OP Bancorp 10-K

Item 9A. Controls and Procedures. Evaluation of disclosure controls and procedures The Company’s management, including our President and Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered in this Report. Based on such evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of that 77 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, 2024, based on criteria established in Internal Control Integrated Framework by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). This evaluation applies to policies and procedures that: • Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of a company; • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of a company are being made only in accordance with authorizations of management and the board of directors of the company; and • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company’s assets that could have a material effect on its financial statements. However, because of the inherent limitations in these policies and procedures, internal control over financial reporting may not prevent or detect misstatements, including misstatements that may later prove to be material. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management concluded that, as of December 31, 2024, our internal control over financial reporting was effective based on these criteria The independent registered public accounting firm of Crowe LLP, as auditors of our consolidated financial statements included in this Report, has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024. That report is set forth herein beginning at page F- 1 . 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 by this Report, 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. Item 9B. Other Information. None . Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 78 Not applicable. 79 PART III Item 10. Directors, Executive Officers and Corporate Governance. T HE BOARD OF DIRECTORS The Board of Directors oversees our business and monitors the performance of management. In accordance with corporate governance principles, the Board does not involve itself in day-to-day operations. The directors keep themselves informed through, among other things, discussions with the Chief Executive Officer, other key executives and our principal outside advisors (legal counsel, outside auditors, and other consultants), by reading reports and other materials that we send them and by participating in Board and committee meetings. Pursuant to OP Bancorp’s Articles of Incorporation and Bylaws, our Board of Directors is authorized to have not less than seven members nor more than 13 members, and is currently comprised of seven members. The exact number of directors may be fixed from time to time within the range set forth in our Bylaws or amendment thereof duly adopted by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of a majority of the outstanding shares entitled to vote, or by resolution of our Board. Our Board of Directors has affirmatively determined that six of our seven current directors qualify as independent directors based upon the rules of The Nasdaq Stock Market and the SEC. There are no arrangements or understandings between any of the directors and any other person pursuant to which he or she was selected as a director. The following provides biographical information for our directors, including their names, ages and year in which they began serving as a director of the Company. All of the directors of Open Bank became members of the OP Bancorp board of directors when we reorganized into our present bank holding company structure in 2016. The age indicated in each director’s biography is as of March 28, 2025. Brian Choi . Mr. Choi, age 75, a director of the Bank since 2008, has served as the Chairman of the Board of the Bank since 2010, and OP Bancorp since 2016. Mr. Choi has served as Chairman and Chief Executive Officer of Universal Financing Corporation since 1991, and as Chairman and Chief Executive Officer of Ehese Investments, LLC since 2001. Mr. Choi has previous experience as a bank director with Alaska First Bank & Trust (formerly First Interstate Bank of Alaska) where he served on the Board from 1999 through 2008. He was the president of the Korean Community of Anchorage, Alaska from 2003 to 2004. He was the President of the Korean Christian Businessmen’s Committee of North America from 2006 to 2008. He also served as the President of the Federation of Korean American Association of Northwest States of United States of America, which included Oregon, Washington, Idaho, Montana, and Alaska from 2010 to 2012. Mr. Choi is a graduate of Korea University where he received a Bachelor of Science in Political Science and Foreign Relations. Mr. Choi contributes to the Board over 21 years of leadership and substantial experience in the community banking industry. He brings a wide-ranging understanding of the bank management, finance and operations. His leadership ability, judgment and prior business executive experience led the Board to elect him as Chairman of the Board. Soo Hun Jung, M.D . Dr. Jung, age 75, has served as a Board member since the founding of the Bank in 2005. He is a medical doctor who has been in private medical practice since 1982. Dr. Jung obtained his medical degree from Pusan National University College of Medicine, Pusan, South Korea, in 1975. He subsequently completed his general surgery internship at Mount Sinai Hospital, New York, in 1979 and his internal medicine residency at Hospital of the Good Samaritan (affiliated with U.S.C. Medical School) Los Angeles, in 1982. Dr. Jung is affiliated with various hospitals and medical associations. He is a Member of the Board of Good Samaritan Medical Practice Association; Good Samaritan Hospital, and Korean-American Medical Group. In addition, he is a member of American Medical Association, American College of Physicians, and Korean Medical Association. He serves as Clinical Assistant Professor of Medicine for U.S.C. School of Medicine. As a long-term member of the Board, Mr. Jung has a broad-based understanding of the Company and the Bank and is deeply committed to the community through his medical practice and affiliations with medical organizations and associations. Hyung J. Kim . Mr. Kim, age 62, has served as a Board member since 2023. He 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 80 knowledge and understanding of macroeconomics and finance, he contributes to the Board with historical economic trends, current headlines, and forecasting economic trends. Min J. Kim . Ms. Kim, age 65, has served as the President and Chief Executive Officer and a member of the Board of the Company and the Bank since April 2010. She has over 39 years of banking experience in the Korean banking community. Prior to joining the Bank, she served as Chief Executive Officer and President of Nara Bancorp and Nara Bank (now Bank of Hope and Hope Bancorp Inc) for three and half years assuming those positions in 2006. From 1996 to March 2006, Ms. Kim served in various executive positions with Nara Bancorp and Nara Bank, including Executive Vice President and Chief Operating Officer, Executive Vice President and Chief Credit Officer, and Senior Vice President and Chief Credit Administrator. Prior to joining Nara Bancorp and Nara Bank in 1995, Ms. Kim served in numerous positions with Hanmi Bank, including Vice President and Manager of the Western Street Branch of Hanmi Bank in Los Angeles from 1985 to 1995. Ms. Kim has a Bachelor of Sciences degree in Finance from the University of Southern California. Ms. Kim contributes to the Board her breadth of knowledge of the Company’s bank business, markets, community and culture. She provides the Board with an overall perspective of all facets of the Company’s business, financial condition and strategic direction. Sunny Kwon. Ms. Kwon, age 68, has served as a Board member since 2023. She 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. Ms. 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 . Ms. Shin, age 65, has served as a Board member since the founding of the Bank in 2005. She is the President and Secretary of CJS Groups Inc (DBA Bicici & Coty Fashion), an apparel manufacturer and wholesaler in Los Angeles, California which she founded in 1994. Ms. Shin was a fashion designer and co-manager of Coty Fashion in Sao Paulo, Brazil, from 1985 to 1994. Ms. Shin obtained her Bachelor of Science in Dietary Nutrition from University of Sao Paulo, Sao Paulo, Brazil, in 1982. Ms. Shin co-founded her own manufacturing and wholesale business in Los Angeles, California and contributes to the Board her substantial business acumen developed though years of proven entrepreneurial success. Also as an active member of the Korean American Chamber of Commerce in Los Angeles she brings to the Board various business and cultural insights from the local community. Myung Shin Sohn. Mr. Sohn, age 51, has served as a Board member since 2024. He is the Managing Partner of Dow & Sohn CPAs, Professional Corporation, and has over 15 years of distinguished experience in the public accounting industry. With his deep understanding of Generally Accepted Accounting Principles (GAAP) and Generally Accepted Audit Standards (GAAS), he provides accounting, tax, and business consulting services to domestic and international companies across the United States. His expertise extends to international tax compliance issues and Korean International Financial Reporting Standards (KIFRS) allowing him to offer comprehensive solutions tailored to clients operating in a global landscape. Mr. Sohn graduated with a Master of Business Administration in Accountancy from California State University Fullerton. In addition to his professional accomplishments, he is deeply committed to making impactful contributions to the community. From 2018 to 2023, he served as a Publication and Social Networking Service (SNS) Officer at the Korean-American CPA Society of Southern California (KACPA) playing a pivotal role in advancing the organization's mission and objectives. Presently, he holds the position of Chief Financial Officer at the Korea Franchise Association USA (KFAUSA) and the Korean American United Foundation (KAUF), where he contributes significantly to the growth and success of these non-profit organizations. Board Leadership Structure The Board of Directors is committed to maintaining an independent Board, and for many years a majority of the Board has been comprised of independent directors. Further, it is the practice of the Company to separate the roles of Chairman of the Board and Chief Executive Officer in recognition of the differences between the two roles. The Chief Executive Officer is responsible for setting our strategic direction and the day-to-day leadership and performance. The Chairman of the Board provides guidance to the Chief Executive Officer, sets the agenda for Board meetings, presides over meetings of the full Board (including executive sessions), and facilitates communication among the independent directors and between the independent directors and the Chief Executive Officer. The Board further believes that the separation of the duties of the Chief Executive Officer and the Chairman of the Board eliminates any inherent conflict of interest that 81 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 The Board of Directors has ultimate authority and responsibility for overseeing our risk management. The Board of Directors monitors, reviews and reacts to material enterprise risks identified by management. The Board receives specific reports from executive management on financial, credit, liquidity, interest rate, capital, operational, legal compliance and reputation risks and the degree of exposure to those risks. The Board helps ensure that management is properly focused on risk by, among other things, reviewing and discussing the performance of senior management and business line leaders. Board committees have responsibility for risk oversight in specific areas. The Audit Committee oversees financial, accounting and internal control risk management policies. The Human Resources & Compensation Committee assesses and monitors risks in our compensation program. The Nomination & Governance Committee oversees the nomination and evaluation of the Board and is responsible for overseeing our corporate governance principles. The Bank’s Risk and Compliance Committee oversees the risk and compliance programs, adherence to management policies and procedures, compliance with regulatory requirements and information technology strategies and activities. The Bank’s Loan & Credit Policy Committee is primarily responsible for credit and other risks arising in connection with our lending activities, which includes overseeing management committees that also address these risks. The Bank’s Asset/Liability Management Committee monitors our interest rate risk, with the goal of structuring our asset-liability composition to maximize net interest income while minimizing the adverse impact of changes in interest rates on net interest income and capital. Committees of the Board Our Board of Directors has established standing committees in connection with the discharge of its responsibilities. These committees include the Audit Committee, the Human Resource & Compensation Committee, and the Nomination & Governance Committee. Our Board of Directors also may establish such other committees as it deems appropriate, in accordance with applicable law and regulations and our articles and bylaws. Audit Committee The Company has a separately designated standing Audit Committee as required by the rules of The Nasdaq Stock Market. The Audit Committee charter adopted by the Board sets out the responsibilities, authority and specific duties of the Audit Committee. The Audit Committee charter is available on the Company’s website at www.myopenbank.com under the “Investor Relations” tab. The responsibilities of the Audit Committee include the following: • oversee the quality and integrity of regulatory and financial accounting, financial statements, financial reporting processes and systems of internal accounting and financial controls; • oversee the annual independent audit of the Company’s financial statements and internal control over financial reporting, the engagement of the independent registered public accounting firm and the evaluation of the independent registered public accounting firm’s qualifications, independence and performance; • oversee and retain internal audit and/or outsourced internal audit and review; • oversee the performance of our internal/external audit function and independent registered public accounting firm; • approve related-person transactions subject to Item 404 of Regulation S-K; and • review and discuss the annual audited financial statements with management and the independent auditors prior to publishing the annual report and filing the Annual Report on Form 10-K with the SEC. Each member of the Audit Committee meets the independence criteria as defined by applicable rules and regulations of the SEC for audit committee membership and is independent and is “financially sophisticated” as defined by the applicable rules and regulations of the Nasdaq Stock Market. The members of the Audit Committee are Brian Choi, Soo Hun Jung, M.D., Sunny Kwon, Hyung J. Kim, Yong Sin Shin, and Myung Shin Sohn (committee chair). The Audit Committee met twelve times in 2024. 82 Human Resources & Compensation Committee The Company has a separately designated Human Resources & Compensation Committee (“HRCC”), which consists entirely of independent directors as defined by the applicable rules and regulations of the Nasdaq Stock Market. The Human Resources & Compensation Committee has adopted a charter, which is available on our website at www.myopenbank.com under the “Investor Relations” tab. The Human Resources & Compensation Committee has the following responsibilities: • annually review the Company’s competitive position for each component of the overall human resource and compensation plan (especially base salary, annual incentives, long term incentives, and supplemental executive benefit programs); • review trends in compensation in all industries; • annually review with the Chief Executive Officer, the Company’s compensation strategy to assure that the Chief Executive Officer and the management team (senior vice president and above) and their compensation is in relation to their contributions to the Company’s growth, profitability, and meeting strategic goals; • annually review and recommend for approval to the Board the overall performance and total compensation for the Chief Executive Officer, including agreed upon goals and objectives relevant to the Chief Executive Officer’s compensation, evaluate the performance of the Chief Executive Officer in light of those goals and objectives, and set the Chief Executive Officer’s compensation level based upon this evaluation, taking into consideration the Company’s performance and relative shareholder return, and the value of similar incentive awards to Chief Executive Officers at comparable companies; • annually review and recommend to the Board the annual director’s compensation and any additional compensation for services on committees of the Board, service as a committee or Board chairman, meeting fees or any other benefit payable by virtue of the director’s position as a member of the Board; • evaluate and approve recommendations from the Chief Executive Officer regarding compensation and other employment related matters such as hiring, promotions, terminations or severance payments for all executive vice presidents, and post review of recommendations from the CEO regarding compensation and other employment related matters such as hiring, compensation, promotions, terminations or severance payments for all senior vice presidents; • periodically review and recommend to the Board all matters pertaining to broad based benefit plans of the Company, equity plans, senior management or director bonus plans and pension plans and performance based plans; • review, establish and modify, as it sees fit, all employment policies and procedures related to officers and directors; • administer the annual executive incentive compensation plan in a manner consistent with the Company’s compensation strategy including the following incentive plan elements: eligibility and participation; annual allocation and actual award of equity incentive grants paid to the Chief Executive Officer and the members of the management team; corporate financial goals as they relate to total compensation; total funds reserved for payment under the plan; and annual review of the incentive equity and cash management incentive plan; • recommend to the Board for approval of the submission to shareholders of all new equity-related incentive plans, and administer the Company’s long term incentive programs in a manner consistent with the terms of the plans including the following: eligibility; vesting terms and conditions; and total shares reserved for grants; • annually review the Chief Executive Officer and management succession plan; • in consultation with management, oversee regulatory compliance with respect to compensation matters, including overseeing the Company’s policies on structuring compensation programs to preserve tax deductibility; • perform any other duties or responsibilities the Board may expressly delegate to the committee from time to time on matters relating to the Company’s compensation programs; and • review and approve general employee welfare benefit plans and other plans on an as needed basis. 