other financial institutions, had invested in treasury securities and other relatively low-yielding but stable instruments as a means to preserve liquidity, accepting the lower returns as a trade-off for a perceived lower risk profile.

However, the rapidity of the Federal Reserve’s rate increases resulted in a dramatic loss of value for bonds that were paying at lower interest rates as investors eschewed those investments for higher-yielding fixed- and adjustable-rate debt securities.

These forces even resulted in the closure of three large U.S.

banks, including two banks with extensive operations in our market area, when customers alarmed at the apparent instability in the banking sector quickly demanded a return of their deposits at a time when banks were confronting substantial challenges.

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

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• Gross loans were $1.77 billion, an increase of $87.6 million, or 5.2%, from $1.68 billion.

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

• Total deposits were $1.81 billion, a decrease of $78.2 million, or 4.1%, from $1.89 billion.

• Shareholders’ equity was $192.6 million, an increase of $15.7 million, or 8.9%, from $176.9 million.

For the year ended December 31, 2023 compared to 2022

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

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

• Net interest income decreased to $68.7 million, a decrease of $8.2 million, or 10.7%, from $76.9 million.

• Net income was $23.9 million or $1.55 per diluted common share, a decrease of $9.4 million, or 28.2%, from $33.3 million or $2.14 per diluted common share.

For the year ended December 31, 2022 compared to 2021

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

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

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

SELECTED FINANCIAL DATA

As of or For the Year Ended December 31,

Year Ended December 31,

($ in thousands, except share and per share data) 2023 2022 2021

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Net interest income 68,687 76,911 61,026

Provision for loan losses 2,976 522 5,961

Provision for credit losses 1,651 2,976 522

Noninterest income 14,181 17,619 16,017

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57.59 47.42 46.55

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

As of December 31,

($ in thousands) 2023 2022

Balance Sheet Data:

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

Gross loans $ 1,765,845 $ 1,678,292

Loans held for sale 1,795 44,335

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

Allowance for credit losses 21,993 19,241

Total assets 2,147,730 2,094,497

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

Total deposits 1,807,558 1,885,771

Shareholders’ equity 192,626 176,916

Asset Quality Data:

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

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

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

Allowance for loan losses to gross loans receivable 1.15 % 1.23 % 1.40 %

Nonperforming loans to gross loans 0.34 % 0.18 %

Allowance for credit losses to nonperforming loans 362 625

Allowance for credit losses to gross loans 1.25 1.15

Balance Sheet and Capital Ratios:

Gross loans receivable to deposits 89.00 % 85.66 % 91.64 %

Gross loans to deposits 97.69 % 89.00 %

Noninterest-bearing deposits to deposits 28.92 37.20

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Total risk-based capital ratio 13.77 13.06

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

Loan Payment Deferrals Related to the COVID-19 Pandemic

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

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

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

Paycheck Protection Program

Beginning in April 2020, we accepted applications under the PPP administered by the SBA under the CARES Act, as amended by the Economic Aid Act enacted on December 27, 2020 and have originated loans to qualified small businesses.

Under the terms of the program, loans funded through the PPP are eligible to be forgiven if certain requirements are met, including using the funds for certain costs relating to payroll, healthcare and qualifying mortgage interest, rent and utility payments.

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

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

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

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

Critical Accounting Policies and Estimates

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Additional information about these policies can be found in the “Notes to Consolidated Financial Statements, Note 1.

Summary of Significant Accounting Policies.”

Allowance for Loan Losses

The allowance for loan losses (“ALL”) is a valuation allowance for probable incurred credit losses.

Loan losses are charged against the ALL when management believes the uncollectibility of a loan balance is confirmed.

Subsequent recoveries, if any, are credited to the ALL.

Management estimates the ALL balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.

Allocations of the ALL may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The ALL is maintained at a level that management believes is appropriate to provide for known and inherent incurred loan losses as of the date of the Consolidated Balance Sheets and we have established methodologies for the determination of its adequacy.

The methodologies are set forth in a formal policy and take into consideration the need for an overall general valuation allowance as well as specific allowances that are determined on an individual loan basis.

The evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

While management uses available information to recognize losses on loans, changes in economic or other conditions may necessitate revision of the estimate in future periods.

Business and Summary of Significant Accounting Policies.”

New Accounting Pronouncements Adopted

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

Measurement of Credit Losses on Financial Instruments.

The Company adopted ASU 2016-13 using a modified retrospective approach on January 1, 2023.

The Company replaced the current incurred loss accounting model with the Current Expected Credit Losses ("CECL") approach for financial instruments measured at amortized cost and other commitments to extend credit.

CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset.

The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable forecasts.

