What changed in this filing

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Item 9A. Controls and Procedures

2024-03-29 compared with 2023-03-16 · 489 added, 477 removed, 1561 unchanged (38% of the section changed)

2 unchanged sentences

The Company’s management, including our President and Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered in this report.

Based on such evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of that date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)).

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

Our management concluded that, as of December 31, 2023, our internal control over financial reporting was effective based on these criteria

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 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.

Limitations on Effectiveness of Controls and Procedures and Internal Control over Financial Reporting

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Other Information.

Not applicable.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

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

Good Samaritan

Hospital, and Korean-American Medical Group.

In addition, he is a member of American Medical Association, American College of Physicians, and Korean Medical Association.

Good Samaritan Hospital, and Korean-American Medical Group.

In addition, he is a member of American Medical Association, American

College of Physicians, and Korean Medical Association.

He serves as Clinical Assistant Professor of Medicine for U.S.C.

2 unchanged sentences

Jung has a broad-based understanding of the Company and the Bank and is deeply committed to the community through his medical practice and affiliations with medical organizations and associations.

Kim, age 61, is a founder and CEO of KLK Capital Management LLC, California-based investment firm.

Prior to establishing his own investment firm, he served as Vice President at Merrill Lynch, with more than 20 years of experience in the finance industry.

In addition to receiving his Bachelor of Arts in Chemistry from Binghamton University, he holds his Certified Financial Planner professional designation and the Financial Industry Regulatory Authority (FINRA) Series 3, 7, and 66 licenses.

With his extensive knowledge and understanding of macroeconomics and finance, he contributes to the Board with historical economic trends, current headlines, and forecasting economic trends.

Kim, age 64, has served as the President and Chief Executive Officer and a member of the Board of the Company and the Bank since April 2010.

8 unchanged sentences

She provides the Board with an overall perspective of all facets of the Company’s business, financial condition and strategic direction.

Ock Hee Kim .

Kim, age 81, has served as a member of the Board since the founding of the Bank in 2005.

She was the owner of Lily’s Dress Co., an apparel manufacturing company she founded in 1974 for 30 years.

Kim is actively involved in the L.A.

Central Lions Club.

Kim serves as a deaconess in Torrance Presbyterian Church.

Kim obtained her Bachelor of Arts degree in Music from Kyung Hee University in Seoul, Korea.

Kim brings a valuable perspective to the Board as result of her over 30 years of experience in the apparel and garment business which is an important industry in our downtown Los Angeles and Koreatown marketing areas, as well as and her involvement in local community activities.

Myung Ja (Susan) Park .

Park, age 74, has served as a Board member since the founding of the Bank in 2005.

She is the owner and President of LP Royal Import LLC, an importer and national distributor of craft and wedding accessories.

Park is also the current President of Park & Park, a property investment company.

She is previously the President of Royal Accessories, an importer of artificial flowers and bridal accessories, a company she founded in 1986.

From 1977 to 2003, Ms.

Park was the sole shareholder and Chief Executive Officer of Showroom 3, Inc., a manufacturer of wedding accessories based in China.

Over that same time period, Ms.

Park was co-owner of B.

World Corp, a leading importer/exporter and nationwide distributor of artificial flowers and wedding accessories.

Park has been an active member of her community and served as the Vice President of the Korean Business and Professional Women’s Association.

She also served as the Chairwoman of the Fundraising Board of the Children of Afghanistan Relief Initiative for World Vision.

Park contributes to the Board over 40 years of experience and knowledge of the import/export business, and is passionate about serving the needs of the Korean-American community.

Kwon, age 67, is the President of UNI & Good Friend Insurance, an independent retail insurance brokerage in the Greater Los Angeles area.

She has over 40 years of leading insurance experience within the Korean and American insurance industries.

She has also been an active, founding member of KAIFPA , the Korean American Insurance and Financial Professional Assoc i ation , since 1985, where she has not only held a Board Member seat since then but has been Board Chair in 2002-2003 and 2020-2022.

Kwon commenced her active Member Advisory Council of United Valley Agencies in 2022.

S he is serving as a Board Member of the Korean American Chamber of Commerce of Orange County in 2023.

Yong Sin Shin .

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The Chairman of the Board provides guidance to the Chief Executive Officer, sets the agenda for Board meetings, presides over meetings of the full Board (including executive sessions), and facilitates communication among the independent directors and between the independent directors and the Chief Executive Officer.

The Board further believes that the separation of the duties of the Chief Executive Officer and the Chairman of the Board eliminates any inherent conflict of interest that

may arise when the roles are combined, and that an independent director who has not served as an executive of the Company can best provide the necessary leadership and objectivity required as Chairman of the Board.

Compensation Committee Interlocks and Insider Participation

None of the members of our Human Resources & Compensation Committee will be or will have been one of our officers or employees.

In addition, none of our executive officers serves or has served as a member of the compensation committee or other Board committee performing equivalent functions of any entity that has one or more executive officers serving as one of our directors or on our Human Resources & Compensation Committee.

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.

Risk Management and Oversight

8 unchanged sentences

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.

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The members of the Audit Committee are Brian Choi, Ernest E.

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;

(ii) an ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves;

(iii) an experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by our financial statements, or experience actively supervising one or more persons engaged in such activities;

(iv) an understanding of internal control over financial reporting;

and (v) an understanding of audit committee functions.

Therefore, in 2022, the Board determined that Mr.

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”).

The designation does not impose on the person any duties, obligations or liability greater than those imposed on any other audit committee member or any other director and does not affect the duties, obligations or liability of any other member of the Audit Committee or Board of Directors.

Dow (committee chair), Soo Hun Jung, M.D., Sunny Kwon, Hyung J.

Kim, and Yong Sin Shin.

The Audit Committee met thirteen times in 2023.

Human Resources & Compensation Committee

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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 eight times in 2022.

Dow, Soo Hun Jung, M.D., Sunny Kwon (committee chair), Hyung J.

Kim, and Yong Sin Shin.

The Committee met six times in 2023.

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;

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;

• evaluate Board performance and annually review the appropriate skills and characteristics required of Board members in the context of the current make-up or the Board, including such factors as business and professional experience, diversity and personal skills in finance, real estate capital markets, government regulation, financial reporting and other areas that are expected to contribute to an effective Board;

• review the effectiveness, structure and operation of committees of the Board and the qualifications of members of the Board committees, and recommend to the Board the directors to serve or be removed as members of each committee and to recommend additional committee members to fill any vacancies;

2 unchanged sentences

The members of the Nomination & Governance Committee are Brian Choi (committee chair), Ernest E.

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

Dow, Soo Hun Jung, M.D, Sunny Kwon, Hyung J.

Kim, and Yong Sin Shin.

The Committee met four times during 2023.

17 unchanged sentences

Oh has over 32 years of banking experience.

Prior to joining the Bank, from January 2010 to July 2010 she served as Interim Chief Financial Officer and Controller of Nara Bancorp and Nara Bank (now Bank of Hope and Hope Bancorp Inc), headquartered in Los Angeles, California.

Prior to assuming those positions, Ms.

Prior to joining the Bank, from January 2010 to July 2010 she served as Interim Chief Financial Officer and Controller of Nara Bank and Nara Bancorp (now Bank of Hope and Hope Bancorp Inc, respectively), headquartered in Los Angeles, California.

Prior to assuming those former positions, Ms.

Oh served as Senior Vice President and Controller of Nara Bancorp and Nara Bank.

2 unchanged sentences

Prior to joining Nara Bank, Ms.

Oh was a credit analyst at Center Bank where she started her banking in 1991.

She has been serving as a director at Korean-American Family Services, a non-profit organization since 2014.

Oh was a credit analyst at Center Bank where she started her banking career in 1991.

Oh has a Bachelor of Science in Accounting from California State University, Northridge.

2 unchanged sentences

Prior to joining the Bank, he served as Senior Vice President and Senior Credit Administrator at Bank of Hope since 2007, and served in a various senior lending positions with Bank of Hope since 1997.

Oh has a Bachelor of Arts in Business Economics with Minor in Accounting from the University of California, Los Angeles, and a graduate of Pacific Coast Banking School.

Oh has a Bachelor of Arts in Business Economics with a Minor in Accounting from the University of California, Los Angeles, and is a graduate of Pacific Coast Banking School.

Ki Won Yoon .

2 unchanged sentences

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 has a Bachelor of Arts in Food & Nutrition from Sook Myung Women’s University and a graduate of Pacific Coast Banking School.

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 is a graduate of Pacific Coast Banking School.

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

8 unchanged sentences

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 served as Executive Vice President and Chief Risk Officer at Sunwest Bank since 2021 and EVP/Chief Compliance Officer at First Choice Bank from 2013 to 2021.

He holds a Bachelor of Arts degree in Mathematics from the University of Washington, has completed the Executive Leadership Training from University of Washington Foster School of Business Executive Education, and is a graduate of 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).

7 unchanged sentences

Soo Hun Jung, M.D.

Myung Ja (Susan) Park

Yong Sin Shin

4 unchanged sentences

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.

29 unchanged sentences

The Nomination & Governance Committee does not have a separate policy for consideration of any director candidates recommended by shareholders.

Instead, the Nomination & Governance Committee considers any candidate meeting the requirements for nomination by a shareholder set forth in the Company’s Bylaws (as well as applicable laws and regulations) in the same manner as any other director candidate.

Instead, the Nomination & Governance Committee considers any candidate meeting the requirements for nomination by a shareholder set forth in the Company’s Bylaws (as well as applicable laws

and regulations) in the same manner as any other director candidate.