83 The members of the Human Resources & Compensation Committee are Brian Choi, Soo Hun Jung, M.D., Sunny Kwon (committee chair), Hyung J. Kim, Yong Sin Shin, and Myung Shin Sohn. The Committee met six times in 2024. Nomination & Governance Committee The Company has a separately designated the Nomination & Governance Committee, which consists of entirely independent directors as defined by the applicable rules and regulations of the Nasdaq Stock Market. The Nomination & Governance Committee has adopted a charter, which is available on the Company’s website at www.myopenbank.com under the “Investor Relations” tab. The purposes of the Nomination & Governance Committee include the following responsibilities: • identify individuals qualified to become Board members; • recommend to the Board director nominees for election at each annual meeting of shareholders or to fill vacancies on the Board; • formulate and recommend for adoption by the full Board a policy for consideration of nominees for election to the Board who are recommended by shareholders of the Company; • consider candidates recommended by the shareholders of the Company in accordance with the Board’s policy for such consideration; • consider the certain qualifications and factors when evaluating and selecting potential new directors in accordance with the Corporate Governance Guidelines, see “Corporate Governance and Board Matters – Nomination of Directors”; • in considering diversity of the Board (in all aspects of the term) as a criteria for selecting nominees to the Board the committee shall take into account various factors and perspectives, including differences of viewpoint, high quality business and professional experience, education, skills and other individual qualities and attributes that contribute to Board heterogeneity, as well as race, gender and national origin; and • consider the impact of a material change in qualifications of a director arising from the retirement or a change in the principal occupation, position or responsibility of a director as such a change relates to continued service on the Board; • evaluate Board performance and annually review the appropriate skills and characteristics required of Board members in the context of the current make-up or the Board, including such factors as business and professional experience, diversity and personal skills in finance, real estate capital markets, government regulation, financial reporting and other areas that are expected to contribute to an effective Board; • review the effectiveness, structure and operation of committees of the Board and the qualifications of members of the Board committees, and recommend to the Board the directors to serve or be removed as members of each committee and to recommend additional committee members to fill any vacancies; • develop for Board approval a set of corporate governance guidelines applicable to the Company and its subsidiary, periodically review and assess these and their application, and recommend to the Board any changes that the Committee deems appropriate; and • develop for Board approval the Code of Business Conduct and Business Ethics Policy and periodically review and assess the codes and their application, and recommend to the Board any changes that the committee deems appropriate. The members of the Nomination & Governance Committee are Brian Choi (committee chair), Soo Hun Jung, M.D, Sunny Kwon, Hyung J. Kim, Yong Sin Shin, and Myung Shin Sohn. The Committee met four times during 2024. 84 E XECUTIVE O FFICERS OF THE C OMPANY The following table sets forth certain information regarding our executive officers, including their names, ages and positions. The ages indicated in the table are as of March 28, 2025. Name Age Position Min J. Kim 65 President and Chief Executive Officer of the Company and the Bank Sang K. Oh 53 Executive Vice President and Chief Executive Officer In Transit of the Company and the Bank Christine Y. Oh 58 Executive Vice President and Chief Operating Officer of the Company and the Bank Jaehyun Park 53 Executive Vice President and Chief Financial Officer of the Company and the Bank Yeong Gwon Pak 54 Executive Vice President and Chief Credit Officer of the Company and the Bank Ki Won Yoon 64 Executive Vice President and Chief Lending Officer of the Bank Ryan Shin 52 Executive Vice President and Chief SBA Officer of the Bank Jae H. Park 46 Executive Vice President and Chief Risk Officer of the Bank Wesley Won 53 Executive Vice President and Chief Technology Officer of the Bank The business experience of each of our executive officers, other than Ms. Kim, is set forth below. Biographical information for Ms. Kim is included under “The Board of Directors” section above. No executive officer has any family relationship, as defined in Item 401 of Regulation S-K, with any other executive officer or any of our current directors. There are no arrangements or understandings between any of the officers and any other person pursuant to which he or she was selected as an officer. Sang K. Oh . Mr. Oh was appointed Executive Vice President and Chief Executive Officer of the Bank and the Company in August 2024. Prior to the appointment, he served as Executive Vice President and Chief Credit Officer of the Company and the Bank since October 2020. Mr. Oh has over 28 years of banking experience, all with Bank of Hope, Los Angeles, California. Prior to joining the Bank, he served as Senior Vice President and Senior Credit Administrator at Bank of Hope since 2007, and served in a various senior lending positions with Bank of Hope since 1997. Mr. Oh has a Bachelor of Arts in Business Economics with a Minor in Accounting from the University of California, Los Angeles, and is a graduate of Pacific Coast Banking School. Christine Y. Oh. Ms. Oh was appointed Executive Vice President and Chief Operating Officer of the Company and the Bank in March 2025, after serving as Chief Financial Officer of the Bank since July 2010 and of the Company since March 2016. Ms. Oh has over 34 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 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. Ms. Oh served as Interim Chief Financial Officer of Nara Bancorp and Nara Bank from March 2005 to July 2005. She joined Nara Bank in 1993. Prior to joining Nara Bank, Ms. Oh was a credit analyst at Center Bank where she started her banking career in 1991. Ms. Oh has a Bachelor of Science in Accounting from California State University, Northridge. Jaehyun Park . Mr. Park was appointed as Executive Vice President and Chief Financial Officer of the Company and the Bank in March 2025. Prior to the appointment, he has served Senior Vice President and Controller of the Company and the Bank since June 2014. Prior to joining the Bank, Mr. Park had served various roles in finance areas at Nara Bank (now Bank of Hope), headquartered in Los Angeles, California since April 2005. Mr. Park holds a Bachelor of Science in Economics from Korea University, South Korea, a Master of Science in Finance and a Juris Doctor from Suffolk University in Boston, Massachusetts. Yeong Gwon Pak. Mr. Pak previously served as Senior Vice President and District Manager at Bank of Hope from July 2022 until his departure in December 2024. Prior to that he had served in various executive roles at Commonwealth Business Bank since June 2015, including, most recently, as Executive Vice President and Chief Lending Officer from June 2020 to June 2022. Mr. Pak has more than 20 years of banking experience in community banks throughout the greater Los Angeles area, and has a Bachelor of Arts in Molecular and Cellular Biology from the University of California, Berkeley. Ki Won Yoon . Ms. Yoon has served as Executive Vice President and Chief Lending Officer since October 2013. Ms. Yoon has over 37 years of relevant lending experience, with strong ties in the Korean-American business community. 85 Prior to joining Open Bank, Ms. Yoon was District Manager at BBCN Bank (now Bank of Hope and Hope Bancorp Inc), which she joined in 1999, and where she managed a loan portfolio of over $450 million. Ms. Yoon has a Bachelor of Arts in Food & Nutrition from Sook Myung Women’s University and is a graduate of Pacific Coast Banking School. Ryan Shin . Mr. Shin has served as Executive Vice President and Chief SBA Officer of the Bank since February 2022. Mr. Shin has over 26 years of banking experience including 12 years as Senior Vice President & SBA Manager of Open Bank during which he led the Bank’s SBA lending by establishing the department structure and expanding the loan production. Prior to joining the Bank, he served as Senior Vice President & SBA Manager of US Metro Bank, Mirae Bank and Pacific Union Bank. Mr. Shin has a Bachelor of Science in Business Administration with Accounting concentration from California State University, Fullerton. Jae H. Park . Mr. Park joined the Bank as Executive Vice President and Chief Risk Officer in June 2022, bringing with him two decades of banking experience and specialized expertise in regulatory compliance, anti-money laundering/bank secrecy act, Community Reinvestment Act, and risk management. Prior to his current role, Mr. Park served as Executive Vice President and Chief Risk Officer at Sunwest Bank 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. Mr. 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). Wesley Won Mr. Won was appointed Executive Vice President and Chief Technology Officer in March 2025. He previously served as Senior Vice President and Chief Information Officer since April 2022 and has been with the Bank since September 2010, initially joining as MIS Manager. With over two decades of experience in financial technology and operations, Mr. Won held various leadership roles in Information Technology at Hanmi Bank from 2001 to 2009 and at Nara Bank (now Bank of Hope) from 1996 to 2009. Before his banking career, he honorably served in the U.S. Marine Corps. Mr. Won holds a Master of Business Administration from the Graziadio School of Business and Management at Pepperdine University in Malibu, California. C ORPORATE G OVERNANCE AND B OARD M ATTERS The Board of Directors is committed to good business practices, transparency in financial reporting and the highest level of corporate governance. To that end, the Board continually reviews its governance policies and practices, as well as the requirements of the Sarbanes-Oxley Act of 2002 and the listing standards of the Nasdaq Stock Market, to help ensure that such policies and practices are compliant and up to date. Board of Directors Board Independence In 2024, 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. Hyung J. Kim Sunny Kwon Yong Sin Shin Myung Shin Sohn Board and Committee Meeting Attendance During the fiscal year ended December 31, 2024, our Board of Directors held a total of fourteen meetings. Each incumbent director who was a director during 2024 attended each such meeting and each meeting held by the standing committees of the Board on which such director served. 86 Director Attendance at Annual Meetings of Shareholders The Board believes it is important for all directors to attend the Annual Meeting of Shareholders in order to show their support for the Company and to provide an opportunity for shareholders to communicate any concerns to them. The Company’s policy is to encourage, but not require, attendance by each director at the Company’s Annual Meeting of Shareholders. All of the directors of the Company are encouraged to attend the Annual Meeting of Shareholders and at the 2024 Annual Meeting of Shareholders all of our directors were in attendance. Communications with the Board Shareholders may communicate with the Board of Directors, including a committee of the Board or individual directors, by writing to the Corporate Secretary, OP Bancorp, 1000 Wilshire Boulevard, Suite 500, Los Angeles, CA 90017 or delivered via e-mail to christine.oh@myopenbank.com. Each communication from a shareholder should include the following information in order to permit shareholder status to be confirmed and to provide an address to forward a response if deemed appropriate: • if the person submitting the communication is a security holder, a statement of the type and amount of the securities of the Company that the person holds; • if the person submitting the communication is not a security holder and is submitting the communication to the non-management directors as an interested party, the nature of the person’s interest in the Company; • any special interest, meaning an interest not in the capacity of a shareholder of the Company, of the person in the subject matter of the communication; and • the address, telephone number and e-mail address, if any, of the person submitting the communication. Upon receipt, each communication shall be entered into an intake record maintained for this purpose, including the name of the person submitting the communication, the date and time of receipt of the communication, the information concerning the person submitting the communication required to accompany the communication and a brief statement of the subject matter of the communication. The record shall also indicate the action taken with respect to the communication. The Corporate Secretary or her personnel will review all communications to determine whether the communication satisfies the procedural requirements for submission and whether the substance of the communication is of a type that is appropriate for delivery to the Board of Directors under the criteria set forth in our procedures for communications with directors. Communications determined to be appropriate for delivery to directors, shall be assembled and delivered to the directors on a periodic basis. Our procedures regarding the handling of security holder communications were approved by a majority of our independent directors. Nomination of Directors The Company has a Nomination & Governance Committee. The duties of the Nomination & Governance Committee include the recommendation of candidates for election to the Company’s Board of Directors. The Nomination & Governance Committee’s minimum qualifications for a director are persons of high ethical character who have both personal and professional integrity, which is consistent with the image and values of the Company. The Corporate Governance & Nominating Committee considers some or all of the following criteria in considering candidates to serve as directors: • commitment to ethical conduct and personal and professional integrity as evidenced through the person’s business associations, service as a director or executive officer or other commitment to ethical conduct and personal and professional integrity as evidenced organizations and/or education; • objective perspective and mature judgment developed through business experiences and/or educational endeavors; • the candidate’s ability to work with other members of the Board and management to further the Company’s goals and increase shareholder value; • the ability and commitment to devote sufficient time to carry out the duties and responsibilities as a director; • experience at policy making levels in various organizations and in areas that are relevant to the Company’s activities; 87 • the skills and experience of the potential nominee in relation to the capabilities already present on the Board; • broad experience in business, finance or administration, and familiarity with national and international business matters; • familiarity with the commercial banking industry; • prominence and reputation, and ability to enhance the reputation of the Company; • activities and associations of each candidate to ensure that there is no legal impediment, conflict of interest, or other consideration that might hinder or prevent service on the Board; • in considering diversity of the Board (in all aspects of the term) as a criteria for selecting nominees to the Board the committee shall take into account various factors and perspectives, including differences of viewpoint, high quality business and professional experience, education, skills and other individual qualities and attributes that contribute to Board heterogeneity, as well as race, gender and national origin; and • consider the impact of a material change in qualifications of a director arising from the retirement or a change in the principal occupation, position or responsibility of a director as such a change relates to continued service on the Board. The Nomination & Governance Committee does not have a separate policy for consideration of any director candidates recommended by shareholders. Instead, the Nomination & Governance Committee considers