The adoption of this ASU increased the allowance for credit losses by $1.9 million and allowance for off-balance sheet commitments by $184 thousand.

The Company also recorded a deferred tax assets of $624 thousand and a decrease to opening retained earnings of $1.5 million on January 1, 2023.

The increase to allowance for credit losses was primarily due to longer duration of home mortgage loans, offset primarily by shorter duration of commercial and industrial ("C&I")

The Company did not record an allowance for credit losses on the Company’s available-for-sale debt securities as a result of this adoption.

Disclosures for periods after January 1, 2023 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable standards and the accounting policies.

Allowance for Credit Losses

The Company employs a modeled approach that takes into account current and future economic conditions to estimate lifetime expected losses on a collective basis.

With the adoption of CECL, the Company elected not to consider accrued interest receivable in its estimated credit losses because the Company writes off uncollectible accrued interest receivable in a timely manner.

The Company considers writing off accrued interest amounts once the amounts become 90 days past due to be considered within a timely manner.

The Company has elected to write off accrued interest receivable by reversing interest income.

The Company uses transition matrices to develop the Probability of Default ("PD") and Loss Given Default ("LGD") approach, incorporating quantitative factors and qualitative considerations in the calculation of the allowance for credit losses for collectively assessed loans.

The model provides forecasts of PD and LGD based on national unemployment rates using regression analysis.

The Company incorporates future economic conditions using a weighted multiple scenario approach:

baseline and adverse.

The Company applies a reasonable and supportable period of one year for the baseline scenario and two years for the adverse scenario, after which loss assumptions revert to historical loss information through a one-year reversion period for the baseline scenario and a two-year reversion period for the adverse scenario.

We make critical accounting estimates, including the judgments made in the application of significant accounting policies, sensitivity to change, and the likelihood of materially different reported results if different assumptions were used.

In order to quantify the credit risk impact of other trends and changes within the loan portfolio, we utilize qualitative adjustments to the modeled estimated loss approaches.

The parameters for making adjustments are established under a Credit Risk Matrix that provides different possible scenarios for each of the factors listed below.

The Credit Risk Matrix and the possible scenarios enable the Bank to qualitatively adjust the loss rates.

This matrix considers the following nine factors, which are patterned after the guidelines provided under the Federal Financial Institutions Examination Council Interagency Policy Statement on the Allowance for Credit Losses, updated to reflect the adoption of CECL:

• Changes in lending policies and procedures, including changes in underwriting standards and practices for collection, charge-offs, and recoveries;

• Actual and expected changes in national and local economic and business conditions and developments in which the institution operates that affect the collectivity of loans;

• Changes in the nature and volume of the loan portfolio;

• Changes in the experience, ability, and depth of lending management and staff;

• Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified loans;

• Changes in the quality of the credit review function;

• Changes in the value of the underlying collateral for loans that are not collateral-dependent;

• The existence, growth, and effect of any concentrations of credit, and

• The effect of other external factors, such as the regulatory, legal and technological environments;

and events such as natural disasters.

RESULTS OF OPERATIONS

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

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

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

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

Year Ended December 31,

($ in thousands) 2022 Change 2021 Change 2020

We reported net income for the year ended December 31, 2023 of $23.9 million, a decrease of $9.4 million, or 28.2%, compared to net income of $33.3 million for the same period of 2022.

The decrease was primarily due to a $8.2 million decrease in net interest income, a $3.4 million decrease in noninterest income and a $2.9 million increase in noninterest expense, offset by a $3.8 million decrease income tax expense and a $1.3 million decrease in provision for credit losses.

We reported net income for the year ended December 31, 2022 of $33.3 million, and increase of $4.5 million, or 15.5%, compared to net income of $28.8 million for the same period of 2021.

The increase was primarily due to a $15.9

million increase in net interest income, partially offset by a $9.0 million increase in noninterest expense and a $2.5 million increase in provision for credit losses.

Year Ended December 31, Change 2023 vs.

2022 Change 2022 vs.

($ in thousands) 2023 2022 2021

Interest income $ 121,665 $ 88,212 $ 64,158 $ 33,453 $ 24,054

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Net interest income 68,687 76,911 61,026 (8,224) 15,885

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

Provision for credit losses 1,651 2,976 522 (1,325) 2,454

Noninterest income 14,181 17,619 16,017 (3,438) 1,602

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The management of interest income and expense is fundamental to our financial performance.

Net interest income, the difference between interest income and interest expense, is the largest component of the Company’s total revenue.

Net interest income, the difference between interest income and interest expense, is the largest component of our total revenue.

Management closely monitors both total net interest income and the net interest margin (net interest income divided by average earning assets).