The Nomination & Governance Committee believes that requiring shareholder recommendations for director candidates to comply with the requirements for nominations in accordance with the Company’s Bylaws ensures that the Nomination & Governance Committee receives at least the minimum information necessary for it to begin an appropriate evaluation of any such director nominee.

22 unchanged sentences

Audit Committee, the Human Resource & Compensation Committee, and the Nomination & Governance Committee.

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

Each 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.

10 unchanged sentences

The code provides fundamental ethical principles to which these individuals are expected to adhere to and will operate as a tool to help our directors, officers and employees understand the high ethical standards required for employment by, or association with, our Company.

This policy governs insider trading, whistleblowing and the protection of whistleblowers, related party transactions, conflicts of interest, and a variety of other requirements applicable to our officers and directors.

Our Code of Business Conduct and Business Ethics Policy is available on our website at www.myopenbank.com under the “Investor Relations” tab.

7 unchanged sentences

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 Securities Exchange Act of 1934, as amended, requires the Company’s directors, executive officers and persons who own more than ten percent of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities.

They are required by SEC rules and regulations to furnish the Company with copies of all Section 16(a) forms they file.

To the Company’s knowledge based solely on review of the copies of such reports furnished to the Company, all Section 16(a) filing requirements applicable to our executive officers and directors were complied with during the year ended December 31, 2023, with the exception of the following:

Name Transaction Date Filed

Brian Choi Acquisition of Common Stock Form 4 Filed on 2/8/2023

Min Kim Acquisition of Common Stock Form 4 Filed on 3/23/2023

Ki Won Yoon Acquisition of Common Stock Form 4 Filed on 2/7/2024

Executive Compensation.

3 unchanged sentences

Incentive Plan

Compensation (2) Other

($) (3) Total

Compensation (2)

Kim 2023 $ 562,185 $ — $ 557,300 $ 27,778 $ 1,147,263

1 unchanged sentence

Oh 2023 324,458 97,200 (1) 112,700 21,868 556,226

140,000 20,060 583,400

Executive Vice President and Chief Financial Officer 2022 294,340 129,000 140,000 20,060 583,400

1 unchanged sentence

Executive Vice President and Chief Credit Officer 2022 250,673 — 114,000 17,362 382,035

Bang 2022 240,646 — 102,000 16,839 359,485

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

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

(1) On May 25, 2023, the Company granted 12,000 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 $8.10.

8 unchanged sentences

Oh 2,400 16,579 18,979

Bang 2,400 14,439 16,839

(i) Amounts reflect cell phone allowance

7 unchanged sentences

Changes may be recommended for the program design or its oversight and administration in order to mitigate unreasonable risk, if any is determined to exist.

The HRCC has concluded that the Company’s compensation arrangements do not encourage any employees to take unnecessary and excessive risks.

The HRCC has concluded that the Company’s compensation arrangements do not encourage any employees to take unnecessary or excessive risks.

We do not believe that any risks arising from our compensation policies and practices are reasonably likely to have a material adverse effect on the Company.

2 unchanged sentences

Kim, our President and Chief Executive Officer.

The agreement provides for an initial three-year term and automatically renewal each subsequent year for a one-year term thereafter unless terminated by either party upon 45 days written notice prior to the end of the then-current term.

The agreement provides for an initial three-year term and thereafter renews annually for a one-year term

unless terminated by either party upon 45 days written notice prior to the end of the then-current term.

An addendum to this agreement was executed on June 24, 2021, which extended the initial term to December 31, 2024.

10 unchanged sentences

Kim’s employment is terminated without Cause she will be entitled to 175% of her base salary paid over a period of 12 months and the Company will pay her COBRA health insurance premiums for 12 months.

Kim’s employment is terminated by the Company without Cause or she resigns for Good Reason within six months before or two years after a Change in Control, she will be paid 225% of her base salary over 12 months and the Company will pay her COBRA health insurance premiums for 24 months.

Kim’s employment is terminated by the Company without Cause or if she resigns for Good Reason (as each such concept is defined in Mr.

Kim’s employment agreement) within six months before or two years after a Change in Control, she will be paid 225% of her base salary over 12 months and the Company will pay her COBRA health insurance premiums for 24 months.

The agreement provides that if any payments to Ms.

23 unchanged sentences

(i) a material, adverse change in the nature, scope, or status of Ms.

position, authorities, or duties from those in effect immediately prior to the applicable change in control;

Kim’s position, authorities, or duties from those in effect immediately prior to the applicable change in control;

(ii) a material reduction in her aggregate compensation or benefits in effect immediately prior to the applicable Change in Control;

or (iii) a relocation of Ms.

a relocation of Ms.

Kim’s primary place of employment of more than fifty (50) miles from the her primary place of employment immediately prior to the applicable Change in Control.

6 unchanged sentences

The Management Incentive Plan for 2023 and 2022 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 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.

The limits for the Management Incentive Plan for 2023 and 2022 were up to 100% and 110% of the annual base salary respectively for the President and Chief Executive Officer and up to 35% and 45% of their annual base salary respectively for the other executive officers.

Specific bonuses payouts are recommended by the President and Chief Executive Officer to the HRCC.

1 unchanged sentence

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%.

However, no eligible executive would receive a bonus if he or she achieved less than 80% of performance goals set forth in the Management Incentive Plan for 2023 and 70% in 2022, 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.

4 unchanged sentences

The Individual Goals were customized to each individual’s respective responsibilities.

For the President and Chief Executive Officer and the other executive officers the weight allocation was 70% in Bank Goals and 30% in Individual Goals.

For the President and Chief Executive Officer, the weight allocation was 70% in Bank Goals and 30% in Individual Goals.

For the other executive officers, the weight allocation was 60% in Bank Goals and 40% in Individual Goals.

In 2023, our ROA was 1.13%, ROE was 13.05%, and the efficiency ratio was 57.59%.

1 unchanged sentence

Kim should receive a bonus amount of $557,300, equal to 97% of her annual base salary for 2023, Ms.

Oh should receive $140,000, equal to 46% of her annual base salary for 2022, Mr.

Oh should receive $114,000, equal to 44% of his annual base salary for 2022, and Mr.

Bang should receive $102,000, equal to 41% of his annual base salary for 2022.

Oh should receive $112,700, equal to 34% of her annual base salary for 2023 and Mr.

Oh should receive $96,300, equal to 34% of his annual base salary for 2023.

For 2022, the President and Chief Executive Officer and the other executive officers were each assigned Bank Goals and Individual Goals with different weight allocations.

6 unchanged sentences

Kim should receive a bonus amount of $560,000, equal to 107% of her annual base salary for 2022, 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.

Oh should receive $140,000, equal to 46% of her annual base salary for 2022 and Mr.

Oh should receive $114,000, equal to 44% of his annual base salary for 2022.

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.

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 2023, may elect to participate in the 401(k) Plan on the same basis as all other employees.

1 unchanged sentence

We currently match employee contributions on the first 6% of employee compensation ($1 for each $1).

The Company match is contributed in the form of cash and is invested according to the employee’s current investment allocation.

The Company match is contributed in the form of

cash and is invested according to the employee’s current investment allocation.

No discretionary profit sharing contribution was made to the 401(k) Plan for 2023 or 2022.

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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 2022 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.

The 2021 Plan authorized up to 1,500,000 shares of the Company's common stock for issuance of equity awards including stock options and restricted stock units.

Option exercise prices are the fair market value of the underlying stock

as of the grant date.

Restricted stock units are valued at the fair market value on the date of grant.

As of December 31, 2023, 278,851 restricted stock units at an average issue price of $ 11.45 were outstanding.

There were no stock options granted under the 2021 Plan.

As of December 31, 2023, 1,111,457 shares were available for future grants in either stock options or restricted stock awards under the 2021 Plan.

2010 Equity Incentive Plan

7 unchanged sentences

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

2005 Director and Employee Stock Option Plan

On February 10, 2005, the Board of Directors of Open Bank adopted and on December 21, 2005 shareholders of Open Bank approved the Director and Employee Stock Option Plan (the “2005 Plan”).

In June 2016, OP Bancorp assumed the 2005 Plan in connection with the formation of the bank holding company.

The 2005 Plan provided for the issuance of up to 770,000 shares of common stock.

Option exercise prices were the fair market value of the underlying stock as of the grant date.

Options granted to 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.

As of December 31, 2022, the Company had options outstanding to purchase a total of 30,000 shares of common stock under the 2005 Plan, at an average exercise price of $ 6.18 per share.

Outstanding Equity Awards

13 unchanged sentences

Oh — — — — 27,000 295,650

Bang — — — — 36,000 401,760

(1) This column represents the unvested restricted stock units granted.

2 unchanged sentences

With regard to 20,000 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.

Oh and 36,000 restricted stock units for Mr.

Bang, 45,000 restricted stock units vest 1/5th per year from the date of grant of June 24, 2021, subject to continuing service.

(2) The market value of the shares of restricted stock units that have not vested is calculated by multiplying the number of shares of stock underlying the restricted stock units that have not vested by the closing price of our common stock at December 31, 2022.

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 and 10,000 restricted stock units vest 1/3rd per year from the date of grant of May 25, 2023.

Director Compensation

6 unchanged sentences

Dow 60,000 29,996 89,996

Jason Hwang (3)

15,000 30,007 45,007

Soo Hun Jung, M.D.

60,000 29,996 89,996

Ock Hee Kim 60,000 30,007 90,007

Myung Ja (Susan) Park 60,000 30,007 90,007

Kim 35,000 29,996 64,996

Sunny Kwon 35,000 29,996 64,996

Yong Sin Shin 60,000 29,996 89,996

2 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 $8.33.

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.