any candidate meeting the requirements for nomination by a shareholder set forth in the Company’s Bylaws (as well as applicable laws and regulations) in the same manner as any other director candidate. The Nomination & Governance Committee believes that requiring shareholder recommendations for director candidates to comply with the requirements for nominations in accordance with the Company’s Bylaws ensures that the Nomination & Governance Committee receives at least the minimum information necessary for it to begin an appropriate evaluation of any such director nominee. Section 2.4 of the Company’s Bylaws provides that any shareholder must give advance written notice to the Company of an intention to nominate a director at a shareholder meeting. Notice of intention to make any nominations must be made in writing and delivered to the Chief Executive Officer or President at the principal executive offices of the Company no more than 60 days prior to any meeting of shareholders called for the election of directors, and no more than 10 days after the date of notice of such meeting is sent to the shareholders, provided, however, that if only 10 days’ notice of the meeting is given to shareholders such notice of intention to nominate shall be received by the Chief Executive Officer or President of the Company not later than the time fixed in the notice of meeting for the opening of the meeting. Such notification shall contain the following information to the extent known to the notifying shareholder: (i) the name and address of each proposed nominee; (ii) the principal occupation of each proposed nominee; (iii) the number of shares of voting stock of the Company owned by each proposed nominee; (iv) the name and residence address of the notifying shareholder; and (v) the number of shares of voting stock of the Company owned by the notifying shareholder. Nominations not made in accordance with the Bylaws shall be disregarded by the chairman of the meeting, and the inspectors of election shall then disregard all votes cast for each such nominee. Diversity of the Board of Directors In considering diversity of the Board (in all aspects of that term) as a criteria for selecting nominees in accordance with its charter, the Nomination & Governance Committee takes into account various factors and perspectives, including differences of viewpoint, high quality business and professional experience, education, skills and other individual qualities and attributes that contribute to Board heterogeneity, as well as race, gender and national origin. The Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. The Committee seeks persons with leadership experience in a variety of contexts and industries. The Committee believes that this expansive conceptualization of diversity is the most effective means to implement Board diversity. The Nomination & Governance Committee will assess the effectiveness of this approach as part of its annual review of its charter. Term of Office Directors serve for a one-year term or until their successors are elected. The Board does not have term limits, instead preferring to rely upon the evaluation procedures described herein as the primary methods of ensuring that each director continues to act in a manner consistent with the best interests of the shareholders and the Company. 88 Board Committees The Board may delegate portions of its responsibilities to committees of its members. These standing committees of the Board meet at regular intervals to attend to their particular areas of responsibility. These committees include: Audit Committee, the Human Resource & Compensation Committee, and the Nomination & Governance Committee. Each member of these committees is independent, as defined by the applicable rules and regulations of the Nasdaq Stock Market. The committee chair determines the agenda, the frequency and the length of the meetings and receives input from committee members. Executive Sessions Independent directors meet in executive sessions throughout the year including meeting annually to consider and act upon the recommendation of the Human Resource & Compensation Committee regarding the compensation and performance of the Chief Executive Officer. Evaluation of Board Performance A Board assessment is conducted annually in accordance with an established evaluation process and includes performance of committees. The Nomination & Governance Committee oversees this process and reviews the assessment with the full Board. Management Performance and Compensation The Human Resource and Compensation Committee reviews and approves the Chief Executive Officer’s evaluation of the top management team on an annual basis. The Board (largely through the Human Resource & Compensation Committee) evaluates the compensation plans for senior management and other employees to ensure they are appropriate, competitive and properly reflect the Company’s objectives and performance. Code of Business Conduct and Business Ethics Policy Our Board of Directors has adopted a Code of Business Conduct and Business Ethics Policy that applies to all of our directors and employees. The code provides fundamental ethical principles to which these individuals are expected to adhere to and will operate as a tool to help our directors, officers and employees understand the high ethical standards required for employment by, or association with, our Company. This policy governs whistleblowing and the protection of whistleblowers, related party transactions, conflicts of interest, and a variety of other requirements applicable to our officers and directors. Additionally, our Code of Business Conduct and Business Ethics Policy sets forth our insider trading policies and governs the purchase, sale, hedging and other acquisitions and dispositions of our securities, as well as the securities of publicly traded companies with whom we have a business relationship, and is designed to promote compliance with all applicable insider trading laws, listing standards, rules and regulations. Our Code of Business Conduct and Business Ethics Policy is available on our website at www.myopenbank.com under the “Investor Relations” tab. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website, as well as any other means required by Nasdaq Stock Market rules. Reporting of Complaints/Concerns Regarding Accounting or Auditing Matters The Company’s Board of Directors has adopted procedures for receiving and responding to complaints or concerns regarding accounting and auditing matters. These procedures were designed to provide a channel of communication for employees and others who have complaints or concerns regarding accounting or auditing matters involving the Company. Employee concerns may be communicated in a confidential or anonymous manner to the Audit Committee of the Board. The Audit Committee Chairman will make a determination on the level of inquiry, investigation or disposal of the complaint. All complaints are discussed with the Company’s senior management and monitored by the Audit Committee for handling, investigation and final disposition. The Chairman of the Audit Committee will report the status and disposition of all complaints to the Board of Directors. Delinquent Section 16(a) Reports 89 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, 2024, with the exception of the following: Name Transaction Date Filed Ryan Shin Acquisition of Restricted Stock Units Form 4 filed 5/31/2024 Brian Choi Acquisition of Restricted Stock Units; Acquisition of Common Stock Form 4 filed 7/2/2024 Soo Hun Jung Acquisition of Restricted Stock Units; Acquisition of Common Stock Form 4 filed 7/2/2024 Yong Sin Shin Acquisition of Restricted Stock Units; Acquisition of Common Stock Form 4 filed 7/2/2024 Hyung J. Kim Acquisition of Restricted Stock Units; Acquisition of Common Stock Form 4 filed 7/2/2024 Sunny Kwon Acquisition of Restricted Stock Units; Acquisition of Common Stock Form 4 filed 7/2/2024 Ernest Dow Acquisition of Common Stock Form 4 filed 7/2/2024 Item 11. Executive Compensation. The following table sets forth information regarding the compensation paid, awarded to, or earned for our fiscal years ended December 31, 2024 and 2023 for each of our named executive officers. Name and Principal Position Year Salary ($) Stock Awards Non Equity Incentive Plan Compensation (2) Other Compensation (3) ($) Total Compensation ($) Min J. Kim 2024 $ 576,300 $ — $ 315,900 $ 23,100 $ 915,300 President and Chief Executive Officer 2023 562,185 — 557,300 27,778 1,147,263 Christine Y. Oh 2024 337,461 — 65,700 22,648 425,809 Executive Vice President and Chief Financial Officer 2023 324,458 97,200 (1) 112,700 21,868 556,226 Sang K. Oh 2024 287,390 — 55,900 19,086 362,376 Executive Vice President and Chief Credit Officer 2023 276,317 — 96,300 18,979 391,596 (1) On May 25, 2023, the Company granted 12,000 shares of stock awards to Ms. Oh. 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. (2) Cash bonuses awarded under the Company's Management Incentive Plan, described below. Amounts for 2024 were determined and paid in March 2025. 90 (3) Other Compensation for the named executive officers for our fiscal year ended December 31, 2024 includes the following: Name Perquisites (i) Company 401(k) Match (ii) Total “Other Compensation” Min J. Kim $ 2,400 $ 20,700 $ 23,100 Christine Y. Oh 2,400 20,248 22,648 Sang K. Oh 2,400 16,686 19,086 (i) Amounts reflect cell phone allowance (ii) Amounts reflect Company matching contribution under the 401(k) Plan. General We compensate our named executive officers through a combination of base salary, annual bonuses, equity awards, and other benefits including perquisites. Our Human Resources & Compensation Committee, sometimes referred to as the HRCC, believes the executive compensation packages that we provide to our executives, including the named executive officers, should include both cash and equity compensation that reward performance as measured against established corporate goals. Each element of compensation is designed to achieve a specific purpose and to contribute to a total package that is competitive with similar packages provided by other institutions that compete for the services of individuals like our named executive officers. 2024 Risk Assessment Each year, the Company performs a risk analysis of each of its compensation programs. If warranted, the HRCC will recommend changes to address concerns or considerations raised in the risk review process. Changes may be recommended for the program design or its oversight and administration in order to mitigate unreasonable risk, if any is determined to exist. The HRCC has concluded that the Company’s compensation arrangements do not encourage any employees to take unnecessary 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. Chief Executive Officer Agreement On November 1, 2017, we entered into an employment agreement with Ms. Kim, our President and Chief Executive Officer. The agreement provides for an initial three-year term and 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. Under the terms of the agreement, Ms. Kim was initially entitled to an annual base salary of $410,000 subject to annual minimum increases of 3%, the actual amount as determined by the Board of Directors’ annual review of executive salaries. Her salary was last increased to $576,300 in April 2023. In addition to her salary, she is eligible to participate in the annual Management Incentive Plan, and will be entitled to equity award grants in accordance with the Company’s equity incentive plans and as approved by the Board of Directors. The Company provides Ms. Kim, at the same level of cost to other employees, group life, health, accident and disability insurance coverage for herself and her dependents. She is entitled to six weeks paid vacation annually. She received an automobile allowance in the amount of $1,200 per month in 2018 and for the first quarter of 2019. Effective April 2019, the monthly automobile allowance in the amount of $1,200 was rolled into Ms. Kim’s base salary. If Ms. Kim’s employment is terminated without Cause she will be entitled to 175% of her base salary paid over a period of 12 months and the Company will pay her COBRA health insurance premiums for 12 months. If Ms. Kim’s employment is terminated by the Company without Cause or 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. Kim are limited by Section 280G of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code” or the “Code”), our obligations will be limited to such amounts that results in the greatest amount of the payment that is deductible for federal minimum tax purposes after taking into account all other compensation payments to or for the benefit of Ms. Kim that are included in determining the deductibility of such payments under Section 280G. The agreement contains a non-solicitation provision, whereby Ms. Kim may not solicit the Company’s employees for two years after the termination of her employment. 91 For purposes of Ms. Kim’s contract the following terms are defined as follows: “Cause” means: (i) the willful and continuing failure to perform her obligations to the Company; (ii) the conviction of, or plea of nolo contendere to, a crime of embezzlement or fraud or any felony under the laws of the United States or any state thereof; (iii) the breach of fiduciary responsibility; (iv) an act of dishonesty that is injurious to the Company; (v) engagement in one or more unsafe or unsound banking practices that has an adverse effect on the Company; (vi) removal or permanent suspension from banking pursuant to regulatory and other applicable state or federal laws; (vii) an act or omission that leads to a harm (financial or reputational or otherwise) to the Company; or (viii) a material breach of Company policies as may be in effect from time to time. “ Change in Control ” means the first to occur of (a) the consummation of the acquisition by any “person” (as such term is defined in Section 13(d) or 14(d) of the Exchange Act) of “beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the Company; or (b) the consummation by the Company of: (i) a merger, consolidation, or similar transaction if the Company’s shareholders immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the entity resulting from such merger, consolidation or similar transaction in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Company outstanding immediately before such merger or consolidation; or (ii) a complete liquidation or dissolution of, or an agreement for the sale or other disposition of all or substantially all of the assets of, the Company (including a transaction described in clause (a) or (b) as if applicable to the Bank or a sale of substantially all of the Bank’s assets). Notwithstanding any provision of this definition to the contrary, a Change in Control shall not be deemed to have occurred solely because more than fifty percent (50%) of the combined voting power of the then outstanding securities of the Company are acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or an affiliate thereof or (ii) any corporation that, immediately prior to such acquisition, is owned directly or indirectly by the Company’s shareholders in the same proportion as their ownership of “Voting Securities” immediately prior to such acquisition. Further, notwithstanding any provision of this definition to the contrary, in the event that any amount or benefit under the agreement constitutes deferred compensation under the Section 409A of the Internal Revenue Code and the settlement of or distribution of such amount or benefit is to be triggered by a change in control, then such settlement or distribution shall be subject to the event constituting the change in control also constituting a “change in control event” (as defined in Section 409A). “ Good Reason ” means the occurrence of any one of the following events, unless Ms. Kim agrees in writing that such event shall not constitute “Good Reason”: (i) a material, adverse change in the nature, scope, or status of Ms. Kim’s position, authorities, or duties from those in effect immediately prior to the applicable change in control; (ii) a material reduction in her aggregate compensation or benefits in effect immediately prior to the applicable Change in Control; or (iii) a relocation of Ms. Kim’s primary place of employment of more than fifty (50) miles from the her primary place of employment immediately prior to the applicable Change in Control. Prior to the Ms. Kim’s termination of service for Good Reason, Ms. Kim must give the Company written notice of the existence of the condition that gives rise to an event of a Good Reason within 90 days of its occurrence and then the Company has 30 days to cure the situation. Management Incentive Plan The Company offers eligible executives an opportunity to earn cash bonuses in addition to their annual base salaries. Each year the management incentive plan (“Management Incentive Plan”) is reviewed and approved by the HRCC. The Management Incentive Plan for 2024 and 2023 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 2024 and 2023 were up to 100% of the annual base salary respectively for the President and Chief Executive Officer and up to 35% 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. The HRCC reviews the recommendations and based on its evaluation, recommends the final bonus amounts paid. In addition, the Board has the discretion to approve any additional cash bonuses 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 80% of performance goals set forth in the Management Incentive Plan for 2024 and 2023. The availability of bonuses and the amounts earned is based on various metrics approved by the HRCC. These metrics may change from year to year. 92 For 2024, the President and Chief Executive Officer and the other executive officers were each assigned Bank Goals and Individual Goals with different weight allocations. The Bank Goals consisted of achieving three financial targets: ROA of 1.01%, return on equity (“ROE”) of 11.30% and an efficiency ratio of 57.35%. The Individual Goals were customized to each individual’s respective responsibilities. 