We seek to maximize net interest income without exposing the Company to an excessive level of interest rate risk through our asset and liability policies.

We seek to maximize net interest income without exposing us to an excessive level of interest rate risk through our asset and liability policies.

Interest rate risk is managed by monitoring the pricing, maturity and repricing options of all classes of interest-bearing assets and liabilities.

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Cost of funds 2.78 % 0.66 %

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

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

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

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Cost of funds 0.66 % 0.22 %

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

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2023 Compared to 2022

Net interest income decreased $8.2 million, or 10.7%, to $68.7 million for the year ended December 31, 2023 from $76.9 million for the same period of 2022, primarily due to higher interest expense on deposits, partially offset by higher interest income on loans and investments.

Interest expense on deposits increased $38.2 million to $49.4 million for the year 2023, compared with $11.2 million for the same period of 2022.

The increase was primarily due to a 32.1% increase in average balance of interest-bearing deposits and a 285 basis point increase in average cost of interest-bearing deposits driven by the Federal Reserve's rate increases.

Average balance of interest-bearing deposits increased $295 million or 32.1% compared with the same period of 2022 because a $167 million increase in average balance of loans and a $182 million decrease in noninterest-bearing deposits for the year 2023 were primarily funded through the increase in interest-bearing deposits.

Average cost of interest-bearing deposits increased a 285 basis point to 4.1% for the year ended December 31, 2023, from 1.2% for the same period of 2022, primarily due to the Federal Reserve’s rate increases.

Interest income on total investments, including interest-bearing deposits in other banks and available-for-sale debt securities, increased $5.9 million primarily due to a 175 basis point increase in average yield on total investments to 3.79% for the year 2023 from 2.04% for the same period of 2022 driven by the Federal Reserve’s rate increases and higher yields on securities purchased in 2023.

Interest income on loans increased $27.6 million to $110.5 million for the year 2023 compared with $82.9 million for the year 2022, primarily due to a $167 million increase in average balance of loans and a 108 basis point increase in average yield on loans.

Net interest margin was 3.37% for the year ended December 31, 2023, a 81 basis point decrease from 4.18% for the same period of 2022, primarily due to a 171 basis point decrease in net interest spread from the higher increase in average cost of interest-bearing deposits compared to the increase in average yield on loans and investments.

2022 Compared to 2021

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

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

2021 Compared to 2020

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

This increase was primarily due to a $10.5 million increase in interest income from SBA loans, a $155.0 million increase in average SBA loan balance and a $5.2 million decrease in interest expense.

Total interest income was $64.2 million in 2021, compared to $53.7 million in 2020, an increase of $10.5 million, or 19.6%.

This increase was primarily due to an increase in interest earned on SBA loans.

Interest and fees on loans was $62.4 million in 2021, compared to $51.8 million in 2020, an increase of $10.6 million, or 20.5%.

This increase in interest income on loans was primarily due to a $155.0 million increase in average loan balance resulting from the purchase of loan portfolio from the Hana Small Business Lending, ("Hana") and PPP originations.

Interest income on total investments was $1.7 million in 2021, compared to $1.8 million in 2020.

Interest income on securities available for sale decreased $92 thousand, or 7.8%, to $1.1 million in 2021, compared to $1.2 million in 2020.

The decrease was primarily due to a 60 basis point decrease in the average yield, partially offset by a 52.0% increase in the average balance of securities available for sale.

Interest income on federal funds sold and other investments decreased $25 thousand, or 3.8%, to $625 thousand in 2021 from $650 thousand in 2020, due to a 27 basis point decrease in the average yield on the federal funds sold and other investments, partially offset by a 55.5% increase in the average balance of federal funds sold and other investments held by the Company.

Total interest expense was $3.1 million in 2021, compared to $8.3 million in 2020, a decrease of $5.2 million, or 62.2%.

The decrease was primarily due to a 77 basis point decrease in the average rate paid on interest-bearing deposits as a result of the downward adjustments of the Company’s rates paid on interest-bearing deposits in response to the rate decreases by the Federal Reserve.

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

Provision for Loan Losses

Provision for Credit Losses

Credit risk is inherent in the business of making loans.

We establish an allowance for loan losses through charges to earnings, which are shown in the statements of operations as the provision for loan losses.

We establish an allowance for credit losses both on loans and off-balance sheet commitments through charges to earnings, which are shown in the statements of operations as the provision for credit losses.

Specifically identifiable and quantifiable known losses are promptly charged off against the allowance.

The provision for loan losses is determined by conducting a quarterly evaluation of the adequacy of our allowance for loan losses and charging the shortfall or excess, if any, to the current quarter’s expense.