(3) The following table presents the number of shares underlying unvested stock awards held by each of our directors as of December 31, 2023.

2 unchanged sentences

Soo Hun Jung, M.D.

Ock Hee Kim 2,919

Myung Ja (Susan) Park 2,919

Sunny Kwon 3,601

Yong Sin Shin 3,601

2 unchanged sentences

Directors receive reimbursement for their out-of-pocket expenses incurred in connection with their duties as directors, including their attendance at director meetings.

Compensation Committee Interlocks and Insider Participation

None of the members of our Human Resources & Compensation Committee will be or will have been one of our officers or employees.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Beneficial Ownership of Common Stock

The following table sets forth information as of December 31, 2022, pertaining to beneficial ownership of the Company’s common stock by persons known to the Company to own 5% or more of the Company’s common stock, nominees to be elected to the Board of Directors, the executive officers named in the Summary Compensation Table presented in this proxy statement, and all directors and executive officers of the Company, as a group.

The following table sets forth information as of March 1, 2024, pertaining to beneficial ownership of the Company’s common stock by persons known to the Company to own 5% or more of the Company’s common stock, nominees to be elected to the Board of Directors, the executive officers named in the Summary Compensation Table presented in this proxy statement, and all directors and executive officers of the Company, as a group.

This information has been obtained from the Company’s records, or from information furnished directly by the individual or entity to the Company.

For purposes of the following table, shares issuable pursuant to stock options which may be exercised within 60 days of December 31, 2022, are deemed to be issued and outstanding and have been treated as outstanding in determining the amount and nature of beneficial ownership and in calculating the percentage of ownership of those individuals possessing such interest, but not for any other individuals.

Name of Beneficial Owner (1) Shares

Owned (2) (3) Percent

For purposes of the following table, shares issuable pursuant to stock options which may be exercised within 60 days of March 1, 2024, are deemed to be issued and outstanding and have been treated as outstanding in determining the amount and nature of beneficial ownership and in calculating the percentage of ownership of those individuals possessing such interest, but not for any other individuals.

Name of Beneficial Owner (1)

Owned (2) (3)

Directors and Executive Officers:

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238,387 1.59 %

Ock Hee Kim 607,965 3.98 %

Myung Ja (Susan) Park 54,689 0.36 %

Sunny Kwon — — %

Yong Sin Shin 490,435 3.27 %

2 unchanged sentences

Oh 18,000 0.12 %

Bang 11,000 0.07 %

All directors and executive officers as a group (13 individuals) 3,154,227 (5) 20.94 %

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(2) Subject to applicable community property laws and shared voting and investment power with a spouse, the persons listed have sole voting and investment power with respect to such shares unless otherwise noted.

(3) Includes shares beneficially owned (including options exercisable and restricted stock units vesting within 60 days of December 31, 2022).

(3) Includes shares beneficially owned (including options exercisable and restricted stock units vesting within 60 days of March 1, 2024).

(4) Consists of 567,648 shares held by Ms.

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.

Kim individually and 60,000 shares that are subject to options that are currently exercisable or are exercisable within 60 days of March 1, 2024.

(5) Includes 60,000 shares that are subject to options that are currently exercisable or are exercisable within 60 days of March 1, 2024.

(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 address of AllianceBernstein L.P.

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

is 501 Commerce Street, Nashville, TN 37203.

The foregoing information has been obtained from the shareholder’s Schedule 13G filed with the SEC on February 14, 2024.

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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, 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.

As of December 31, 2023, 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 $ 1.8 million as of

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.

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The Foundation’s Board of Directors is comprised of five of our directors, Brian Choi, Ernest E.

Kim, Ock Hee Kim, and Myung Ja (Susan) Park.

Kim, Soo Hun Jung, and Yong Sin Shin.

Our Chief Financial Officer serves as the president of the Foundation.

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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.

Insider Trading and Code of Business Conduct and Ethics

The Company’s Code of Business Conduct and Ethics Policy is intended to promote compliance with all applicable laws and regulations and to require of the Company’s officers and directors the appropriate standards of good judgment and high ethical standards that our shareholders and customers have a right to expect.

A copy of the Company’s Code of Business Conduct and Ethics is available under the Corporate Governance tab on the Company’s investor relations website, https://opbancorp.q4ir.com/governance/corporate-governance/default.aspx.

Director Independence

In 2023, 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

Soo Hun Jung, M.D.

Yong Sin Shin

Principal Accountant Fees and Services.

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The Audit Committee discussed these services with the independent registered public accounting firm and Company management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC and the Public Company Accounting Oversight Board.

Exhibits Financial Statement Schedules.

Exhibits and Financial Statement Schedules.

(a)(1) Financial Statements :

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(a)(2) Financial Statement Schedules :

All financial statement schedules have been omitted as such the required information is not applicable or has been included in the Financial Statements and related notes.

All financial statement schedules have been omitted as such required information is not applicable or has been included in the Financial Statements and related notes.

(a)(3) List of Exhibits :

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333-223444) filed on March 5, 2018)

10.8* 2005 Director and Employee Stock Option Plan (incorporated herein by reference to Exhibit 10.10 to the Registrant’s Form S-1 Registration Statement (Registration No.

333-223444) filed on March 5, 2018)

10.9* Form of Stock Option Award under the 2005 Director and Employee Stock Option Plan (incorporated herein by reference to Exhibit 10.11 to the Registrant’s Form S-1 Registration Statement (Registration No.

333-223444) filed on March 5, 2018)

10.8* OP Bancorp 2017 Management Incentive Plan (incorporated herein by reference to Exhibit 10.12 to the Registrant’s Form S-1 Registration Statement (Registration No.

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001-38437) filed on October 1, 2020)

10.15 Asset Purchase Agreement, dated January 28, 2021, by and between Open Bank and Hana Small Business Asset Lending, Inc.

(incorporated herein by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K/A (File No.

001-38437) filed on February 5, 2021)

10.13* Employment Offer Letter, dated September 18, 2020, from Open Bank to Ihnsuk J.

Bang (incorporated herein by reference to Exhibit 10.17 to the R egis t rant's Annual Report on Form 10-K (File No.

001-38437) filed on March 18, 2022).

10.14* Addendum to Employee Agreement, dated June 24, 2021, between OP Bancorp, Open Bank and Min J.

3 unchanged sentences

333-257362) filed on June 24, 2021

10.19* Form of Restricted Stock Unit Agreement under the OP Bancorp 2021 Equity Incentive Plan

10.16* Form of Restricted Stock Unit Agreement under the OP Bancorp 2021 Equity Incentive Pla n (incorporated herein by reference to Exhibit 10.20 to the R egis trant's Annual Report on Form 10-K (File No .

001-38437) filed on March 28, 2022).

21.1 Subsidiaries of OP Bancorp (incorporated herein by reference to Exhibit 21.1 to the Registrant’s Form S-1 Registration Statement (Registration No.

333-223444) filed on March 5, 2018)

23.1 Consent of Crowe LLP

23.1 Consent of Crowe LLP, filed herewith.

24.1 Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K)

31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1** Certification of Principal Executive Officer Pursuant to 18 U.S.C.

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Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

_________________

97.1 OP Bancorp Incentive Compensation Recovery Policy, filed herewith.

101.INS Inline XBRL Instance Document, filed herewith.

101.SCH Inline XBRL Taxonomy Extension Schema Document, filed herewith.

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith.

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document, filed herewith.

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document, filed herewith.

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith.

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)

* Indicates management contract or compensatory plan or arrangement.

** Furnished, not filed.

Form 10-K Summary.

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Signature/Name Title Date

KIM President and Chief Executive Officer March 16, 2023

KIM President, Chief Executive Officer and Director (Principal Executive Officer) March 29, 2024

/s/ CHRISTINE Y.

OH Executive Vice President & Chief Financial Officer March 16, 2023

OH Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer) March 29, 2024

/s/ BRIAN CHOI Director March 29, 2024

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/s/ SOO HUN JUNG Director March 29, 2024

/s/ OCK HEE KIM Director March 16, 2023

/s/ MYUNG JA (SUSAN) PARK Director March 16, 2023

Myung Ja (Susan) Park

KIM Director March 29, 2024

/s/ SUNNY KWON Director March 29, 2024

/s/ YONG SIN SHIN Director March 29, 2024

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

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

Consolidated Balance Sheets a s of December 31, 202 3 and 202 2

Consolidated Statements of Income for the Years Ended December 31, 202 3 , 202 2 and 202 1

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Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021

Notes to Consolidated Financial Statements for the Years Ended December 31, 202 2 , 202 1 and 2020

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Opinion on the Financial Statements

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").

We have audited the accompanying consolidated balance sheets of OP Bancorp (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2023, due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codifications No.

326, Financial Instruments – Credit Losses (ASC 326).

The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

/s/ Crowe LLP

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses – Loans

As described in Notes 1 and 3 to the financial statements, effective January 1, 2023 the Company adopted ASU 2016-13, Financial instruments – Credit Losses (Topic 326) using the modified retrospective method.

See change in accounting principle explanatory paragraph above.

The allowance for credit losses on loans is an estimate of expected credit losses, measured over the contractual life of the loans based on historical experience, current conditions, and reasonable and supportable forecasts.

As of January 1, 2023, the Company recorded a $1.9 million increase to the allowance for credit losses (ACL) on loans and a $1.5 million decrease to retained earnings.

At December 31, 2023 the Company had a gross loan portfolio of $1.8 billion and a related ACL on loans of $22.0 million.

The Company uses a probability of default (PD)/loss given default (LGD) quantitative model using transition matrices and a qualitative framework to estimate expected credit losses on loans held for investment.