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 2024, our ROA was 0.92%, ROE was 10.68%, and the efficiency ratio was 61.19%. Based on the Bank and Individual performance, the HRCC determined that Ms. Kim should receive a bonus amount of $315,900, equal to 54.8% of her annual base salary for 2024, Ms. Oh should receive $65,700, equal to 19.4% of her annual base salary for 2024 and Mr. Oh should receive $55,900, equal to 19.3% of his annual base salary for 2024. For 2023, the President and Chief Executive Officer and the other executive officers were each assigned Bank Goals and Individual Goals with different weight allocations. The Bank Goals consisted of achieving three financial targets: ROA of 1.17%, return on equity (“ROE”) of 13.52% and an efficiency ratio of 56.64%. The Individual Goals were customized to each individual’s respective responsibilities. 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%. Based on the Bank and Individual performance, the HRCC determined that Ms. Kim should receive a bonus amount of $557,300, equal to 97% of her annual base salary for 2023, Ms. 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. Benefits and Other Perquisites The named executive officers are eligible to participate in the same benefit plans designed for all of our full-time employees, including health, dental, vision, disability and basic group life insurance coverage. We also provide our employees, including our named executive officers, with various retirement benefits. Our retirement plans are designed to assist our employees in planning for retirement and securing appropriate levels of income during retirement. The purpose of our retirement plans is to attract and retain quality employees, including executives, by offering benefit plans similar to those typically offered by our competitors. Open Bank Employee’s 401(k) Plan . The Open Bank Employee’s 401(k) Plan is designed to provide retirement benefits to all eligible full-time and part-time employees of the Company and its subsidiary. The 401(k) Plan provides employees with the opportunity to save for retirement on a tax-favored basis. Named executive officers, all of whom were eligible during 2024, may elect to participate in the 401(k) Plan on the same basis as all other employees. Employees may defer 1% to 100% of their compensation to the 401(k) Plan up to the applicable IRS limit. We currently match employee contributions on the first 6% of employee compensation ($1 for each $1). The Company match is contributed in the form of cash and is invested according to the employee’s current investment allocation. No discretionary profit sharing contribution was made to the 401(k) Plan for 2024 or 2023. Company Owned Life Insurance or COLI Policies . In 2014, the Company purchased single premium COLI Policies for certain executives and senior officers of the Company and to use the income from the COLI Policies to offset benefit expenses. Further, the Company benefits from any future death benefits paid out under these COLI Policies. The Company entered into arrangements with certain executive and senior officers to pay their beneficiaries a death benefit. The amount of the arrangement for executive officers was equal to 20% of the net amount of insurance, and for senior officers between 10% and 15% of the net amount of insurance. If the officer or director retires or is terminated, the arrangement terminates. Health and Welfare Benefits . Our named executive officers are eligible to participate in our standard health and welfare benefits program, which offers medical, dental, vision, life, accident, and disability coverage to all of our eligible employees. We do not provide the named executive officers with any health and welfare benefits that are not generally available to our other employees. Perquisites . We provide our named executive officers with certain perquisites that we believe are reasonable and consistent with our overall compensation program to better enable us to attract and retain superior employees for key positions. The HRCC periodically reviews the levels of perquisites and other personal benefits provided to named executive officers. Based on this periodic review, perquisites are awarded or adjusted on an individual basis. The perquisites received by our named executive officers in 2024 included a cell phone allowance. 93 Executive Change in Control Plan In connection with our initial public offering, our Board of Directors adopted an Executive Change in Control Plan, or Severance Plan. Participants in the Severance Plan are selected by the HRCC and the Board of Directors. Our Chief Executive Officer is not eligible to participate in the Severance Plan. If a participant in the Severance Plan is terminated without cause or resigns for a “good reason” within a determined period of time before or following a “change in control”, the participant will be paid an individually determined severance amount and benefits. Upon termination of the participant’s employment in a manner that results in severance to the participant under the Severance Plan, the participant agrees not to solicit employees and not solicit customers to terminate their relationships with the Company for a period of one year. Ms. Christine Oh is a participant in the Severance Plan. If she is terminated without cause within six months before or 12 months after a change in control (the “change in control period”) or she resigns for good reason during the change in control period, she would be entitled to 150% her base salary and the Company will pay her COBRA health insurance premiums for 12 months. The terms “cause,” “change in control” and “good reason” have substantially the same meanings as provided in Ms. Min J. Kim’s employment agreement, as described above. Equity Based Plans 2021 Equity Incentive Plan On June 24, 2021, the shareholders of Open Bank approved the 2021 Equity Incentive Plan (the “2021 Plan”). The purpose of the 2021 Plan is to advance the interest of the Company and its shareholders by providing an incentive to attract, retain and reward key employees, officers, and non-employee directors of the Company and the Bank. The 2021 Plan authorized up to 1,500,000 shares of the Company's common stock for issuance of equity awards including stock options and restricted stock units. Option exercise prices are the fair market value of the underlying stock as of the grant date. Restricted stock units are valued at the fair market value on the date of grant. As of December 31, 2024, 250,088 restricted stock units at an average issue price of $ 11.78 were outstanding. There were no stock options granted under the 2021 Plan. As of December 31, 2024, 1,078,188 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, 2024, 250,088 restricted stock units at an average issue price of $ 11.78 were outstanding. There were no stock options granted under the 2021 Plan. As of December 31, 2024, 1,078,188 shares were available for future grants in either stock options or restricted stock awards under the 2021 Plan. Outstanding Equity Awards The following table provides information for each of our named executive officers regarding outstanding stock awards held by the officers as of December 31, 2024. Stock Awards Name Number of Shares or Units of Stock That Have Not Vested (#) (1) Market Value of Shares or Units of Stock That Have Not Vested ($) (2) Christine Y. Oh 18,000 $ 284,580 Sang K. Oh 18,000 284,580 (1) This column represents the unvested restricted stock units granted. With regard to 18,000 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 and 12,000 restricted stock units vest 1/3rd per year from the date of 94 grant of May 25, 2023, subject to continuing service. With regard to 18,000 restricted stock units for Mr. Oh, 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 as of December 31, 2024, which was $15.81. Director Compensation The following table sets forth compensation paid or awarded to, or earned by, each of our directors (except for Min J. Kim, whose compensation is disclosed under “—Summary Compensation Table”) during 2024. Officers do not earn additional compensation for director service. Name Fees Earned or Paid in Cash ($) (1) Stock Awards ($) (2)(3) Total Brian Choi $ 84,000 $ 41,999 $ 125,999 Soo Hun Jung, M.D. 60,000 30,002 90,002 Hyung J. Kim 60,000 30,002 90,002 Sunny Kwon 60,000 30,002 90,002 Yong Sin Shin 60,000 30,002 90,002 Myung Shin Sohn 35,000 30,002 65,002 (1) Excludes reimbursement for traveling and other expenses and stock-based expenses relating to equity awards granted in prior years under our equity plans. (2) On June 27, 2024, the Company granted an aggregate 20,646 shares of stock awards to directors (excluding Ms. Kim). The grant date fair value was based on the number of shares granted and the closing price of the Company's stock on the grant date, which was $9.30. (3) The following table presents the number of shares underlying unvested stock awards held by each of our directors as of December 31, 2024. Name Number of Shares Underlying Unvested Stock Awards Brian Choi 4,516 Ernest E. Dow 3,226 Soo Hun Jung, M.D. 3,226 Hyung J. Kim 3,226 Sunny Kwon 3,226 Yong Sin Shin 3,226 Myung Shin Sohn 3,226 The Company paid fees to the non-officer directors for attendance at Board of Directors and Board of Directors’ committee meetings or for performing other services in connection with operation of the Company. The Chairman of the Board received $7,000 per month and all other directors received $5,000 per month. Directors receive reimbursement for their out-of-pocket expenses incurred in connection with their duties as directors, including their attendance at director meetings. Grants of Certain Equity Awards Close in Time to the Release of Material Nonpublic Information Our policy is to not grant stock options in anticipation of the release of material nonpublic information, such as a significant positive or negative earnings announcement, and not time the public release of such information based on grant dates. Additionally, we do not grant stock options or similar equity awards during periods in which there is material nonpublic information about the Company or Bank, including (i) during our “blackout” periods or outside “trading windows” established under our Insider Trading Policy or (ii) at any time between four business days prior to or one business day following the filing of our periodic reports or a Form 8-K that discloses material nonpublic information. These restrictions do not apply to restricted stock awards, restricted stock units, or other types of equity awards that do not include an exercise price related to the market price of our common stock on the date of grant. Our executive officers are not permitted to choose the grant date for their grants. The grants are effective on the date on which they are approved. However, if such date is during a blackout or a filing window, the grants will not be effective until after the second business day following the earnings announcement, unless such day is within a filing 95 window, in which case such grants will not be effective until after the second business day following the filing of the applicable report. During the 2024 fiscal year, none of our NEOs were awarded options with an effective grant date during any period beginning four business days before the filing or furnishing of a Form 10-Q, Form 10-K, or Form 8-K that disclosed material nonpublic information and ending one business day after the filing or furnishing of such reports. We do not backdate or reprice stock options or other equity awards. 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. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Beneficial Ownership of Common Stock The following table sets forth information as of March 21, 2025, 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 March 21, 2025, are deemed to be issued and outstanding and have been treated as outstanding in determining the amount and nature of beneficial ownership and in calculating the percentage of ownership of those individuals possessing such interest, but not for any other individuals. Name of Beneficial Owner (1) Shares Beneficially Owned (2) (3) Percent of Class Directors and Executive Officers: Brian Choi 1,303,562 8.74 % Soo Hun Jung, M.D. 241,988 1.62 % Hyung J. Kim 3,601 0.02 % Sunny Kwon 3,601 0.02 % Yong Sin Shin 494,036 3.31 % Myung Shin Sohn 20,400 0.14 % Min J. Kim 611,425 4.10 % Sang K. Oh 27,000 0.18 % Christine Y. Oh 136,790 0.92 % All directors and executive officers as a group (15 individuals) 2,978,250 19.97 % Manulife Financial Corporation 887,695 (3) 5.95 % AllianceBernstein L.P. 807,646 (4) 5.42 % (1) Except as otherwise noted, the address for all persons is c/o OP Bancorp, 1000 Wilshire Boulevard, Suite 500, Los Angeles, California 90017. (2) Subject to applicable community property laws and shared voting and investment power with a spouse, the persons listed have sole voting and investment power with respect to such shares unless otherwise noted. (3) Represents the number of common shares beneficially owned by Manulife Financial Corporation (“MFC”) and MFC’s indirect, wholly-owned subsidiaries, Manulife Investments (US) LLC (“MIM (US)”) and Manulife Investment Management Limited (“MIML”). The address of MFC and MIMIL is 200 Bloor Street East, Toronto, Ontario, Canada, M4W 1E5 and the address of MIM (US) is 197 Clarendon Street, Boston, Massachusetts 02116. The foregoing information has been obtained from the shareholder’s Schedule 13G filed with the SEC on February 14, 2022. 96 (4) Represents the number of common shares beneficially owned by AllianceBernstein L.P. The address of AllianceBernstein L.P. 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. The following table summarizes our equity compensation plans as of December 31, 2024: Securities Authorized for Issuance Under Equity Compensation Plans Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in Column (a) (c) Equity compensation plans approved by security holders 250,088 $ 11.78 1,078,188 Equity compensation plans not approved by security holders — — — Total 250,088 $ 11.78 1,078,188 Item 13. Certain Relationships and Related Transactions, and Director Independence. Policy and Procedures Regarding Related Party Transactions Our Board of Directors has adopted a written Statement of Policy with Respect to Related Party Transactions. Under this policy, any “related party transaction” may be consummated or may continue only if the Audit Committee approves or ratifies the transaction in accordance with the guidelines in the policy and if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party. For purposes of this policy, a “related person” means: (i) any person who is, or at any time since the beginning of the Company’s last fiscal year was, a director or executive officer of the Company or a nominee to become a director of the Company; (ii) any person who is known to be the beneficial owner of more than 5% of any class of the Company’s voting securities; (iii) any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the director, executive officer, nominee or more than 5% beneficial owner, and any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee or more than 5% beneficial owner; and (iv) any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner, principal or in a similar position, or in which such person has a 10% or greater beneficial ownership interest. A “related party transaction” is a transaction in which the Company or its subsidiary is a participant and in which a related person had or will have a direct or indirect interest, other than transactions involving: (i) less than $5,000 when aggregated with all similar transactions; (ii) customary bank deposits and accounts (including certificates of deposit); and (iii) loans and commitments to lend included in such transactions that are made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with other persons of similar creditworthiness, and do not involve more than the normal risk of collectability or present other unfavorable features to the Company. A related party who has a position or relationship with a firm, corporation, or other entity that engaged in a transaction with the Company shall not be deemed to have an indirect material interest within the meaning of this policy where the interest in the transaction arises only: (i) from such related party’s position as a director of another corporation or organization that is party to the transaction; (ii) from the direct or indirect ownership by the related party of less than a 10% equity interest in another person (other than a partnership) which is a party to the transaction; or (iii) from the related party’s position as a limited partner in a partnership in which the related party has an interest of less than 10%, and the related party is not a general partner of and does not hold another position in the partnership. 