The provision for credit losses is determined by conducting a quarterly evaluation of the adequacy of our allowance for credit losses and charging the shortfall or excess, if any, to the current quarter’s expense.

This has the effect of creating variability in the amount and frequency of charges to earnings.

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

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

2023 Compared to 2022

The provision for credit losses was $1.7 million for the year ended December 31, 2023, compared to $3.0 million for the same period of 2022.

The $1.7 million in the provision for credit losses was mainly composed of a $735 thousand increase in qualitative reserves and a $754 thousand increase in net charge-offs for the year 2023.

The qualitative reserves were primarily due to upward adjustments to qualitative factors based on deteriorating economic and business conditions in 2023 compared to 2022 and an increasing trend in nonperforming and classified loans in our loan portfolio.

There was no change in quantitative reserves in 2023 as a $450 thousand increase in reserves from loan growth in 2023 was offset by an equivalent release of reserves from decreases in historical loss factors.

2022 Compared to 2021

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

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

The changes in quantitative reserves from loan growth in real estate and home mortgage loans

accounted for an increase of $5.8 million in the provision for loan losses for the year ended December 31, 2022.

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

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

2021 Compared to 2020

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

Management evaluated the qualitative and quantitative factors on all loan types to reflect the COVID-19 pandemic’s prolonged potential adverse impacts on national, state, and local economic and business conditions.

The changes in qualitative factors accounted for a decrease of $1.1 million, and the changes in quantitative factors accounted for an increase of $1.5 million in the provision for loan losses for the year ended December 31, 2021.

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

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

Noninterest Income

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Total noninterest income $ 14,181 $ 17,619 $ (3,438) (19.5) %

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

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

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

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

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

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

Noninterest income for the year ended December 31, 2023 was $14.2 million, a decrease of $3.4 million, or 19.5%, compared to $17.6 million for the same period of 2022, primarily due to a decrease in gain on sale of loans.

Gain on sale of loans was $7.8 million for the year ended December 31, 2023, compared to $12.3 million for the same period of 2022, a decrease of $4.4 million or 36.2%.

The decrease was primarily due to a lower sold amount in SBA loans and a lower average sales premium.

We sold $145.0 million of SBA loans with an average premium of 6.65% for the year ended December 31, 2023, compared to a sale of $181.9 million of SBA loans with an average premium of 7.45% in the same period of 2022.

Other income was $1.8 million for the year ended December 31, 2023, compared to $1.2 million, an increase of $523 thousand or 42.1%, primarily due to a $479 thousand increase in a holding gain on our equity in equity investments.

Equity investments had an unrealized holding gain of $48 thousand as of December 31, 2023 compared to an unrealized holding loss of $431 thousand as of December 31, 2022.

Service charges on deposit was $2.1 million for the year ended December 31, 2023, compared to $1.7 million for the same period of 2022, an increase of $448 thousand or 26.7%, primarily due to an increase in deposit analysis fees from an increase in the number of analysis accounts.

2022 Compared to 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Noninterest Expense

2022 Compared to 2021

2023 Compared 2022

The following table sets forth the major components of our noninterest expense for the years ended December 31, 2023 and 2022:

13 unchanged sentences

Noninterest expense for the year ended December 31, 2023 was $47.7 million, compared with $44.8 million for the same period of 2022, an increase of $2.9 million or 6.5%.

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

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

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

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

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

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

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

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

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

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

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

Salaries and employee benefits for the year ended December 31, 2023 was $29.6 million, compared to $27.2 million for the same period of 2022, an increase of $2.4 million, or 8.8%.

The increase was primarily due to a $1.0 million increase from a 17.2 increase in average number of full-time employees to 224.4 in 2023 from 207.2 in 2022, and a $850 thousand decrease in loan origination costs as a result of lower loan originations in 2023.

Occupancy and equipment for the year ended December 31, 2023 was $6.5 million, compared to $6.0 million for the same period of 2022, an increase of $526 thousand, or 8.8%.

The increase was primarily due to the opening of Spring Mountain Office in Las Vegas, Nevada and two renewed leases for branches in California.

FDIC insurance and regulatory assessments for the year ended December 31, 2023 was $1.5 million, compared to $813 thousand, an increase of $644 thousand, or 79.2%.

The increase was primarily due to our deposit growth from the same period of 2022 and an increase in FDIC assessment fees in 2023.

Foundation donations and other contributions for the year ended December 31, 2023 was $2.4 million, compared to $3.4 million, a decrease of $993 thousand, or 29.3%.

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

2022 Compared to 2021

13 unchanged sentences

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

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

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

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

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

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

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

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

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

This increase was primarily to support balance sheet growth.

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