The quantitative component of the model provides forecasts of PD and LGD based on forecasted national unemployment rates using regression analysis and under a weighted multiple scenario approach.

The Company’s qualitative framework is designed to quantify the credit risk impact of other trends and changes within the loan portfolio.

The parameters for making adjustments are established under a credit risk matrix that provides different possible scenarios for the qualitative factor adjustments.

We identified auditing the qualitative factor adjustments to the allowance for credit losses on loans to be a critical audit matter as it involved significant audit effort and especially subjective auditor judgment to evaluate the subjective judgment made by management related to the determination of qualitative factor adjustments, including the development of the qualitative framework.

The primary procedures we performed to address this critical audit matter included:

• Substantively testing management’s process, including evaluating their judgments and assumptions, for developing the qualitative factor adjustments, which included:

◦ Evaluating the appropriateness of the qualitative framework and the reasonableness of significant assumptions used in the development of qualitative factor adjustments.

◦ Evaluating the relevance and reliability of internal and external data used to develop the qualitative factor adjustments.

◦ Evaluating the mathematical accuracy of qualitative factor adjustments derived from management’s credit risk matrix.

We have served as the Company's auditor since 2010.

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Loans held for sale 1,795 44,335

Loans receivable, net of allowance of $ 19,241 in 2022 and $ 16,123 in 2021

Loans receivable, net of allowance for credit losses of $ 21,993 and $ 19,241 as of December 31, 2023 and 2022, respectively

1,743,852 1,659,051

Premises and equipment, net 5,248 4,400

Accrued interest receivable, net of allowance of $ 0 in 2022 and $ 205 in 2021

Accrued interest receivable 8,259 7,180

Servicing assets 11,741 12,759

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

Federal Home Loan Bank advances 105,000 —

Accrued interest payable 12,628 2,771

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10,000,000 shares authorized;

no shares issued or outstanding in 2022 and 2021

no shares issued or outstanding as of December 31 2023 and 2022

Common stock – no par value;

50,000,000 shares authorized;

15,270,344 and 15,137,808 shares issued and outstanding in 2022 and 2021, respectively

50,000,000 shares authorized as of December 31, 2023 and 2022;

15,000,436 and 15,270,344 shares issued and outstanding as of December 31, 2023 and 2022, respectively

76,280 79,326

8 unchanged sentences

Year Ended December 31,

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

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

INTEREST INCOME

8 unchanged sentences

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

Provision for loan losses 2,976 522 5,961

Net interest income after provision for loan losses 73,935 60,504 39,403

Provision for credit losses 1,651 2,976 522

Net interest income after provision for credit losses 67,036 73,935 60,504

NONINTEREST INCOME

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Net income $ 23,918 $ 33,310 $ 28,840

Other comprehensive (loss) income:

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

Other comprehensive income (loss)

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

3,397 ( 23,634 ) ( 2,891 )

Tax effect ( 1,005 ) 6,988 854

Total other comprehensive (loss) income ( 16,646 ) ( 2,037 ) 652

Total other comprehensive income (loss) 2,392 ( 16,646 ) ( 2,037 )

Comprehensive income $ 26,310 $ 16,664 $ 26,803

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Shareholders’

Balance at January 1, 2020 15,703,276 $ 86,381 $ 7,524 $ 46,483 $ 188 $ 140,576

Balance as of January 1, 2021 15,016,700 $ 78,657 $ 8,521 $ 55,348 $ 840 $ 143,366

Net income — — — 28,840 — 28,840

Other comprehensive income

Other comprehensive loss

— — — — ( 2,037 ) ( 2,037 )

Stock issued under stock-based compensation plans

Stock issued under stock-based compensation plans, net of forfeitures

124,938 89 — — — 89

3 unchanged sentences

— — — ( 5,132 ) — ( 5,132 )

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

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

Net income — — — 33,310 — 33,310

1 unchanged sentence

— — — — ( 16,646 ) ( 16,646 )

Stock issued under stock-based compensation plans

Stock issued under stock-based compensation plans, net of forfeitures

132,536 608 ( 81 ) — — 527

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

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

Cash dividends declared ($ 0.44 per share)

— — — ( 6,676 ) — ( 6,676 )

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

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

Cumulative effect related to adoption of ASC 326, net of tax — — — ( 1,484 ) —

Adjusted balance as of January 1, 2023 15,270,344 79,326 9,743 104,206 ( 17,843 ) 175,432

Net income — — — 23,918 — 23,918

Other comprehensive loss

Other comprehensive income

— — — — 2,392 2,392

Stock issued under stock-based compensation plans

Stock issued under stock-based compensation plans, net of forfeitures

178,576 888 ( 98 ) — — 790

Stock-based compensation, net — — 1,297 — — 1,297

Repurchase of common stock ( 448,484 ) ( 3,934 ) — — — ( 3,934 )

Cash dividends declared ($ 0.48 per share)

— — — ( 7,269 ) — ( 7,269 )

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

Balance as of December 31, 2023 15,000,436 $ 76,280 $ 10,942 $ 120,855 $ ( 15,451 ) $ 192,626

See accompanying notes to consolidated financial statements

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Net income $ 23,918 $ 33,310 $ 28,840

Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities:

Provision for loan losses 2,976 522 5,961

Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:

Provision for credit losses 1,651 2,976 522

Depreciation and amortization of premises and equipment 1,336 1,367 1,314

1 unchanged sentence

Amortization of servicing assets 4,418 4,385 3,536

Accretion of loan discounts ( 4,868 ) ( 4,847 ) ( 1,978 )

Accretion of net discounts on loans ( 2,840 ) ( 4,868 ) ( 4,847 )

Amortization of low income housing partnerships 1,325 697 522

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Gain on sale of loans ( 7,843 ) ( 12,285 ) ( 11,313 )

Gain on sales of other assets — — ( 213 )

Earnings on company owned life insurance ( 620 ) ( 479 ) ( 255 )

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Other liabilities ( 3,831 ) ( 3,664 ) 3,117

Net cash provided by (used in) operating activities 83,734 ( 28,278 ) ( 4,851 )

Net cash provided by operating activities 67,842 83,734 ( 28,278 )

Cash flows from investing activities

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Purchase of loans ( 27,604 ) ( 225,133 ) ( 97,631 )

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

Purchase of available-for-sale debt securities ( 5,647 ) ( 115,819 ) ( 98,368 )

Purchase of equity investments ( 85 ) ( 53 ) —

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Business and Summary of Significant Accounting Policies

Business and Basis of Presentation

Business Description:

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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 ten full-service branches.

OP Bancorp is operating with 11 full-service branches.

Basis of Presentation:

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

Asset Purchase :

On May 24, 2021, the Company completed the purchase of loan portfolio from Hana Small Business Lending, Inc.

("Hana") and paid approximately $ 97.6 million that included loans of $ 100.0 million at a fair value discount of $ 8.9 million, servicing assets of $ 6.1 million and accrued interest receivable of $ 398 thousand.

The following table summarizes the consideration paid for the loan portfolio and the amounts of assets purchased:

($ in thousands)

Consideration

Cash $ 97,631

Recognized amounts of identifiable assets purchased:

Loan discounts ( 8,867 )

Accrued interest receivable 398

Servicing assets 6,097

Total recognized identifiable assets $ 97,631

(1) Consists of $ 92.2 million of SBA loans, $ 6.9 million of PPP loans and $ 919 thousand of real estate loans.

The Company follows the guidance in Accounting Standards Codification (“ASC”) 805, Business Combination , for determining the appropriate accounting treatment for acquisition.

Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business , provides an initial fair value screen to determine if substantially all of the fair value of the assets acquired is concentrated in a single asset or group of similar assets.

If the initial test is met, the assets acquired would not represent a business combination, but rather an asset acquisition.

If the transaction is deemed to be an asset acquisition, the cost accumulation and allocation model is used in which the cost of the acquisition is allocated on a relative fair value basis to the assets acquired.

The Company concluded that the Hana transaction did not qualify as a business combination and was accounted for as an asset acquisition in

accordance with the “Acquisition of Assets Rather Than a Business” subsections of ASC 805-50 using a cost accumulation model.

The Company records purchased performing loans in the Hana transaction at fair value including a discount and recognizes discount accretion using the contractual cash flow method.

The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans in accordance with the provisions of ASC 310-20, Nonrefundable Fees and Other Costs.

There was no allowance for loan losses established as of June 30, 2021 for the purchased performing loans in the Hana transaction.

A provision for loan losses is recorded for any further deterioration in these loans subsequent to the acquisition.

Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity.

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Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer.

Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.

For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows:

1) OTTI related to credit loss, which must be recognized in the income statement, and 2) OTTI related to other factors, which is recognized in other comprehensive income.

The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Securities available for sale are measured at fair value and are subject to impairment testing.

For securities available for sale in an unrealized loss position, management evaluates whether the decline in fair value has resulted in from a credit-related loss or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.

Management (1) recognizes an allowance for credit losses by a charge to earnings for the credit-related component of the decline in fair value, and (2) recognize in other comprehensive income (loss) any non-credit related components of the fair value decline.

If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation reserve would be reduced, but not more than the amount of the current existing reserve for that security.

Other investments:

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Loans Receivable:

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for loan losses.

Interest income is accrued on the unpaid principal balance.

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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.

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Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses:

The allowance for loan losses is a valuation allowance for probable incurred credit losses.

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

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

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

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

The allowance consists of specific and general components.

The specific component relates to loans that are individually classified as impaired.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.

Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception.

If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral.

For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan-by-loan basis for commercial real estate and construction loans.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.

Income recognition on impaired loans materially conforms to the method the Company uses for income recognition on nonaccrual loans.