97 The Board of Directors has determined that the Audit Committee is best suited to review and approve related party transactions. The Committee considers all of the relevant facts and circumstances available to the Committee, including (if applicable) but not limited to: (i) the benefits to the Company; (ii) the impact on a director’s independence in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, shareholder or executive officer; (iii) the availability of other sources for comparable products or services; (iv) the terms of the transaction; and (v) the terms available to unrelated third parties or to employees generally. No member of the Audit Committee may participate in any review, consideration or approval of any related person transaction with respect to which such member or any of his or her immediate family members is the related person. The Committee will approve only those related person transactions that are in, or are not inconsistent with, the best interests of the Company and its shareholders, as the Committee determines in good faith. The Audit Committee will convey its decision to the Board of Directors. The Chief Executive Officer will convey the decision to the appropriate persons within the Company Ordinary Banking Relationships Certain of our officers, directors and principal shareholders, as well as their immediate family members and affiliates, are customers of, or have or have had transactions with us in the ordinary course of business. These transactions include deposits, loans and other financial services related transactions. Related party transactions are made in the ordinary course of business, on substantially the same terms, including interest rates and collateral (where applicable), as those prevailing at the time for comparable transactions with persons not related to us, and do not involve more than normal risk of collectability or present other features unfavorable to us. Any loans we originate with officers, directors and principal shareholders, as well as their immediate family members and affiliates, are approved by our Board of Directors in accordance with the bank regulatory requirements As of December 31, 2024, 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 $2.3 million as of such date. We expect to continue to enter into transactions in the ordinary course of business on similar terms with our officers, directors and principal shareholders, as well as their immediate family members and affiliates. Open Stewardship Foundation In 2011, the Open Stewardship Foundation, a non-profit organization, was created to actively support civic organizations, schools and other eligible charitable non-profit organizations that provide public benefit services in the communities we serve. We have committed to fund the Foundation in an amount equal to 10% of our consolidated annual income after taxes each year. We also permit the Foundation to use our premises for activities on behalf of non-profit organizations. This commitment is included in our annual operating budget each year and the Board of Directors and management believe that such activities have benefited us through stronger and expanded business relationships within the Korean-American community. Since inception, we have donated over $17.5 million to the Foundation, aiding over 230 local non-profits. The Foundation’s Board of Directors is comprised of five of our current and former directors, Brian Choi, Ernest E. Dow, Min J. Kim, Soo Hun Jung, and Yong Sin Shin. Our Chief Financial Officer serves as the president of the Foundation. Our directors and officers receive no additional compensation for their service at the Foundation. The Board of Directors of the Foundation maintains a selection committee that is responsible for reviewing and recommending grant applications from local nonprofits. The selection committee has four members annually selected by the Foundation Board of Directors. We do not control the Foundation’s activities, and accordingly, we do not consolidate the financial statements of the Foundation. Other Related Party Transactions Other than the compensation arrangements with directors and executive officers described in “Executive Compensation” and the ordinary banking relationships described above, none of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or their immediate family members or entities affiliated with them, had or will have a direct or indirect material interest, in any transactions to which we have been a party. 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. 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. A copy of the Company’s Code of Business Conduct and 98 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 2024, 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. Hyung J. Kim Sunny Kwon Yong Sin Shin Myung Shin Sohn Item 14. Principal Accountant Fees and Services. The following table summarizes the aggregate fees billed to the Company by its independent auditor: Category of Services Fiscal Year 2024 Fiscal Year 2023 Audit fees (1) $ 673,050 $ 597,795 Audit-related fees — — Tax fees (2) 69,221 57,008 All other fees — — Total accounting fees $ 742,271 $ 654,803 (1) Audit fees relate to professional services rendered in connection with the audit of the Company’s annual financial statements and internal controls for 2024, quarterly review of financial statements included in the Company’s Quarterly Reports on Form 10-Q, and audit services provided in connection with other statutory and regulatory filings. (2) Tax fees were related to tax services provided to Company, including annual Federal and State tax return, quarterly tax estimates, and any assistance, review, or resolution of tax notice. The ratio of Tax fees and All other fees to Total accounting fees was 9.3% for 2024 and 8.7% for 2023. In considering the nature of the services provided by the independent registered public accounting firm, the Audit Committee determined that such services are compatible with the provision of independent audit services. The Audit Committee discussed these services with the independent registered public accounting firm and Company management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC and the Public Company Accounting Oversight Board. 99 PART IV Item 15. Exhibits and Financial Statements. Exhibit Number Description 3.1 Articles of Incorporation of OP Bancorp (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 3.2 Amended and Restated Bylaws of OP Bancorp (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 3.3 First Amendment to the Amended and Restated Bylaws of OP Bancorp (incorporated herein by reference to Exhibit 3.3 to the Registrant’s Annual Report on Form 10-K (File No. 001-38437) filed on March 15, 2021) 4.1 Specimen common stock certificate of OP Bancorp (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 4.2 Description of Securities Registered under Section 12 of Securities Exchange Act of 1934, as amended (incorporated herein by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K (File No. 001-38437) filed on March 16, 2020) 10.1* Employment Agreement, dated November 1, 2017, between OP Bancorp and Min J. Kim (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.2* Employment Offer Letter, dated June 10, 2010, from First Standard Bank to Christine Oh (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.3* Employment Offer Letter, dated September 9, 2013, from First Standard Bank to Ki Won Yoon (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.8* 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. 333-223444) filed on March 5, 2018) 10.9* OP Bancorp Change in Control Severance Plan (incorporated herein by reference to Exhibit 10.13 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.10* Form of Indemnification Agreement entered into with all of the directors and executive officers of OP Bancorp (incorporated herein by reference to Exhibit 10.14 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.11 Coexistence Agreement with Open Bank S.A. (incorporated herein by reference to Exhibit 10.15 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on March 5, 2018) 10.12* Employment Offer Letter, dated September 24, 2020, from Open Bank to Sang Kyo Oh (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38437) filed on October 1, 2020) 10.13* Employment Offer Letter, dated September 18, 2020, from Open Bank to Ihnsuk J. Bang (incorporated herein by reference to Exhibit 10.17 to the Registrant'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. Kim (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38437) filed on June 25, 2021) 10.15* 2021 Equity Incentive Plan (incorporated herein by reference to Exhibit 4.6 to the Registrant’s Form S-8 Registration Statement (Registration No. 333-257362) filed on June 24, 2021 10.16* Form of Restricted Stock Unit Agreement under the OP Bancorp 2021 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-K (File No. 001-38437) filed on March 28, 2022). 19.1 OP Bancorp Insider Trading Policy, filed herewith 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) 100 23.1 Consent of Crowe, LLP, filed herewith. 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, filed herewith. 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, filed herewith. 32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 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). Item 16. Form 10-K Summary. None. 101 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized . OP Bancorp Date: March 28, 2025 By: /s/ MIN J. KIM Min J. Kim President and Chief Executive Officer POWER OF ATTORNEY AND SIGNATURES KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints each of Min J. Kim and Christine Y. Oh, his or her attorney-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Signature / Name Title Date /s/ MIN J. KIM President, Chief Executive Officer and Director (Principal Executive Officer) March 28, 2025 Min J. Kim /s/ JAEHYUN PARK Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer) March 28, 2025 Jaehyun Park /s/ BRIAN CHOI Director March 28, 2025 Brian Choi /s/ SOO HUN JUNG Director March 28, 2025 Soo Hun Jung /s/ HYUNG J. KIM Director March 28, 2025 Hyung J. Kim /s/ SUNNY KWON Director March 28, 2025 Sunny Kwon /s/ YONG SIN SHIN Director March 28, 2025 Yong Sin Shin /s/ MYUNG SHIN SOHN Director March 28, 2025 Myung Shin Sohn 102 Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID Number 173 ). F- 1 Consolidated Balance Sheets as of December 31, 2024 and 2023. F- 3 Consolidated Statements of Income for the Years Ended December 31, 2024, 2023 and 2022. F- 4 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2024, 2023 and 2022. F- 5 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2024, 2023 and 2022. F- 6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023 and 2022. F- 7 Notes to Consolidated Financial Statements. F- 9 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and the Board of Directors of OP Bancorp Los Angeles, California Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of OP Bancorp (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. 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. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded F-1 as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 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 of December 31, 2024, the Bank had a gross loan portfolio of $1.96 billion and a related allowance for credit losses (ACL) on loans of $24.8 million. As described in Notes 1 and 3 to the financial statements, 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: • Testing the design and operating effectiveness of controls over management’s determination of qualitative factor adjustments, including relevance and reliability of data used to develop the qualitative factor adjustments, the mathematical accuracy of qualitative factor adjustments derived from management’s credit risk matrix, the appropriateness of the qualitative framework and the reasonableness of management’s judgments and significant assumptions used to develop the qualitative factor adjustments. • Substantively testing management’s process for developing the qualitative factor adjustments, which included testing the relevance and reliability of data used to develop the qualitative factor adjustments, evaluating the mathematical accuracy of qualitative factor adjustments derived from management’s credit risk matrix, evaluating the appropriateness of the qualitative framework and evaluating the reasonableness of significant assumptions used in the development of the qualitative factor adjustments. • Analytically comparing trends within the qualitative factors to trends within the portfolio and other economic data for reasonableness, which included comparison to the prior period end and evaluating the reasonableness of the qualitative factors as of period end. Crowe LLP We have served as the Company's auditor since 2016. Costa Mesa, California March 28, 2025 F-2 OP BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, ($ in thousands) 2024 2023 ASSETS Cash and cash equivalents $ 134,943 $ 91,216 Available-for-sale debt securities, at fair value 185,909 194,250 Other investments 16,437 16,276 Loans held for sale 4,581 1,795 Loans receivable, net of allowance for credit losses of $ 24,796 and $ 21,993 as of December 31, 2024 and 2023, respectively 1,932,056 1,743,852 Premises and equipment, net 5,449 5,248 Accrued interest receivable 9,188 8,259 Servicing assets 10,834 11,741 Company owned life insurance 22,912 22,233 Deferred tax assets, net 14,893 13,309 Other real estate owned 1,237 — Operating right-of-use assets 7,415 8,497 Other assets 20,159 31,054 Total assets $ 2,366,013 $ 2,147,730 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities Deposits: Noninterest-bearing $ 504,928 $ 522,751 Interest-bearing: Money market and others 329,095 399,018 Time deposits greater than $250 565,813 433,892 Other time deposits 627,449 451,897 Total deposits 2,027,285 1,807,558 Federal Home Loan Bank advances 95,000 105,000 Accrued interest payable 16,067 12,628 Operating lease liabilities 7,857 9,341 Other liabilities 14,811 20,577 Total liabilities 2,161,020 1,955,104 Shareholders’ equity Preferred stock no par value; 10,000,000 shares authorized; no shares issued or outstanding as of December 31, 2024 and 2023 — — Common stock – no par value; 50,000,000 shares authorized as of December 31, 2024 and 2023; 14,819,866 and 15,000,436 shares issued and outstanding as of December 31, 2024 and 2023, respectively 73,697 76,280 Additional paid-in capital 11,928 10,942 Retained earnings 134,781 120,855 Accumulated other comprehensive loss ( 15,413 ) ( 15,451 ) Total shareholders’ equity 204,993 192,626 Total liabilities and shareholders' equity $ 2,366,013 $ 2,147,730 See accompanying notes to consolidated financial statements F-3 OP BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, ($ in thousands, except per share data) 2024 2023 2022 INTEREST INCOME Interest and fees on loans $ 124,361 $ 110,463 $ 82,864 Interest on available-for-sale debt securities 6,227 6,131 3,351 Other interest income 7,032 5,071 1,997 Total interest income 137,620 121,665 88,212 Interest expense Interest on deposits 68,121 49,435 11,210 Interest on borrowings 3,891 3,543 91 Total interest expense 72,012 52,978 11,301 Net interest income 65,608 68,687 76,911 Provision for credit losses 2,757 1,651 2,976 Net interest income after provision for credit losses 62,851 67,036 73,935 NONINTEREST INCOME Service charges on deposits 3,261 2,123 1,675 Loan servicing fees, net of amortization 2,898 2,449 2,416 Gain on sale of loans 8,313 7,843 12,285 Other income 1,955 1,766 1,243 Total noninterest income 16,427 14,181 17,619 NONINTEREST EXPENSE Salaries and employee benefits 31,717 29,593 27,189 Occupancy and equipment 6,673 6,490 5,964 Data processing and communication 2,245 2,109 2,085 Professional fees 1,535 1,571 1,620 FDIC insurance and regulatory assessments 1,672 1,457 813 Promotion and advertising 533 614 543 Directors’ fees 640 680 682 Foundation donation and other contributions 2,108 2,400 3,393 Other expenses 3,076 2,812 2,541 Total noninterest expense 50,199 47,726 44,830 INCOME BEFORE INCOME TAX EXPENSE 29,079 33,491 46,724 Income tax expense 8,010 9,573 13,414 NET INCOME $ 21,069 $ 23,918 $ 33,310 EARNINGS PER SHARE - BASIC $ 1.39 $ 1.55 $ 2.15 EARNINGS PER SHARE - DILUTED $ 1.39 $ 1.55 $ 2.14 See accompanying notes to consolidated financial statements F-4 OP BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, ($ in thousands) 2024 2023 2022 Net income $ 21,069 $ 23,918 $ 33,310 Other comprehensive income (loss) Change in unrealized gain (loss) on available-for-sale debt securities, net of tax effect 216 2,392 ( 16,646 ) Change in unrealized loss on cash flow hedge, net ( 178 ) — — Total other comprehensive income (loss) 38 2,392 ( 16,646 ) Comprehensive income $ 21,107 $ 26,310 $ 16,664 See accompanying notes to consolidated financial statements F-5 OP BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity ($ in thousands, except per share data) Shares Outstanding Amount Balance at January 1, 2022 15,137,808 $ 78,718 $ 8,645 $ 79,056 $ ( 1,197 ) $ 165,222 Net income — — — 33,310 — 33,310 Other comprehensive loss — — — — ( 16,646 ) ( 16,646 ) Stock issued under stock-based compensation plans, net of forfeiture 132,536 608 ( 81 ) — — 527 Stock-based compensation, net — — 1,179 — — 1,179 Cash dividends declared ($ 0.44 per share) — — — ( 6,676 ) — ( 6,676 ) Balance at 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 ) — ( 1,484 ) Adjusted balance at January 1, 2023 15,270,344 79,326 9,743 104,206 ( 17,843 ) 175,432 Net income — — — 23,918 — 23,918 Other comprehensive income — — — — 2,392 2,392 Stock issued under stock-based compensation plans, net of forfeiture 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, 2023 15,000,436 76,280 10,942 120,855 ( 15,451 ) 192,626 Net income — — — 21,069 — 21,069 Other comprehensive income — — — — 38 38 Stock issued under stock-based compensation plans, net of forfeiture 98,058 160 ( 197 ) — — ( 37 ) Stock-based compensation, net — — 1,183 — — 1,183 Repurchase of common stock ( 278,628 ) ( 2,743 ) — — — ( 2,743 ) Cash dividends declared ($ 0.48 per share) — — — ( 7,143 ) — ( 7,143 ) Balance at December 31, 2024 14,819,866 $ 73,697 $ 11,928 $ 134,781 $ ( 15,413 ) $ 204,993 See accompanying notes to consolidated financial statements F-6 OP BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, ($ in thousands) 2024 2023 2022 Cash flows from operating activities Net income $ 21,069 $ 23,918 $ 33,310 Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: Provision for credit losses 2,757 1,651 2,976 Depreciation and amortization of premises and equipment 1,361 1,336 1,367 Amortization of net premiums on securities 59 235 629 Amortization of servicing assets 3,748 4,418 4,385 Accretion of net discounts on loans ( 2,216 ) ( 2,840 ) ( 4,868 ) Amortization of low income housing partnerships 1,696 1,325 697 Stock-based compensation, net 1,183 1,297 1,179 Deferred income taxes ( 1,600 ) 626 1,081 Gain on sale of loans ( 8,313 ) ( 7,843 ) ( 12,285 ) Earnings on company owned life insurance ( 679 ) ( 620 ) ( 479 ) Net change in fair value of equity investment with readily determinable fair value 32 ( 48 ) 431 Origination of loans held for sale ( 134,666 ) ( 107,610 ) ( 137,642 ) Proceeds