Allowance for impaired loans is determined based on the present value of the estimated cash flows or on the fair value of the collateral if the loan is collateral dependent, less costs to sell.

If the measured fair value is less than the recorded investment in the loan, the deficiency will be charged off against the allowance for loan losses, or alternatively, a specific allocation will be established.

For consumer loans, management will generally charge off the balance if the loan is 90 days or more past due.

The general component of the allowance covers non-impaired loans and is based on historical loss experience adjusted for current factors.

The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent two years .

For those portfolio segments that the Company does not have sufficient historical data available to track the loss migration, the loss factors are based on the actual loss history experienced by the Company over the most recent eight years .

This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment.

These economic factors include consideration of the following:

levels of and trends in delinquencies and impaired loans;

levels of and trends in charge-offs and recoveries;

trends in volume and terms of loans;

effects of any changes in risk selection and underwriting standards;

other changes in lending policies, procedures, and practices;

experience, ability, and depth of lending management and other relevant staff;

national and local economic trends and conditions;

industry conditions;

and effects of changes in credit concentrations.

The following portfolio segments have been identified in the Company’s loan portfolio, and are also representative of the classes within the portfolio:

commercial real estate, SBA loans—real estate, SBA loans—non-real

estate, commercial and industrial, home mortgage, and consumer.

The Company reviews the credit risk exposure of all its portfolio segments by internally assigned grades.

The Company categorizes loans into risk grades based on relevant information about the ability of borrowers to service their debt such as:

current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.

For the home mortgage and consumer portfolio segments, the Company’s primary monitoring tool is reviewing past due listings to determine if the loans are performing.

The determination of the allowance for loan losses is based on estimates that are particularly susceptible to changes in the economic environment and market conditions.

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 Current Expected Credit Losses, 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.

Additionally, the Company aggregated loan portfolio based on similar risk characteristic.

The Company elected to use the Call Report codes and loan risk ratings for loan segmentation in allowance for credit losses.

The Company used the following assumptions in a sensitivity analysis of our allowance for credit losses:

unemployment rate forecast based on supervisory severely adverse scenario, 0% prepayment rates, loan risk grade changes of commercial real estate and commercial and industrial loan portfolio in worst case scenario based on the Company history, and applying a 100% weighting to severely adverse scenario.

The analysis demonstrates the sensitivity to the allowance for credit losses to key quantitative assumptions and it is not intended to estimate changes in the overall allowance for credit losses and it does not capture all the potential unknown variables that could arise in the forecast period, but it provides an approximation of a possible outcome under hypothetical severe conditions.

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

Included in the qualitative portion of our analysis of the allowance for credit losses are key inputs including GDP, unemployment rates, interest rates, asset quality ratios, loan portfolio concentration, California house price index and commercial real estate price index.

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 Current Expected Credit Losses:

• 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.

The Company segments loans primarily by Call Report codes (collateral type) and loan risk ratings, considering that the same type of loans share considerable similar risk characteristics.

For loans that do not share similar risk characteristics such as nonaccrual loans above $ 500 thousand, the Company evaluates these loans on an individual basis in accordance with ASC 326.

Such nonaccrual loans are considered to have different risk profiles than performing loans and are therefore evaluated individually.

The Company elected to collectively assess nonaccrual loans with balances below $ 500 thousand along with the performing and accrual loans, in order to reduce the operational burden of individually assessing small nonaccrual loans with immaterial balances.

For individually assessed loans, the allowance for credit losses is measured using either 1) the present value of future cash flows discounted at the loan’s effective interest rate;

or 2) the fair value of the collateral, if the loan is collateral-dependent.

For the collateral-dependent loans, the Company obtains a new appraisal to determine the fair value of collateral.

The appraisals are based on an “as-is” valuation.

To ensure that appraised values remain current, the Company obtains updated appraisals every twelve months from a qualified independent appraiser.

If the fair value of the collateral is less than the amortized balance of the loan, the Company recognizes an allowance for credit losses with a corresponding charge to the provision for credit losses.

The Company maintains a separate allowance for credit losses for its off-balance sheet commitments.

The Company uses an estimated funding rate to allocate an allowance to undrawn exposures.

This funding rate is used as a credit conversion factor to capture how much undrawn lines of credit can potentially become drawn at any point.

The funding rate is determined based on a look-back period of 8 quarters.

Credit loss is not estimated for off-balance sheet commitments that are unconditionally cancellable by the Company.

Servicing Assets:

66 unchanged sentences

Discrete financial information is not available other than on a Company-wide basis.

Recent Accounting Pronouncements Not Yet Effective

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

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 objective of ASU 2016-13 is to provide financial statement users with decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit.

ASU 2016-13 includes provisions that require financial assets measured at amortized cost (such as loans and held-to-maturity debt securities) to be presented at the net amount expected to be collected.

This will be accomplished through recognition of an estimate of all current expected credit losses.

The estimate will include forecasted information for the timeframe that an entity is able to develop reasonable and supportable forecasts.

This is a change from the current practice of recognizing incurred losses based on the probable initial recognition threshold under current GAAP.

In addition, credit losses on available-for-sale 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 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) :

The Company adopted ASU 2016-13 using a modified retrospective approach on January 1, 2023 without electing the fair value option on eligible financial instruments under ASU 2019-05.

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 longer duration of home mortgage loans, offset primarily by shorter duration of commercial and industrial ("C&I") loans.

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.

The following table illustrates the impact of ASU 2016-13:

January 1, 2023, Adoption Date

($ in thousands) As Reported Pre-ASU 2016-13 Impact

Commercial real estate $ 7,826 $ 6,951 $ 875

SBA—real estate 1,369 1,607 ( 238 )

SBA—non-real estate 65 207 ( 142 )

C&I 1,323 1,643 ( 320 )

Home mortgage 10,579 8,826 1,753

Consumer 3 7 ( 4 )

Allowance for credit losses on loans $ 21,165 $ 19,241 $ 1,924

Allowance for credit losses on off-balance sheet commitments $ 446 $ 262 $ 184

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

Troubled Debt Restructurings and Vintage Disclosures.

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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 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 Company adopted ASU 2022-02 on January 1, 2023, and the adoption of ASU 2022-02 did not have a significant impact on its consolidated financial statements.

In March 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method .

This ASU permits reporting entities to elect to account for tax equity investments, regardless of the tax credit program for which the income tax credits are received, using the proportional amortization method if certain conditions are met.

Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense.

A reporting entity makes an accounting policy election to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis rather than electing to apply the proportional amortization method at the reporting entity level or to individual investments.

The Company adopted ASU 2023-02 on January 1, 2024, and the adoption did not have a material impact on its consolidated financial statements.

Recently Issued Accounting Pronouncement under Evaluation

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

This ASU amends the disclosure requirements for income taxes, including the requirement for further disaggregation of the income tax rate reconciliation and income taxes paid disclosures.

The amendments in this guidance must be applied prospectively, with the option to apply retrospectively.

This guidance is effective for fiscal years beginning after December 15, 2024.

The Company is currently evaluating the impact of this new standard on its consolidated financial statements and the adoption is not expected to have a significant impact on the 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, 2023 and 2022:

4 unchanged sentences

Residential collateralized mortgage obligations 162,142 67 ( 17,750 ) 144,459

Municipal securities - tax exempt 5,726 189 ( 1 ) 5,914

Total AFS debt securities $ 216,186 $ 256 $ ( 22,192 ) $ 194,250

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Residential collateralized mortgage obligations 25,439 ( 177 ) 105,963 ( 17,573 ) 131,402 ( 17,750 )

Municipal securities - tax exempt 1,842 ( 1 ) — — 1,842 ( 1 )

Total AFS debt securities $ 33,769 $ ( 237 ) $ 143,352 $ ( 21,955 ) $ 177,121 $ ( 22,192 )

6 unchanged sentences

Total AFS debt securities $ 107,667 $ ( 5,373 ) $ 95,021 $ ( 19,961 ) $ 202,688 $ ( 25,334 )

Management evaluates securities for other-than-temporary impairment (“OTTI”) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, along with the financial condition and near-term prospects of the issuer.

Management also assesses whether it intends to sell, or whether it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.

For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components, as follows:

(i) OTTI related to credit loss, which must be recognized in the income statement, and (ii) OTTI related to other factors, which is recognized in other comprehensive income.

The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

The unrealized losses were primarily attributable to interest rate movement, not credit quality.

These securities (Fannie Mae, Ginnie Mae, and Freddie Mac) are guaranteed or sponsored by agencies of the U.S.

government, and the issuers of the securities are of high credit quality.

The Company believes that the gross unrealized losses presented in the previous tables are temporary and no credit losses are expected.

As a result, the Company expects full collection of the carrying amount of these securities, does not intend to sell the securities in an unrealized loss position, and it was more-likely-than-not the Company will not have to sell these securities prior to recovery of amortized cost.

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

As a result of the Company's adoption of ASU 2016-13 on January 1, 2023, available-for-sale debt securities are measured at fair value and are subject to impairment testing.

A security is impaired if the fair value of the security is less than its amortized cost basis.

When an available-for-sale debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factors and then, (1) recognize an allowance for credit losses by a charge to earnings for the credit-related component of the decline in fair value, and (2) recognize in other comprehensive income (loss) any non-credit related components of the fair value decline.

As of December 31, 2023, the Company's AFS debt securities consisted of 86 securities, of which 82 were in an unrealized loss position.

The unrealized losses from the decline in fair value is attributable to changes in interest rates, and not credit quality.

The issuers of the AFS debt securities are of high credit quality.

Approximately 97 % of the AFS debt securities are residential mortgage-backed securities and residential collateralized mortgage obligations that were issued by U.S.

government-sponsored agencies, such as Ginnie Mae, Fannie Mae and Freddie Mac.

The remaining 3 % of the AFS debt securities are tax-exempt municipal securities.

We believe that the unrealized losses presented in the previous tables are temporary and no credit losses are expected.

As a result, the Company expects full collection of the carrying amount of these securities, does not intend to sell

the securities in an unrealized loss position, and it was more-likely-than-not the Company will not have to sell these securities prior to recovery of amortized cost.

Accordingly, for available-for-sale debt securities, the Company did not record allowance for credit losses on January 1, 2023 and did not have allowance for credit losses as of December 31, 2023.

As of December 31, 2023 or 2022, 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.

2 unchanged sentences

FHLB stock $ 12,528 $ 8,483

PCBB stock 190 190

Mutual fund - CRA qualified 3,330 3,708

Pacific Coast Bankers Bank ("PCBB") stock 190 190

Mutual fund - Community Reinvestment Act ("CRA") qualified 3,463 3,330

Time deposits placed in other banks 95 95

2 unchanged sentences

The Company invested in the mutual fund for CRA purposes.

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

For the mutual fund, the Company recorded a $ 48 thousand unrealized gain and a $ 431 thousand unrealized loss for the years ended December 31, 2023 and 2022, respectively.

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

Loans and Allowance for Credit Losses on Loans

The following table presents the composition of the loan portfolio as of December 31, 2023 and 2022:

1 unchanged sentence

Commercial real estate $ 885,585 $ 842,208

SBA loans—real estate 221,340 220,099

SBA loans—non-real estate (1)

13,377 55,759

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

SBA—real estate 224,695 221,340

SBA—non-real estate 14,997 13,377

C&I 120,970 116,951

Home mortgage 518,024 482,949

1 unchanged sentence

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

Allowance for loan losses ( 19,241 ) ( 16,123 )

Allowance for credit losses ( 21,993 ) ( 19,241 )

Loans receivable, net (1)

$ 1,743,852 $ 1,659,051

(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.

(1) Includes net deferred loan costs and unamortized premiums of $ 140 thousand and $ 160 thousand as of December 31, 2023 and 2022, respectively.

No loans were outstanding to related parties as of December 31, 2023 and 2022.

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:

The following table summarizes the activity in the allowance for credit losses on loans by portfolio segment for the years ended December 31, 2023, 2022 and 2021:

($ in thousands) Commercial

Consumer Total

Balance at January 1, 2020 $ 6,000 $ 939 $ 121 $ 1,289 $ 1,667 $ 34 $ 10,050

Balance as of January 1, 2021 $ 8,505 $ 1,802 $ 278 $ 2,563 $ 2,185 $ 19 $ 15,352

Provision for (reversal of) loan losses (1)

2 unchanged sentences

Recoveries — — 3 — — 4 7

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

(Reversal of) provision for loan losses (1)

Balance as of December 31, 2021 8,150 2,022 199 2,848 2,891 13 16,123

Provision for (reversal of) loan losses (1)

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

1 unchanged sentence

Recoveries — 8 69 — — 1 78

Balance at December 31, 2021 $ 8,150 $ 2,022 $ 199 $ 2,848 $ 2,891 $ 13 $ 16,123

(Reversal of) provision for loan losses (1)

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

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

Impact of CECL adoption 875 ( 238 ) ( 142 ) ( 320 ) 1,753 ( 4 ) 1,924

Provision for (reversal of) credit losses 723 321 73 ( 11 ) 466 10 1,582

Charge-offs ( 686 ) ( 46 ) ( 35 ) ( 97 ) — — ( 864 )

Recoveries 52 13 44 — — 1 110

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

(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:

Balance as of December 31, 2023 $ 7,915 $ 1,657 $ 147 $ 1,215 $ 11,045 $ 14 $ 21,993

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

The following table presents the allowance for credit losses on loans and recorded investment (not including accrued interest receivable) by portfolio segment and impairment methodology as of December 31, 2023 and 2022:

($ in thousands) Individually

2 unchanged sentences

As of December 31, 2023

Allowance for loan losses (1) :

Allowance for credit losses:

Commercial real estate $ — $ 7,915 $ 7,915

SBA loans—real estate — 1,607 1,607

SBA loans—non-real estate — 207 207

SBA—real estate 355 1,302 1,657

SBA—non-real estate — 147 147

C&I — 1,215 1,215

3 unchanged sentences

Commercial real estate $ — $ 885,585 $ 885,585

SBA loans—real estate 423 220,917 221,340

SBA loans—non-real estate — 13,377 13,377

SBA—real estate 2,923 221,772 224,695

SBA—non-real estate — 14,997 14,997

C&I — 120,970 120,970

3 unchanged sentences

As of December 31, 2022

Allowance for loan losses (1) :

Allowance for credit losses:

Commercial real estate $ — $ 6,951 $ 6,951

SBA loans—real estate — 2,022 2,022

SBA loans—non-real estate — 199 199

SBA—real estate — 1,607 1,607

SBA—non-real estate — 207 207

C&I 279 1,364 1,643

3 unchanged sentences

Commercial real estate $ — $ 842,208 $ 842,208

SBA loans—real estate 812 219,287 220,099

SBA loans—non-real estate — 55,759 55,759

SBA—real estate 423 220,917 221,340

SBA—non-real estate — 13,377 13,377

C&I 279 116,672 116,951

2 unchanged sentences

Total $ 702 $ 1,677,590 $ 1,678,292

(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.

(1) Excludes accrued interest receivables of $ 7.3 million and $ 6.4 million as of December 31, 2023 and 2022, 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, 2022 (1)

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

December 31, 2022 (1)

2 unchanged sentences

Allowance Related

Allowance Unpaid Principal Balance Recorded

Allowance Recorded

Allowance Related

SBA loans—real estate $ 423 $ 423 $ — $ — $ 812 $ 812 $ — $ —

SBA loans—non-real estate — — — — — — — —

SBA—real estate $ 423 $ 423 $ — $ —

C&I 279 — 279 279

1 unchanged sentence

(1) The difference between the unpaid principal balance (net of partial charge-offs) and the recorded investment in the loans was not considered to be material

The following table presents the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans by portfolio segment for the years ended December 31, 2022, 2021 and 2020.

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

2022 2021 2020

($ in thousands) Average

Investment Interest

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

Collateral-dependent loans are loans where repayment is expected to be provided solely by the sale of the underlying collateral and there are no other available and reliable sources of repayment.

The estimated credit losses for these loans are based on the collateral’s fair value less selling costs.

In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less selling costs at the time of foreclosure.

As of December 31, 2023, there were $ 5.2 million of collateral-dependent loans which are primarily secured by residential and commercial real estate, as well as equipment.

The allowance for credit losses allocated to these loans as of December 31, 2023 was $ 355 thousand.

The following table represents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2023, for which repayment is expected to be obtained through the sale of the underlying collateral.

($ in thousands) Hotel / Motel Single-Family Residential Total

SBA—real estate $ 2,923 $ — $ 2,923

Home mortgage — 2,241 2,241

Total $ 2,923 $ 2,241 $ 5,164

The following table presents the recorded investment in nonaccrual loans and loans past due 90 or more days and still accruing interest, by portfolio as of December 31, 2023 and 2022:

($ in thousands) Nonaccrual 90 or More

($ in thousands) Nonaccrual Loans with a Related Allowance for Credit Losses Nonaccrual Loans without a Related Allowance for Credit Losses Total Nonaccrual Loans 90 or More

Still Accruing

As of December 31, 2023

SBA loans—real estate $ 423 $ — $ 423

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

C&I 279 — 279

SBA—real estate $ 2,302 $ 1,136 $ 3,438 $ — $ 3,438

SBA—non-real estate 154 — 154 — 154

Home mortgage 249 2,241 2,490 — 2,490

1 unchanged sentence

As of December 31, 2022

SBA loans—real estate $ 812 $ — $ 812

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

SBA—real estate $ 423 $ — $ 423

SBA—non-real estate 51 — 51

C&I 279 — 279

1 unchanged sentence

Total $ 2,033 $ — $ 2,033

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.

(1) Excludes guaranteed portion of SBA loans of $ 2.0 million and $ 1.0 million as of December 31, 2023 and 2022 , respectively.

Nonaccrual loans and loans past due 90 or more days and still accruing interest include both homogeneous loans that are collectively and individually evaluated for impairment and individually classified impaired loans.

The following table represents the aging analysis of the recorded investment in past due loans as of December 31, 2023 and 2022:

16 unchanged sentences

Total $ 1,944 $ 1,697 $ 368 $ 4,009 $ 1,674,283 $ 1,678,292

(1) Excludes guaranteed portion of SBA loans of $ 1.9 million and $ 924 thousand as of December 31, 2023 and 2022, respectively..

(2) Excludes accrued interest receivables of $ 7.3 million and $ 6.4 million as of December 31, 2023 and 2022, respectively.

Troubled Debt Restructurings :

When, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession for other than an insignificant period of time to a borrower that the Company would not otherwise consider, the related loan is classified as a troubled debt restructuring (“TDR”), the balance of which totaled $ 279 thousand and $ 313 thousand as of December 31, 2022 and 2021, 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, 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 :

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 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, 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.

Loan Modifications to Borrowers Experiencing Financial Difficult:

On January 1, 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures” , which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty.

This guidance was applied on a prospective basis.

Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty, unless those loans do not share the same risk characteristics with other loans in the portfolio.