from sales of loans held for sale 137,352 154,593 196,531 Net change in: Accrued interest receivable ( 929 ) ( 1,079 ) ( 2,396 ) Other assets 11,448 ( 7,543 ) 269 Accrued interest payable 3,439 9,857 2,213 Other liabilities ( 4,397 ) ( 3,831 ) ( 3,664 ) Net cash from operating activities 31,344 67,842 83,734 Cash flows from investing activities Net change in loans receivable ( 183,557 ) ( 57,932 ) ( 138,998 ) Proceeds from matured, called, or paid-down securities available for sale 27,671 24,368 32,191 Purchase of company owned life insurance — — ( 10,000 ) Purchase of loans ( 6,421 ) ( 27,604 ) ( 225,133 ) Purchase of available-for-sale debt securities ( 19,082 ) ( 5,647 ) ( 115,819 ) Purchase of equity investments ( 101 ) ( 85 ) ( 53 ) Purchase of Federal Home Loan Bank stock ( 87 ) ( 4,045 ) ( 1,477 ) Purchase of premises and equipment, net ( 1,562 ) ( 2,184 ) ( 1,412 ) Investments in low-income housing partnerships ( 4,282 ) ( 2,843 ) ( 1,076 ) Net cash from investing activities ( 187,421 ) ( 75,972 ) ( 461,777 ) Cash flows from financing activities Net change in deposits 219,727 ( 78,213 ) 351,705 Cash received from stock option exercises 160 888 608 Proceeds from Federal Home Loan Bank advances 20,000 105,000 — Repayment of Federal Home Loan Bank advances ( 30,000 ) — — Repurchase of common stock ( 2,743 ) ( 3,934 ) — Cash dividend paid on common stock ( 7,143 ) ( 7,269 ) ( 6,676 ) F-7 Payments related to tax-withholding for vested restricted stock awards ( 197 ) ( 98 ) ( 81 ) Net cash from financing activities 199,804 16,374 345,556 Net change in cash and cash equivalents 43,727 8,244 ( 32,487 ) Cash and cash equivalents at beginning of period 91,216 82,972 115,459 Cash and cash equivalents at end of period $ 134,943 $ 91,216 $ 82,972 Supplemental cash flow information: Cash paid during the period for: Income taxes $ 8,263 $ 8,393 $ 14,493 Interest 68,573 43,121 9,088 Supplemental noncash disclosure: Initial recognition of right-of-use assets $ 984 $ 1,369 $ 1,961 New commitments to low income housing partnership investments — 6,000 5,000 Transfer of loan to other real estate owned 1,237 — — See accompanying notes to consolidated financial statements F-8 OP BANCORP AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Business and Basis of Presentation OP Bancorp ("Company") is a California corporation and bank holding company for Open Bank (“Bank”). The Company commenced operation as a bank holding company on June 1, 2016, and substantially all of its assets, operations and business are owned and conducted through the Bank. The Bank is a California state-chartered and Federal Deposit Insurance Corporation ("FDIC")-insured financial institution, which began its operations on June 10, 2005. Headquartered in downtown Los Angeles, California, Open Bank operates primarily in the traditional banking business arena that includes accepting deposits and making loans and investments. Open Bank'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 eleven full-service branches located in California, Washington, Nevada and Texas, and five loan production offices located in California, Georgia, Washington, Colorado, and Virginia. Basis of Presentation: The consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Use of Estimates: To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. Concentration of Risk: Most of the Company’s customers are located within Los Angeles County and the surrounding area. The concentration of loans originated in this area may subject the Company to the risk of adverse impacts of economic, regulatory or other developments that could occur in Southern California. The Company has significant concentration in commercial real estate loans. The Company obtains what it believes to be sufficient collateral to secure potential losses. The extent and value of the collateral obtained varies based upon the details underlying each loan agreement. Segments: Our chief operating decision maker (“CODM”), the Chief Executive Officer, manages the Company’s business activities as one single operating and reportable segment at the consolidated level. Accordingly, our CODM uses consolidated net income to measure segment profit or loss, allocate resources and assess performance. Further, the CODM reviews and utilizes net interest income, noninterest income and noninterest expenses (compensation and benefits, information services, occupancy and general, administrative and other) at the consolidated level to manage the Company’s operations. Cash Flows: Cash and cash equivalents include cash, deposits with other financial institutions with original maturities less than 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions. Securities: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available-for-sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments. Gains and losses on sales are recorded on the trade date and determined using the specific identification method. 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. The Company does not recognize a separate allowance for expected credit losses for accrued interest receivable and records reversals of accrued interest receivable as reductions of interest income. F-9 Other Investments: Other investments includes the followings: (i) Federal Home Loan Bank (“FHLB”) Stock - the Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income; (ii) Pacific Coast Bankers Bank (“PCBB”) Stock - the Bank is a member of PCBB. PCBB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income; and (iii) the Company’s investment in a mutual fund to satisfy the Company’s requirements under the Community Reinvestment Act (“CRA”). CRA mutual fund is reported at fair value. Unrealized gains and losses on a CRA fund are recognized in other income in the Consolidated Statements of Income. Loans Held for Sale: Certain Small Business Administration (“SBA”) loans that may be sold prior to maturity are designated as held for sale at origination and are recorded at the lower of their cost or fair value less costs to sell, determined on an aggregate basis. A valuation allowance is established if the market value of such loans is lower than their cost, and operations are charged or credited for valuation adjustments. Origination fees on loans held for sale, net of certain costs of processing and closing the loans, are deferred until the time of sale and are included in the computation of the gain or loss from the sales of the related loans. A portion of the premium on sale of SBA loans is recognized as gains on sales of loans at the time of the sale. These loans are generally sold with servicing retained. Loans Receivable: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. The recorded investment in loans includes accrued interest receivable, deferred loan fees and costs, and unearned income. The accrual of interest income on commercial real estate and other commercial and industrial loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer loans are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. All interest accrued but not received for loans placed on nonaccrual status is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Allowance for 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 does not recognize a separate allowance for expected credit losses for accrued interest receivable and records reversals of accrued interest receivable as reductions of interest income. The Company reverses previously accrued but uncollected interest when an asset is placed on nonaccrual status. Accrued interest receivable and the related allowance for expected credit losses is included as a component of other assets. The Company uses the Call Report codes and loan risk ratings for loan segmentation in allowance for credit losses. F-10 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; competition; 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: When SBA loans are sold with servicing retained, servicing assets are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, prepayment speeds, and default rates and losses. The Company compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. Servicing assets are subsequently measured using the amortization method which requires servicing assets to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. F-11 Servicing assets are evaluated for impairment based upon the fair value of the assets as compared to their carrying amount. Impairment is recognized through a valuation allowance to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the valuation allowance may be recorded as an increase to income. Changes in the valuation allowances are reported with other income on the income statement. The fair values of servicing rights are subject to fluctuations as a result of changes in estimated and actual prepayment speeds, default rates, and losses. Servicing fee income, which is reported on the income statement as other income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal and are recorded as income when earned. The amortization of servicing assets is netted against loan servicing fee income. Late fees and ancillary fees related to loan servicing are not material. Derivative Instruments and Hedging Activities: FASB ASC 815, Derivatives and Hedging (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments. As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply, or the Company elects not to apply hedge accounting. For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same period during which the hedged transaction affects earnings. Changes in fair value of derivatives not designated are reported currently in earnings, as non-interest income. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended. When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings. In accordance with the FASB’s fair value measurement guidance in Accounting Standards Update ("ASU") No. 2011-04, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Company Owned Life Insurance: The Company has purchased life insurance policies on certain key executives. Company owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. F-12 Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Premises and Equipment: Premises and equipment are stated at cost, less accumulated depreciation. Equipment and furnishings are depreciated over 3 to 10 years , and leasehold improvements are amortized over the lesser of the terms of the respective leases or the estimated useful lives. The straight-line method of depreciation is used for financial reporting purposes. Repairs and maintenance are charged to operating expenses as incurred. Other Real Estate Owned ("OREO"): Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at fair value at the date of foreclosure, establishing a new cost basis by a charge to the allowance for credit losses, if necessary. Other real estate owned is carried at the lower of our carrying value of the property or its fair value, less estimated carrying costs and costs of disposition. Fair value is based on current appraisals less estimated selling costs. Any subsequent write-downs are charged against operating expenses and recognized as a valuation allowance. Operating expenses and related income of such properties and gains and losses on their disposition are included in other income or expenses. Operating Lease Right of Use ("ROU') Assets and Lease Liabilities: The ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The lease terms include periods covered by options to extend or terminate the lease if we are reasonably certain to exercise such options. We use our incremental borrowing rate to determine the present value of our lease liabilities, and we do not recognize ROU assets or lease liabilities for short-term leases. We determine if a contract arrangement is a lease at inception and we primarily enter into operating lease contracts for our branch locations, office space, and certain equipment. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We did not possess any leases that have variable lease payments or residual value guarantees as of December 31, 2024 . Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. Low Income Housing Partnership Investments: The Company records the low income housing partnership investments, net of amortization, using the proportional amortization method and the Company reports it to other assets on the Consolidated Balance Sheets. The Company recognizes tax credits in income tax expense on the Consolidated Statement of Income. The commitments to fund the low income housing partnership investments are also recorded and included to other liabilities on the Consolidated Balance Sheets. The Company utilizes the year to date tax credits on the Company’s income tax returns for the year. Stock-Based Compensation: Compensation cost is recognized for stock options and restricted stock awards issued to employees based on the fair value of the awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of the grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Earnings per Common Share: Basic and diluted earnings per share ("EPS") is based on the two-class method prescribed in ASC Topic 260, Earnings Per Share (ASC 260). Stock options and restricted stock awards are considered outstanding for this calculation unless unearned. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock-based compensation plans. Earnings and dividends per share are restated for all stock splits and stock dividends through the date of issuance of the financial statements. Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary F-13 differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. There were no interest or penalties recognized in the years ended December 31, 2024 or 2023 . Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on available-for-sale ("AFS") debt securities, which are also recognized as separate components of shareholders’ equity, net of tax. Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements. Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 13—Fair Value of Financial Instruments. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates. New Accounting Pronouncements Adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2016-13, Financial Instruments — Credit Losses (Topic 326) : Measurement of Credit Losses on Financial Instruments . The Company adopted ASU 2016-13 using a modified retrospective approach on January 1, 2023 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. F-14 The following table illustrates the impact of ASU 2016-13: January 1, 2023, Adoption Date ($ in thousands) As Reported Pre-ASU 2016-13 Impact Assets: Loans: 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 Liabilities: 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. ("ASU 2022-02") . ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in Accounting Standards Codification (“ASC”) Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. 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. FASB ASU No. 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 Statement of Income 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 No. 2023-02 on January 1, 2024, and the adoption did not have a material impact on its consolidated financial statements. FASB ASU No. 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . This expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024 and should be applied retrospectively. The Company adopted ASU 2023-07 in 2024 and it did not have an impact on the Company's financial position or results of operation as it impacts disclosures only. Recently Issued Accounting Pronouncement under Evaluation FASB ASU No. 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. F-15 Note 2 . Securities 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, 2024 and 2023: December 31, 2024 ($ in thousands) Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 41,521 $ — $ ( 4,445 ) $ 37,076 Residential collateralized mortgage obligations 160,187 312 ( 17,458 ) 143,041 Municipal securities - tax exempt 5,830 37 ( 75 ) 5,792 Total AFS debt securities $ 207,538 $ 349 $ ( 21,978 ) $ 185,909 December 31, 2023 ($ in thousands) Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 48,318 $ — $ ( 4,441 ) $ 43,877 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 There were no sales of AFS debt securities during the years ended December 31, 2024 and 2023. The amortized cost and estimated fair value of AFS debt securities as of December 31, 2024, by contractual maturity, are shown below: ($ in thousands) Amortized Cost Fair Value One year or less $ 22 $ 22 After one year through five years 1,172 1,134 After five years through ten years 2,817 2,577 After ten years 203,527 182,176 Total AFS debt securities $ 207,538 $ 185,909 Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. As of December 31, 2024 and 2023, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity. F-16 The following table presents the fair value and the associated gross unrealized losses on AFS debt securities by length of time those individual securities in each category have been in a continuous loss as of December 31, 2024 and 2023: December 31, 2024 Less Than 12 Months 12 Months or Longer Total ($ in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 5,442 $ ( 133 ) $ 31,634 $ ( 4,312 ) $ 37,076 $ ( 4,445 ) Residential collateralized mortgage obligations 27,614 ( 214 ) 93,236 ( 17,244 ) 120,850 ( 17,458 ) Municipal securities - tax exempt 895 ( 19 ) 1,788 ( 56 ) 2,683 ( 75 ) Total AFS debt securities $ 33,951 $ ( 366 ) $ 126,658 $ ( 21,612 ) $ 160,609 $ ( 21,978 ) December 31, 2023 Less Than 12 Months 12 Months or Longer Total ($ in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 6,488 $ ( 59 ) $ 37,389 $ ( 4,382 ) $ 43,877 $ ( 4,441 ) 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 ) 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. 