Provided that is not the case, these modifications are included in their respective cohort and the allowance for credit losses is estimated on a pooled basis consistent with the other loans with similar risk characteristics.

Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, other than insignificant payment deferrals, other than insignificant term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.

The disclosure below provide information on loan modification to borrowers experiencing financial difficulty.

No charge-offs of previously modified loans were recorded for the year ended December 31, 2023.

The following table presents the amortized cost of modified loans and the financial effects of the modification as of December 31, 2023 by loan class and modification type:

Financial Effects of Loan Modification

($ in thousands) Payment Delay Term Extension Total Percentage to Each Loan Type Weighted-Average Payment Deferral (in years)

Commercial real estate $ — $ 625 $ 625 0.07 % 1.0

SBA—real estate 5,378 — 5,378 2.39 % 0.8

SBA—non-real estate 131 — 131 0.87 % 0.2

Home mortgage 354 — 354 0.07 % 0.5

Total $ 5,863 $ 625 $ 6,488

The Company tracks the performance of modified loans.

A modified loan may become delinquent and may result in a payment default (generally 90 days past due) subsequent to modification.

There were no loans that received a modification during the three year ended December 31, 2023 that subsequently defaulted.

The following table presents the performance of loans that were modified as of December 31, 2023 since the adoption of ASU 2022-02 on January 1, 2023:

($ in thousands) Current 30-89 Days Past Due > 90 Days Past Due Total

Commercial real estate $ 625 $ — $ — $ 625

SBA—real estate 4,641 — 737 5,378

SBA—non-real estate 131 — — 131

Home mortgage 354 — — 354

Total $ 5,751 $ — $ 737 $ 6,488

The Company had no additional commitments to lend to borrowers whose loans were modified as of December 31, 2023.

Credit Quality Indicators :

2 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.

7 unchanged sentences

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.

As of December 31, 2022 and 2021, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

($ in thousands) Pass Special

Substandard Doubtful Total (1)

As of December 31, 2022

The following table presents the loan portfolio's amortized cost by loan type, risk rating and year of origination as of December 31, 2023:

December 31, 2023

Term Loans by Origination Year Revolving Loans Revolving Loans Converted to Term Loans Total (1)

($ in thousands) 2023 2022

2021 2020 2019 Prior

Commercial real estate

SBA loans—real estate 220,348 — 992 — 221,340

SBA loans—non-real estate 12,897 — 480 — 13,377

C&I 116,396 — 279 276 116,951

Pass $ 97,114 $ 207,860 $ 154,872 $ 97,137 $ 138,908 $ 163,320 $ 21,059 $ — $ 880,270

Special mention — — — — — — — — —

Substandard — 319 — — — 4,996 — — 5,315

Doubtful — — — — — — — — —

Subtotal $ 97,114 $ 208,179 $ 154,872 $ 97,137 $ 138,908 $ 168,316 $ 21,059 $ — $ 885,585

Current period charge-offs $ — $ 457 $ 121 $ — $ 91 $ 17 $ — $ — $ 686

SBA— real estate

Pass $ 31,920 $ 44,504 $ 26,188 $ 22,732 $ 28,244 $ 64,442 $ — $ — $ 218,030

Special mention — — — — — 1,428 — — 1,428

Substandard — 1,787 1,079 1,136 — 1,235 — — 5,237

Doubtful — — — — — — — — —

Subtotal $ 31,920 $ 46,291 $ 27,267 $ 23,868 $ 28,244 $ 67,105 $ — $ — $ 224,695

Current period charge-offs $ — $ — $ 46 $ — $ — $ — $ — $ — $ 46

SBA—non-real estate

Pass $ 5,408 $ 2,584 $ 200 $ 1,556 $ 950 $ 3,423 $ — $ — $ 14,121

Special mention — — — — — — — — —

Substandard — 591 — — — 187 — — 778

Doubtful — — — — — 98 — — 98

Subtotal $ 5,408 $ 3,175 $ 200 $ 1,556 $ 950 $ 3,708 $ — $ — $ 14,997

Current period charge-offs $ — $ — $ — $ — $ — $ 35 $ — $ — $ 35

Pass $ 15,117 $ 17,939 $ 22,098 $ 4,695 $ 1,720 $ 1,734 $ 55,106 $ 2,561 $ 120,970

Special mention — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Subtotal $ 15,117 $ 17,939 $ 22,098 $ 4,695 $ 1,720 $ 1,734 $ 55,106 $ 2,561 $ 120,970

Current period charge-offs $ 17 $ — $ 80 $ — $ — $ — $ — $ — $ 97

Home mortgage

Consumer 1,467 — — — 1,467

Total $ 1,674,422 $ 563 $ 3,031 $ 276 $ 1,678,292

As of December 31, 2021

Pass $ 72,182 $ 304,346 $ 79,585 $ 18,634 $ 8,939 $ 31,848 $ — $ — $ 515,534

Special mention — — — — — — — — —

Substandard — 2,241 249 — — — — — 2,490

Doubtful — — — — — — — — —

Subtotal $ 72,182 $ 306,587 $ 79,834 $ 18,634 $ 8,939 $ 31,848 $ — $ — $ 518,024

Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Pass $ 4 $ — $ — $ — $ 77 $ — $ 1,493 $ — $ 1,574

Special mention — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Subtotal $ 4 $ — $ — $ — $ 77 $ — $ 1,493 $ — $ 1,574

Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Pass $ 221,745 $ 577,233 $ 282,943 $ 144,754 $ 178,838 $ 264,767 $ 77,658 $ 2,561 $ 1,750,499

Special mention — — — — — 1,428 — — 1,428

Substandard — 4,938 1,328 1,136 — 6,418 — — 13,820

Doubtful — — — — — 98 — — 98

Subtotal $ 221,745 $ 582,171 $ 284,271 $ 145,890 $ 178,838 $ 272,711 $ 77,658 $ 2,561 $ 1,765,845

Current period charge-offs $ 17 $ 457 $ 247 $ — $ 91 $ 52 $ — $ — $ 864

(1) Excludes accrued interest receivables of $ 7.3 million as of December 31, 2023.

The following table presents the loan portfolio's amortized cost by loan type and risk rating of as of December 31, 2022:

($ in thousands) Pass Special

Substandard Doubtful Total (1)

Commercial real estate $ 841,645 $ 563 $ — $ — $ 842,208

SBA loans—real estate 218,408 — 1,691 — 220,099

SBA loans—non-real estate 54,762 — 966 31 55,759

SBA—real estate 220,348 — 992 — 221,340

SBA—non-real estate 12,897 — 480 — 13,377

C&I 116,396 — 279 276 116,951

2 unchanged sentences

Total $ 1,674,422 $ 563 $ 3,031 $ 276 $ 1,678,292

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

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

Premises and Equipment

19 unchanged sentences

Additions from loans sold with servicing retained 3,400 4,424

Additions from purchase of servicing rights — 6,097

Amortized to expense ( 4,418 ) ( 4,385 )

2 unchanged sentences

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 9.90 % and prepayment speeds ranging from 13.10 % to 13.80 % 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.

Certain lease arrangements contain extension option which are typically around 5 years.

As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term.

At December 31, 2022 and 2021 , operating right-of-use (“ROU”) assets were $ 9.1 million and $ 8.9 million, respectively, and related liabilities were $ 10.2 million and $ 10.3 million, respectively.

As of December 31, 2023 and 2022, operating right-of-use (“ROU”) assets were $ 8.5 million and $ 9.1 million, respectively, and related liabilities were $ 9.3 million and $ 10.2 million, respectively.

Short-term operating leases, which are defined as leases with term of twelve months or less, were not recognized as ROU assets with related lease liabilities as permitted under ASU No.

The lease payments on short-term operating leases are immaterial.

The Company did not have any finance leases at December 31, 2022 and 2021 .

The Company did not have any finance leases as of December 31, 2023 and 2022.

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.

16 unchanged sentences

Weighted average discount rate - operating leases 2.47 % 2.44 %

Year Ended December 31,

($ in thousands) 2022 2021

Cash paid for amounts included in the measurement of lease liabilities:

2 unchanged sentences

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, 2023:

($ in thousands) December 31,

($ in thousands)

Thereafter 1,925

4 unchanged sentences

The following table presents the scheduled contractual maturities of time deposits as of December 31, 2023:

($ in thousands) December 31,

($ in thousands)

2024 $ 841,257

2028 and thereafter 255

Total $ 885,789

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

Deposits from principal officers, directors, and their affiliates as of December 31, 2023 and 2022 were $ 1.8 million and $ 810 thousand, respectively.

Borrowing Arrangements

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.

As of December 31, 2023, the Company had $ 105.0 million advances from FHLB with a weighted average interest rate of 4.65 % and a weighted average remaining term of 0.9 years, compared to no borrowings as of December 31, 2022.

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, 2023 and 2022.

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

The Company had available borrowing capacity from the following institutions as of December 31, 2023:

($ in thousands)

FHLB—San Francisco $ 440,358

FHLB $ 363,615

Federal Reserve Bank 182,989

3 unchanged sentences

Total $ 646,604

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 Company has pledged approximately $ 1.39 billion and $ 1.24 billion of loans as collateral for these lines of credit as of December 31, 2023 and 2022, respectively.

The following table presents the components of income taxes expense (benefit) for the years ended December 31, 2023, 2022 and 2021:

Year Ended December 31,

($ in thousands) 2022 2021 2020

($ in thousands) Year Ended 2023 2022 2021

Current income tax expense:

2 unchanged sentences

Total current income tax expense 9,570 12,333 14,128

Deferred income tax (benefit) expense:

Deferred income tax expense (benefit):

Federal 217 783 ( 1,614 )

State ( 214 ) 298 ( 698 )

Total deferred income tax (benefit) expense 1,081 ( 2,312 ) ( 2,326 )

Total deferred income tax expense (benefit) 3 1,081 ( 2,312 )

Total income tax expense $ 9,573 $ 13,414 $ 11,816

9 unchanged sentences

Stock option expense and related excess tax benefits

— 0.1 ( 0.7 )

Company owned life insurance ( 0.4 ) ( 0.2 ) ( 0.1 )

5 unchanged sentences

Organizational costs $ 18 $ 20

Allowance for loan losses 5,688 4,827

Allowance for credit losses 6,502 5,688

Loans held for sale — 852

31 unchanged sentences

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.

16 unchanged sentences

Under the proportional amortization method, the Company amortizes the initial cost of the investment in proportion to the tax credit and other benefits received and recognizes the amortization in income tax expense on the Consolidated Statements of Income.

The Company recognized amortization expense of $ 697 thousand, $ 522 thousand and $ 262 thousand for the years ended December 31, 2022, 2021 and 2020, respectively.

Additionally, the Company recognized tax credits and other benefits from the investments in low-income housing partnerships of $ 926 thousand, $ 651 thousand and $ 313 thousand for the years ended December 31, 2022, 2021 and 2020, respectively.

The Company recognized amortization expense of $ 1.3 million, $ 697 thousand and $ 522 thousand for the years ended December 31, 2023, 2022 and 2021, respectively.

Additionally, the Company recognized tax credits and other benefits from the investments in low-income housing partnerships of $ 1.7 million, $ 926 thousand and $ 651 thousand for the years ended December 31, 2023, 2022 and 2021, respectively.

Stock-Based Compensation

The Company has three stock-based compensation plans currently in effect as of December 31, 2023, as described further below.

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.

Total compensation cost that has been charged against earnings for these plans for the years ended December 31, 2023, 2022 and 2021 was $ 1.3 million, $ 1.2 million and $ 558 thousand, 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”).

16 unchanged sentences

Vested — $ — $ —

Information related to the 2005 Plan for the periods indicated follows:

Information related to stock options exercised under the 2005 Plan for the periods indicated follows:

Year Ended December 31,

3 unchanged sentences

Tax benefit realized from option exercised 2 2 27

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.

In 2010, the Board of Directors of the Bank approved a new equity incentive plan for granting stock options and restricted stock awards to key employees, officers, and non-employee directors of the Bank (the “2010 Plan”).

5 unchanged sentences

Restricted stock awards issued under the 2010 Plan may or may not be subject to vesting provisions.

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).

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.

16 unchanged sentences

Cash received from option exercises 720 480 25

Tax benefit realized from option exercised — — 157

Tax provision realized from option exercised ( 3 ) — —

The weighted average remaining contractual term of stock options outstanding as of December 31, 2023 was 0.3 years.

9 unchanged sentences

Year Ended December 31,

($ in thousands) 2022 2021 2020

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

2023 2022 2021

Tax benefit (provision) realized from awards vested $ 4 $ — $ ( 85 )

As of December 31, 2023, the Company had approximately $ 18 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 0.9 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”).

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

14 unchanged sentences

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

Year Ended Year Ended December 31,

Year Ended December 31,

($ in thousands) 2023 2022 2021

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

Tax benefit (provision) realized from awards vested $ ( 34 ) $ 12 $ —

There were 1,111,457 shares available for future grants of either stock options or restricted stock awards under the 2021 Plan as of December 31, 2023.

23 unchanged sentences

Other Investment:

The Company has equity investment with readily determinable fair value.

The Company has an equity investment with readily determinable fair value.

The fair value for the equity investment with readily determinable fair value is obtained from unadjusted quoted prices in active markets on the date of measurement and classified as Level 1.

10 unchanged sentences

Residential collateralized mortgage obligations 144,459 — 144,459 —

Municipal securities - tax exempt 5,914 — 5,914 —

Other investments:

6 unchanged sentences

Mutual fund - CRA qualified 3,330 3,330 — —

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

There were no transfers of assets or liabilities between the Level 1 and Level 2 classifications for the years ended December 31, 2023 or 2022.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

1 unchanged sentence

These adjustments to fair value usually result from application of lower of cost or fair value and write-downs of individual assets.

Impaired Loans :

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals.

These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.

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

Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s judgment, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification.

Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company.

Once received, a member of the credit department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.

Collateral-dependent loans :

Collateral-dependent loans are loans where repayment is expected to be provided solely by the sale of the underlying collateral and there are no other available and reliable sources of repayment.

Prior to the adoption of ASU 2016-13, impaired loans were evaluated and valued at the time the loan was identified as impaired, at the lower of cost or fair value.

Fair value for both collateral-dependent and impaired loans are measured based on the value of the collateral securing these loans and are classified at a Level 3 in the fair value hierarchy.

Collateral may include real estate, or business assets including equipment, inventory and accounts receivable.

The value of real estate collateral is determined based on an appraisal by qualified licensed appraisers hired by the Company.

The value of business equipment is based on an appraisal by qualified licensed appraisers hired by the Company if significant, or the equipment’s net book value on the business’ financial statements.

Inventory and accounts receivable collateral are valued based on independent field examiner review or aging reports.

Appraisals may utilize a single valuation approach or a combination or approaches including comparable sales and the income approach.

Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral underlying such loans.

Appraised values are reviewed by management using historical knowledge, market considerations, and knowledge of the client and client’s business.

The following table presents the fair value hierarchy and fair value of assets that were still held and had fair value adjustments measured on a nonrecurring basis as of December 31, 2023 and 2022:

6 unchanged sentences

December 31, 2023

Impaired loans $ 423 $ — $ — $ 423

Collateral-dependent loans:

SBA—real estate $ 1,432 $ — $ — $ 1,432

Total $ 1,432 $ — $ — $ 1,432

December 31, 2022

Impaired loans:

SBA—real estate $ 423 $ — $ — $ 423

Total $ 423 $ — $ — $ 423

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:

1 unchanged sentence

($ in thousands) 2023 2022 2021

Impaired loans $ 28 $ 105 $ ( 84 )

Collateral-dependent loans:

SBA—real estate $ — $ 28 $ 105

Total $ — $ 28 $ 105

The following table presents information about significant unobservable inputs utilized in the Company’s nonrecurring Level 3 fair value measurements as of December 31, 2023 and 2022:

5 unchanged sentences

December 31, 2023

Impaired loans:

SBA loans—real estate $ 423 Income approach -

income capitalization

Capitalization rate 11.5 % 11.5 %

Collateral-dependent loans:

SBA—real estate $ 1,432 Income approach - income capitalization

Capitalization rate 9.3 % to 11.0 %

December 31, 2022

Impaired loans:

SBA loans—real estate $ 418 Market approach Market data

SBA loans—real estate $ 394 Income approach -

income capitalization

Capitalization rate 12.0 % 12.0 %

SBA—real estate $ 423 Income approach - income capitalization Capitalization rate 11.5 % 11.5 %

(1) Weighted-average of inputs is based on the relative fair value of the respective assets as of December 31, 2023 and 2022.

7 unchanged sentences

Cash and cash equivalents $ 91,216 $ 91,216 $ — $ — $ 91,216

Loans held for sale 44,335 — 47,217 — 47,217

Loans receivable, net 1,743,852 — — 1,793,258 1,793,258

5 unchanged sentences

Financial liabilities:

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

Deposits 1,807,558 — 1,808,444 — 1,808,444

FHLB advances 105,000 — 104,231 — 104,231

Accrued interest payable 12,628 — 12,628 — 12,628

12 unchanged sentences

Financial liabilities:

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

Deposits 1,885,771 — 1,880,508 — 1,880,508

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

The methods and assumptions, not previously presented, used to estimate fair value are described as follows:

(a) Cash and Cash equivalents

The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

(b) Loans Held for Sale

The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.

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.

(d) Other Investments

Fair value of CRA qualified mutual fund is readily determinable using quoted prices and is classified as Level 1.

It is not practical to determine the fair value of FHLB and PCBB stock due to restrictions placed on their transferability.

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 2 classification.

The carrying amounts of variable rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date resulting in a Level 2 classification.

Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

(f) Federal Home Loan Bank Advances

The fair values of Federal Home Loan Bank Advances are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements, resulting in a Level 2 classification.

(g) Accrued Interest Receivable/Payable

The carrying amounts of accrued interest approximate fair value and are classified within the same fair value hierarchy level as the related asset or liability.

(h) Off-balance Sheet Instruments

Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

The fair value of commitments is not material.

Regulatory Capital Matters

72 unchanged sentences

No share of common stock was antidilutive for the years ended December 31, 2023, 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

23 unchanged sentences

Income tax benefit 252 202 141

Equity in undistributed net income (loss) of bank subsidiary 27,310 24,178 ( 22 )

Equity in undistributed net income of bank subsidiary 12,826 27,310 24,178

Net income 23,918 33,310 28,839

Other comprehensive (loss) income, net of tax ( 16,646 ) ( 2,037 ) 652

Other comprehensive income (loss), net of tax 2,392 ( 16,646 ) ( 2,037 )

Comprehensive income $ 26,310 $ 16,664 $ 26,802

Condensed Statements of Cash Flows

Year Ended December 31,

($ in thousands) 2023 2022 2021

15 unchanged sentences

Cash and cash equivalents at end of year $ 1,653 $ 1,560 $ 2,431

Subsequent Events

The Company has evaluated subsequent events through the issuance of these financial statements and is not aware of any material items that would require disclosure in the notes to the financial statements or would be required to be recognized as of December 31, 2022.

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