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. As of December 31, 2024, the Company's AFS debt securities consisted of 90 securities, of which 84 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. F-17 All securities are performing and the Company believes 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 have allowance for credit losses as of December 31, 2024 and 2023. As of December 31, 2024 and 2023, there were no pledged securities to secure public deposits, borrowing and letters of credit from the Federal Home Loan Bank System ("FHLB") and the Board of Governors of the Federal Reserve System, and for other purposes required or permitted by law. The following table presents the other investments, which are included in other investments on the Consolidated Balance Sheets as of December 31, 2024 and 2023: December 31, ($ in thousands) 2024 2023 FHLB stock $ 12,615 $ 12,528 Pacific Coast Bankers Bank ("PCBB") stock 190 190 Mutual fund - Community Reinvestment Act ("CRA") qualified 3,532 3,463 Time deposits placed in other banks 100 95 Total other investments $ 16,437 $ 16,276 The Company has equity investment in a mutual fund with readily determinable fair value of $ 3.5 million as of December 31, 2024 and 2023, which is measured at fair value with changes in fair value recorded in net income. The Company invested in the mutual fund for CRA purposes. For the mutual fund, the Company recorded unrealized losses of $ 32 thousand and unrealized gains of $ 48 thousand for the years ended December 31, 2024 and 2023, respectively. The unrealized gains (losses) of the mutual fund are included in other income in the consolidated statements of income. Note 3. Loans and Allowance for Credit Losses on Loans The following table presents the composition of the loan portfolio as of December 31, 2024 and 2023: December 31, ($ in thousands) 2024 2023 Commercial real estate $ 980,247 $ 885,585 SBA—real estate 231,962 224,695 SBA—non-real estate 21,748 14,997 C&I 213,097 120,970 Home mortgage 509,524 518,024 Consumer 274 1,574 Gross loans receivable 1,956,852 1,765,845 Allowance for credit losses ( 24,796 ) ( 21,993 ) Loans receivable, net (1) $ 1,932,056 $ 1,743,852 (1) Includes net deferred loan fees and net unamortized discounts of $ 702 thousand as of December 31, 2024 and net deferred loan costs and net unamortized premiums of $ 140 thousand as of December 31, 2023. No loans were outstanding to related parties as of December 31, 2024 and 2023. F-18 The following table summarizes the activity in the allowance for credit losses on loans by portfolio segment for the years ended December 31, 2024, 2023 and 2022: ($ in thousands) Commercial Real Estate SBA— Real Estate SBA —Non- Real Estate C&I Home Mortgage Consumer Total Balance as of January 1, 2022 $ 8,150 $ 2,022 $ 199 $ 2,848 $ 2,891 $ 13 $ 16,123 Provision for (reversal of) credit losses ( 1,199 ) ( 409 ) 66 ( 1,205 ) 5,935 ( 7 ) 3,181 Charge-offs — ( 14 ) ( 127 ) — — — ( 141 ) Recoveries — 8 69 — — 1 78 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 as of December 31, 2023 7,915 1,657 147 1,215 11,045 14 21,993 Provision for (reversal of) credit losses 1,375 3,966 271 673 ( 3,361 ) ( 11 ) 2,913 Charge-offs — ( 66 ) ( 27 ) ( 44 ) — — ( 137 ) Recoveries — — 27 — — — 27 Balance as of December 31, 2024 $ 9,290 $ 5,557 $ 418 $ 1,844 $ 7,684 $ 3 $ 24,796 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, 2024 and 2023, there were $ 7.7 million and $ 5.2 million, respectively, of collateral-dependent loans which are primarily secured by SBA—real estate and residential real estate. The allowance for credit losses allocated to these loans as of December 31, 2024 and 2023 was $ 1.2 million and $ 355 thousand, respectively. The following table represents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2024 and 2023, for which repayment is expected to be obtained through the sale of the underlying collateral. ($ in thousands) Hotel / Motel Retail Single-Family Residential Total (1) As of December 31, 2024 Commercial real estate $ 1,580 $ 363 $ — $ 1,943 SBA—real estate 3,702 2,006 — 5,708 Total $ 5,282 $ 2,369 $ — $ 7,651 As of December 31, 2023 SBA—real estate $ 2,923 $ — $ — $ 2,923 Home mortgage — — 2,241 2,241 Total $ 2,923 $ — $ 2,241 $ 5,164 (1) Excludes guaranteed portion of SBA loans of $ 15.2 million as of December 31, 2024. There wa s no gu aranteed portion of SBA loans as of December 31, 2023. F-19 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, 2024 and 2023: ($ 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 Days Past Due & Still Accruing Total (1) As of December 31, 2024 Commercial real estate $ 363 $ 1,580 $ 1,943 $ — $ 1,943 SBA—real estate 2,006 3,702 5,708 — 5,708 SBA—non-real estate 169 — 169 — 169 Total $ 2,538 $ 5,282 $ 7,820 $ — $ 7,820 As of December 31, 2023 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 Total $ 2,705 $ 3,377 $ 6,082 $ — $ 6,082 (1) Excludes guaranteed portion of loans of $ 16.3 million and $ 2.0 million as of December 31, 2024 and 2023, 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, 2024 and 2023: ($ in thousands) 30-59 Days Past Due 60-89 Days Past Due > 90 Days Past Due Total Past Due (1) Loans Not Past Due Total (2) As of December 31, 2024 Commercial real estate $ — $ — $ 362 $ 362 $ 979,885 $ 980,247 SBA—real estate 237 75 2,006 2,318 229,644 231,962 SBA—non-real estate 254 138 2 394 21,354 21,748 C&I 15 — — 15 213,082 213,097 Home mortgage 2,774 5,594 — 8,368 501,156 509,524 Consumer — — — — 274 274 Total $ 3,280 $ 5,807 $ 2,370 $ 11,457 $ 1,945,395 $ 1,956,852 As of December 31, 2023 Commercial real estate $ — $ — $ — $ — $ 885,585 $ 885,585 SBA—real estate 1,868 932 1,983 4,783 219,912 224,695 SBA—non-real estate 154 — — 154 14,843 14,997 C&I — — — — 120,970 120,970 Home mortgage 4,076 2,730 2,491 9,297 508,727 518,024 Consumer — — — — 1,574 1,574 Total $ 6,098 $ 3,662 $ 4,474 $ 14,234 $ 1,751,611 $ 1,765,845 (1) Excludes guaranteed portion of loans of $ 8.7 million and $ 1.9 million as of December 31, 2024 and 2023, respectively. (2) Excludes accrued interest receivables of $ 8.1 million and $ 7.3 million as of December 31, 2024 and 2023, respectively. Loan Modifications to Borrowers Experiencing Financial Difficult: On January 1, 2023, the Company adopted ASU No. 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 F-20 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. No charge-offs of previously modified loans were recorded for the years ended December 31, 2024 and 2023. The following table presents the amortized cost of modified loans and the financial effects of the modification for the years ended December 31, 2024 and 2023 by loan class and modification type: Year Ended December 31, 2024 Modification Type Percentage to Each Loan Segment ($ in thousands) Payment Delay Interest Only Term Extension Total Commercial real estate $ 1,580 $ — $ — $ 1,580 0.16 % SBA—real estate (1) 3,702 391 — 4,093 1.76 % C&I — — 400 400 0.19 % Total $ 5,282 $ 391 $ 400 $ 6,073 (1) Excludes guaranteed portion of SBA loans of $ 7.4 million. Year Ended December 31, 2023 Modification Type Percentage to Each Loan Segment ($ in thousands) Payment Delay Term Extension Total Commercial real estate $ — $ 625 $ 625 0.07 % SBA—real estate (1) 2,969 — 2,969 0.57 % SBA—non-real estate 131 — 131 0.87 % C&I 354 — 354 0.16 % Total $ 354 $ 625 $ 4,079 (1) Excludes guaranteed portion of SBA loans of $ 2.4 million. 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 within the last 12 months at December 31, 2024 that subsequently defaulted. The Company had no additional commitments to lend to borrowers whose loans were modified as of December 31, 2024. The Company had additional commitments totaling $ 3.6 million to lend to borrowers whose loans were modified as of December 31, 2023. The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents financial performance of such loans that have been modified in the last 12 months as of December 31, 2024 and 2023: Payment Performance as of December 31, 2024 ($ in thousands) Current 30 - 89 Days Past Due 90+ Days Past Due Total Commercial real estate $ 1,580 $ — $ — $ 1,580 SBA—real estate (1) 4,093 — — 4,093 C&I 400 — — 400 Total $ 6,073 $ — $ — $ 6,073 F-21 (1) Excludes guaranteed portion of SBA loans of $ 7.4 million. Payment Performance as of December 31, 2023 ($ in thousands) Current 30 - 89 Days Past Due 90+ Days Past Due Total Commercial real estate $ 625 $ — $ — $ 625 SBA—real estate (1) 2,232 — 737 2,969 SBA—non-real estate 131 — — 131 Home mortgage 354 — — 354 Total $ 3,342 $ — $ 737 $ 4,079 (1) Excludes guaranteed portion of SBA loans of $ 2.4 million. The following tables describe the financial effect of the loan modifications made to borrowers experiencing financial difficulty for the periods presented: Financial Effect Modification & Loan Types Description of Financial Effect Year Ended December 31, 2024 Payment Delay: Commercial real estate Deferment of Payment by a weighted average of: 0.5 years SBA—real estate Deferment of Payment by a weighted average of: 0.9 years Term Extension: C&I Extended term by a weighted average of: 0.6 years Interest Only: SBA—real estate Interest only Payment by a weighted average of: 0.5 years Financial Effect Modification & Loan Types Description of Financial Effect Year Ended December 31, 2023 Payment Delay: SBA—real estate Deferment of Payment by a weighted average of: 0.7 years SBA—non-real estate Deferment of Payment by a weighted average of: 0.2 years Home mortgage Deferment of Payment by a weighted average of: 0.5 years Term Extension: Commercial real estate Extended term by a weighted average of: 1.0 year Credit Quality Indicators : The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. For consumer loans, a credit grade is established at inception, and generally only adjusted based on performance. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings: Special Mention—Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date. Substandard—Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses F-22 that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful—Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. The following table presents the loan portfolio's amortized cost by loan type, risk rating and year of origination as of December 31, 2024 and 2023: F-23 December 31, 2024 Term Loans by Origination Year Revolving Loans Revolving Loans Converted to Term Loans Total (1) ($ in thousands) 2024 2023 2022 2021 2020 Prior Commercial real estate Pass $ 201,141 $ 85,056 $ 190,968 $ 137,425 $ 88,993 $ 250,291 $ 17,012 $ — $ 970,886 Special mention — — 579 2,246 — — — — 2,825 Substandard — 1,580 319 — — 4,637 — — 6,536 Doubtful — — — — — — — — — Subtotal $ 201,141 $ 86,636 $ 191,866 $ 139,671 $ 88,993 $ 254,928 $ 17,012 $ — $ 980,247 Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — SBA— real estate Pass $ 31,441 $ 26,508 $ 41,375 $ 18,819 $ 16,166 $ 72,440 $ — $ — $ 206,749 Special mention — — 2,345 — — 739 — — 3,084 Substandard — 1,182 9,965 2,868 — 8,114 — — 22,129 Doubtful — — — — — — — — — Subtotal $ 31,441 $ 27,690 $ 53,685 $ 21,687 $ 16,166 $ 81,293 $ — $ — $ 231,962 Current period charge-offs $ — $ — $ — $ 66 $ — $ — $ — $ — $ 66 SBA—non-real estate Pass $ 10,443 $ 4,498 $ 1,837 $ 154 $ 1,303 $ 2,621 $ — $ — $ 20,856 Special mention — — — — — — — — — Substandard — — 483 — 157 154 — — 794 Doubtful — — — — — 98 — — 98 Subtotal $ 10,443 $ 4,498 $ 2,320 $ 154 $ 1,460 $ 2,873 $ — $ — $ 21,748 Current period charge-offs $ — $ — $ — $ — $ — $ 27 $ — $ — $ 27 C&I Pass $ 19,712 $ 11,525 $ 14,016 $ 18,122 $ 3,356 $ 2,664 $ 140,278 $ 3,024 $ 212,697 Special mention — — — — — — 400 — 400 Substandard — — — — — — — — — Doubtful — — — — — — — — — Subtotal $ 19,712 $ 11,525 $ 14,016 $ 18,122 $ 3,356 $ 2,664 $ 140,678 $ 3,024 $ 213,097 Current period charge-offs $ — $ 44 $ — $ — $ — $ — $ — $ — $ 44 Home mortgage Pass $ 42,112 $ 63,000 $ 284,208 $ 70,326 $ 17,749 $ 32,129 $ — $ — $ 509,524 Special mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Subtotal $ 42,112 $ 63,000 $ 284,208 $ 70,326 $ 17,749 $ 32,129 $ — $ — $ 509,524 Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer Pass $ 27 $ — $ — $ — $ — $ — $ 247 $ — $ 274 Special mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Subtotal $ 27 $ — $ — $ — $ — $ — $ 247 $ — $ 274 Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Total loans Pass $ 304,876 $ 190,587 $ 532,404 $ 244,846 $ 127,567 $ 360,145 $ 157,537 $ 3,024 $ 1,920,986 Special mention — — 2,924 2,246 — 739 400 — 6,309 Substandard — 2,762 10,767 2,868 157 12,905 — — 29,459 Doubtful — — — — — 98 — — 98 Subtotal $ 304,876 $ 193,349 $ 546,095 $ 249,960 $ 127,724 $ 373,887 $ 157,937 $ 3,024 $ 1,956,852 Current period charge-offs $ — $ 44 $ — $ 66 $ — $ 27 $ — $ — $ 137 (1) Excludes accrued interest receivables of $ 8.1 million as of December 31, 2024. F-24 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 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 C&I 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 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 $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer Pass $ 4 $ — $ — $ — $ 77 $ — $ 1,493 $ — $ 1,574 Special mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Subtotal $ 4 $ — $ — $ — $ 77 $ — $ 1,493 $ — $ 1,574 Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Total loans 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 F-25 (1) Excludes accrued interest receivables of $ 7.3 million as of December 31, 2023. Note 4. Premises and Equipment The following table presents information regarding the premises and equipment as of December 31, 2024 and 2023: December 31, ($ in thousands) 2024 2023 Leasehold improvements $ 10,019 $ 9,135 Furniture and fixtures 4,902 4,814 Equipment and others 3,831 3,504 Total premises and equipment 18,752 17,453 Accumulated depreciation ( 13,303 ) ( 12,205 ) Total premises and equipment, net $ 5,449 $ 5,248 Total depreciation expense included in occupancy and equipment expenses was $ 1.4 million, $ 1.3 million and $ 1.4 million for the years ended December 31, 2024, 2023 and 2022, respectively. Note 5. Servicing Assets The Company recognizes the right to service SBA loans for others as servicing assets when the servicing income the Company receives is more than adequate compensation. Servicing assets are accounted for using the amortization method. Under this method, the Company amortizes the servicing assets over the period of the economic life of the assets arising from estimated net servicing revenue. The Company periodically stratifies its servicing assets into groupings based on risk characteristics and assesses each group for impairment based on fair value. Based on the results of the impairment test, there was no valuation allowance for impairment as of December 31, 2024 and 2023. The following table presents an analysis of the changes in activity for loan servicing assets during the years ended December 31, 2024 and 2023: Year Ended December 31, ($ in thousands) 2024 2023 Beginning balance $ 11,741 $ 12,759 Additions from loans sold with servicing retained 2,841 3,400 Amortized to expense ( 3,748 ) ( 4,418 ) Ending balance $ 10,834 $ 11,741 The fair value of the servicing assets was $ 16.2 million as of December 31, 2024, which was determined using discount rates ranging from 4.07 % to 11.29 % and prepayment speeds ranging from 12.90 % to 13.60 %, depending on the stratification of the specific assets. The fair value of the servicing assets was $ 17.2 million as of December 31, 2023, which was determined using discount rates ranging from 3.75 % to 11.00 % and prepayment speeds ranging from 12.80 % to 13.20 % depending on the stratification of the specific assets. Note 6. Leases As a lessee, the Company enters into leases of buildings and our real estate leases primarily relate to bank branches and office space from nonaffiliated parties with remaining lease terms ranging from 1 to 10 years as of F-26 December 31, 2024. 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. As of December 31, 2024 and 2023, operating right-of-use (“ROU”) assets were $ 7.4 million and $ 8.5 million, respectively, and related liabilities were $ 7.9 million and $ 9.3 million, respectively. Short-term operating leases, which are defined as leases with term of twelve months or less, were not recognized as ROU assets with related lease liabilities as permitted under ASU No. 2016-02. The lease payments on short-term operating leases are immaterial. The Company did not have any finance leases as of December 31, 2024 and 2023. Operating lease ROU assets represent the Company’s right to use the underlying asset during the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using the Company’s incremental borrowing rate at the lease commencement date. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in occupancy expense in the consolidated statements of income. The Company’s occupancy expense also includes variable lease costs which is comprised of the Company's share of actual costs for utilities, common area maintenance, property taxes, and insurance that are not included in lease liabilities and are expensed as incurred. Variable lease costs can also include rent escalations based on changes to indices, such as the Consumer Price Index, where the Company estimates future rent increases and records the actual difference to variable costs. The table below summarizes total lease cost for the periods indicated : Year Ended December 31, ($ in thousands) 2024 2023 2022 Operating lease cost $ 2,352 $ 2,280 $ 2,046 Variable lease cost 985 844 859 Total lease cost $ 3,337 $ 3,124 $ 2,905 The tables below summarize other information related to the Company’s operating leases as of the associated period: Year Ended December 31, ($ in thousands) 2024 2023 2022 Operating right-of-use assets $ 7,415 $ 8,497 $ 9,097 Operating lease liabilities 7,857 9,341 10,213 Weighted average remaining lease term - operating leases 4.7 years 5.5 years 6.3 years Weighted average discount rate - operating leases 2.45 % 2.47 % 2.44 % Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 2,751 $ 2,511 $ 2,253 Rent expense was $ 3.3 million, $ 3.1 million and $ 2.9 million for the years ended December 31, 2024 and 2023 and 2022, respectively. F-27 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, 2024: ($ in thousands) 2025 $ 1,999 2026 2,336 2027 2,233 2028 1,802 2029 1,431 Thereafter 546 Total lease payments 10,347 Discount to present value ( 2,490 ) Total lease liability $ 7,857 Note 7. Deposits Time deposits that exceed the FDIC insurance limit of $250 thousand as of December 31, 2024 and 2023 were $ 565.8 million and $ 433.9 million, respectively. The following table presents the scheduled contractual maturities of time deposits as of December 31, 2024: ($ in thousands) 2025 $ 1,173,240 2026 19,235 2027 266 2028 473 2029 and thereafter 48 Total $ 1,193,262 Deposits from principal officers, directors, and their affiliates as of December 31, 2024 and 2023 were $ 2.3 million and $ 1.8 million, respectively. Note 8. Borrowing Arrangements As of December 31, 2024, the Company had $ 95.0 million advances from FHLB with a weighted average interest rate of 4.34 % and a weighted average remaining term of 0.2 years, compared to $ 105.0 million advances with a weighted average interest rate of 4.65 % and a weighted average remaining term of 0.9 years as of December 31, 2023. The Company has a letter of credit with the FHLB in the amount of $ 100.0 million and $ 67.0 million to secure a public deposit as of December 31, 2024 and 2023, respectively. The Company had available borrowing capacity from the following institutions as of December 31, 2024: ($ in thousands) FHLB $ 401,900 Federal Reserve Bank 215,115 Pacific Coast Bankers Bank 50,000 Zions Bank 25,000 First Horizon Bank 25,000 Total $ 717,015 F-28 The Company has pledged approximately $ 1.41 billion and $ 1.39 billion of loans as collateral for these lines of credit as of December 31, 2024 and 2023, respectively. Note 9. Income Taxes The following table presents the components of income taxes expense (benefit) for the years ended December 31, 2024, 2023 and 2022: Year Ended December 31, ($ in thousands) 2024 2023 2022 Current income tax expense: Federal $ 6,610 $ 6,238 $ 7,959 State 3,000 3,332 4,374 Total current income tax expense 9,610 9,570 12,333 Deferred income tax expense (benefit): Federal ( 982 ) 217 783 State ( 618 ) ( 214 ) 298 Total deferred income tax expense (benefit) ( 1,600 ) 3 1,081 Total income tax expense $ 8,010 $ 9,573 $ 13,414 The following table presents a reconciliation of the applicable statutory U.S. federal income tax rate to the effective tax rate for the periods indicated: Year Ended December 31, 2024 2023 2022 Federal statutory income tax rate 21.0 % 21.0 % 21.0 % Increase (decrease) in tax rate resulting from: Meals and entertainment 0.2 0.2 — State income taxes, net of federal tax benefit 7.8 8.0 8.4 Stock option expense and related excess tax benefits ( 0.1 ) 0.1 — Company owned life insurance ( 0.5 ) ( 0.4 ) ( 0.2 ) Other, net ( 0.8 ) ( 0.3 ) ( 0.5 ) Effective tax rate 27.6 % 28.6 % 28.7 % The significant components of deferred tax assets and liabilities as of December 31, 2024 and 2023 are reflected in the following table: F-29 December 31, ($ in thousands) 2024 2023 Deferred tax assets: Organizational costs $ 15 $ 18 Allowance for credit losses 7,331 6,502 Loans held for sale 108 — Stock-based compensation 574 509 Accrued compensation 322 302 Lease liability 2,323 2,762 State taxes 645 675 Net unrealized loss on AFS debt securities 6,394 6,485 Net unrealized loss on swap 75 — Nonaccrual loan interest income 224 224 Other 242 279 Total deferred tax assets 18,253 17,756 Deferred tax liabilities: Loan origination costs ( 388 ) ( 1,110 ) Depreciation ( 498 ) ( 553 ) Right of use asset ( 2,192 ) ( 2,512 ) Other ( 282 ) ( 272 ) Total deferred tax liabilities ( 3,360 ) ( 4,447 ) Net deferred tax asset $ 14,893 $ 13,309 A valuation allowance for deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and tax planning strategies which will create taxable income during the periods in which those temporary differences become deductible. Management reevaluated all positive and negative evidence that existed and concluded all deferred tax assets are realizable. Therefore, no valuation allowance was necessary as of December 31, 2024 and 2023. The Company is subject to U.S. Federal income tax as well as various state taxing jurisdictions. The Company is no longer subject to examination by Federal taxing authorities for tax years prior to 2021 and for state taxing authorities for tax years prior to 2020. There were no significant unrealized tax benefits recorded as of December 31, 2024 and 2023 and the Company does not expect any significant increase in unrealized tax benefits in the next twelve months. Note 10. Commitments and Contingencies Off-Balance-Sheet Credit Risk : In the normal course of business, the Company enters into commitments to extend credit such as loan commitments and standby letters of credits. These commitments expose the Company to varying degrees of credit and market risk and are subject to the same credit and market risk limitation reviews as those instruments recorded on the Consolidated Balance Sheets. Loan commitments represent arrangements to lend funds or provide liquidity subject to specified contractual conditions. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These commitments generally have fixed expiration dates or contain termination clauses in the event the customer’s credit quality deteriorates. Since many of the commitments are expected to expire without being drawn upon, the commitment amounts do not necessarily represent future funding requirements. The Company applies the same credit underwriting criteria to extend loans and commitments to customers. Each customer’s credit worthiness is evaluated on a case-by-case basis. Collateral may be obtained based on management’s F-30 assessment of a customer’s credit. Collateral may include securities, accounts receivable, inventory, property, plant and equipment, and income producing commercial or other properties. The following table presents the distribution of undisbursed credit-related commitments as of December 31, 2024 and 2023: December 31, ($ in thousands) 2024 2023 Loan commitments $ 261,446 $ 257,626 Standby letter of credit 21,059 6,707 Commercial letter of credit 49 22 Total undisbursed credit related commitments $ 282,554 $ 264,355 The majority of these off-balance sheet commitments have a variable interest rate. Management does not anticipate any material losses as a result of these transactions. Investments in low-income housing partnership : The Company invests in qualified affordable housing partnerships. The following table shows the balance of the investments in low-income housing partnerships and the total unfunded commitments related to the investments in low-income housing partnerships as of December 31, 2024 and 2023: December 31, ($ in thousands) 2024 2023 Investments in low-income housing partnerships $ 15,191 $ 16,887 Unfunded commitments to fund investments for low-income housing partnerships 7,622 11,905 These balances are reflected in the other assets and other liabilities lines on the Consolidated Balance Sheets. The Company expects to finish fulfilling these commitments during the year ending 2040. 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 $ 1.7 million, $ 1.3 million and $ 697 thousand for the years ended December 31, 2024, 2023 and 2022, respectively. Additionally, the Company recognized tax credits and other benefits from the investments in low-income housing partnerships of $ 2.5 million, $ 1.7 million and $ 926 thousand for the years ended December 31, 2024, 2023 and 2022, respectively. Note 11. Stock-Based Compensation The Company has two stock-based compensation plans currently in effect as of December 31, 2024, as described further below. Total compensation cost that has been charged against earnings for these plans was $ 1.2 million, $ 1.3 million and $ 558 thousand for the years ended December 31, 2024, 2023 and 2022, respectively. 2010 Plan : In 2010, the Board of Directors of the Bank approved a new equity incentive plan for granting stock options and restricted stock awards to key employees, officers, and non-employee directors of the Bank (the “2010 Plan”). In 2013, the 2010 Plan was amended and approved by the shareholders to increase the number of shares authorized to be issued under from 1,350,000 shares to 2,500,000 shares of common stock. The 2010 Plan was assumed by the Company in 2016 at the time of the bank holding company reorganization. The exercise prices of stock options granted under the plan may not be less than 100 % of the fair value of the Company’s stock at the date of grant. The options, when granted, vest ratably over five years from the date of the grant and expire after ten years if not exercised. The 2010 Plan expired in August 2020, and no further grants can be made under the 2010 Plan. F-31 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). Compensation expense related to restricted stock awards will be recognized over the vesting period of the awards based on the fair value of the Company’s common stock at the issue date. A summary of the stock options outstanding under the 2010 Plan for the year ended December 31, 2024 is as follows: ($ in thousands, except share data) Number of Options Outstanding Weighted Average Exercise Price Aggregate Intrinsic Value Outstanding, as of January 1, 2024 60,000 $ 8.00 $ 177 Options granted — — Options exercised ( 60,000 ) 8.00 Options forfeited — — Options expired — — Outstanding, as of December 31, 2024 — $ — $ — Fully vested and expected to vest — $ — $ — Vested — $ — $ — Information related to stock options exercised under the 2010 Plan for the periods indicated follows: Year Ended December 31, ($ in thousands) 2024 2023 2022 Intrinsic value of options exercised $ 144 $ 186 $ 224 Cash received from option exercises 160 720 480 Tax provision realized from option exercised 24 ( 3 ) — A summary of the changes in the Company's non-vested restricted stock awards under the 2010 Plan for the year ended December 31, 2024 is as follows: ($ in thousands, except share data) Shares Issued Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Non-vested, as of January 1, 2024 10,000 $ 9.69 $ 110 Awards granted — — Awards vested ( 10,000 ) 9.69 Awards forfeited — — Non-vested, as of December 31, 2024 — $ — $ — Information related to vested restricted stock awards under the 2010 Plan for the periods indicated follows: Information related to vested restricted stock under the 2010 Plan for the periods indicated follows: Year Ended December 31, ($ in thousands) 2024 2023 2022 Tax benefit (provision) realized from awards vested $ 19 $ 4 $ — F-32 2021 Plan : In 2021, the Board of Directors of the Company approved a new equity incentive plan for granting stock options and restricted stock awards to key employees, officers, and non-employee directors of the Company and the Bank (the “2021 Plan”). The 2021 Plan was approved by the Company’s shareholders at the 2021 Annual Meeting. The number of shares authorized to be issued under the 2021 Plan was 1,500,000 shares of the Company’s common stock. The exercise prices of stock options granted under the plan may not be less than 100.00 % of the fair value of the Company’s stock at the date of grant. There are no stock options granted under the 2021 Plan as of December 31, 2024. Restricted stock awards issued under the 2021 Plan may or may not be subject to vesting provisions. Owners of the restricted stock awards shall have all rights of a shareholder including the right to vote the shares and to all dividends (cash or stock). Compensation expense related to restricted stock awards will be recognized over the vesting period of the awards based on the fair value of the Company’s common stock at the issue date. A summary of the changes in the Company’s non-vested restricted stock awards under the 2021 Plan for the year ended December 31, 2024 is as follows: ($ in thousands, except share data) Shares Issued Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Non-vested, as of January 1, 2024 278,851 $ 11.45 $ 3,053 Awards granted 57,566 10.88 Awards vested ( 75,829 ) 9.73 Awards forfeited ( 10,500 ) 12.90 Non-vested, as of December 31, 2024 250,088 $ 11.78 $ 3,954 Information related to vested restricted stock awards under the 2021 Plan for the periods indicated follows: Year Ended December 31, ($ in thousands) 2024 2023 2022 Tax provision realized from awards vested $ ( 3 ) $ ( 34 ) $ 12 There were 1,078,188 shares available for future grants of either stock options or restricted stock awards under the 2021 Plan as of December 31, 2024. The Company had approximately $ 1.0 million of unrecognized compensation cost related to unvested restricted stock awards under the 2021 Plan as of December 31, 2024. The Company expects to recognize these costs over a weighted average period of 1.2 years. Note 12. Employee Benefit Plan The Company sponsors a defined contribution plan, 401(k) profit sharing plan (the “401(k) Plan”), designed to provide retirement benefits financed by participant contributions, as well as contributions from the Company. Employees are eligible to participate in the 401(k) Plan as of the first day of the first calendar month after the date they have completed three months of service with the Company and have attained the age of 18 . Each employee is allowed to contribute to the 401(k) Plan up to the maximum percentage allowable, not to exceed the limits of applicable IRS Code Sections. Each year, the Company may, in its discretion, make matching contributions to the 401(k) Plan. Total employer contributions to the 401(k) Plan amounted to $ 1,140 thousand, $ 986 thousand and $ 867 thousand for the years ended December 31, 2024 and 2023 and 2022, respectively. F-33 Note 13. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability on the measurement date and is determined using an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Assets and liabilities recorded at fair value on a recurring basis, such as AFS securities and equity investments. Additionally, from time to time, the Company records fair value adjustments on a nonrecurring basis. These nonrecurring adjustments typically involve application of lower of cost or fair value accounting and write-downs of individual assets. The Company classifies its assets and liabilities recorded at fair value as one of the following three categories and a financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement: Level 1—Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2—Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3—Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. Assets and Liabilities Measured at Fair Value on a Recurring Basis Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy. Securities AFS : The fair values of investment securities are determined by matrix pricing, which is a mathematical technique used to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2). Management obtains the fair values of investment securities on a monthly basis from a third-party pricing service. Other Investment: The Company has 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. Derivatives: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). F-34 Assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 and 2023 are summarized below: Fair Value Measure on a Recurring Basis ($ in thousands) Total Fair Value Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2024 Assets: U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 37,076 $ — $ 37,076 $ — Residential collateralized mortgage obligations 143,041 — 143,041 — Municipal securities - tax exempt 5,792 — 5,792 — Other investments: Mutual fund - CRA qualified 3,532 3,532 — — Derivative financial instruments 368 — 368 — Liabilities: Derivative financial instruments $ 579 $ — $ 579 $ — December 31, 2023 Assets: U.S. Government agencies or sponsored agency securities: Residential mortgage-backed securities $ 43,877 $ — $ 43,877 $ — Residential collateralized mortgage obligations 144,459 — 144,459 — Municipal securities - tax exempt 5,914 — 5,914 — Other investments: Mutual fund - CRA qualified 3,463 3,463 — — There were no transfers of assets or liabilities between the Level 1 and Level 2 classifications for the years ended December 31, 2024 or 2023. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or fair value and write-downs of individual assets. 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. Fair value for collateral-dependent 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 F-35 reviewed by management using historical knowledge, market considerations, and knowledge of the client and client’s business. OREO : Fair value of OREO is based primarily on third party appraisals, less costs to sell and result in a Level 3 classification of the inputs for determining fair value. Appraisals are required annually and may be updated more frequently as circumstances require and the fair value adjustments are made to OREO based on the updated appraised value of the property. 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, 2024 and 2023: Fair Value Measure on a Nonrecurring Basis ($ in thousands) Total Fair Value Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2024 Collateral-dependent loans: Commercial real estate $ 173 $ — $ — $ 173 SBA—real estate 952 — — 952 OREO 1,237 — — 1,237 Total $ 2,362 $ — $ — $ 2,362 December 31, 2023 Collateral-dependent loans: SBA—real estate $ 1,432 $ — $ — $ 1,432 Total $ 1,432 $ — $ — $ 1,432 Total The following table presents the increase (decrease) in value of certain assets held at the end of the respective reporting periods presented for which a nonrecurring fair value adjustment was recognized during the period presented: Year Ended December 31, ($ in thousands) 2024 2023 2022 Collateral-dependent loans: SBA—real estate $ — $ — $ 28 Total $ — $ — $ 28 F-36 The following table presents information about significant unobservable inputs utilized in the Company’s nonrecurring Level 3 fair value measurements as of December 31, 2024 and 2023: ($ in thousands) Fair Value Measurements (Level 3) Valuation Techniques Unobservable Inputs Range of Inputs Weighted- Average of Inputs (1) December 31, 2024 Collateral-dependent loans: Commercial real estate $ 173 Income approach - income capitalization Capitalization rate 5.5 % to 7.3 % 6.0 % SBA—real estate 539 Income approach - income capitalization Capitalization rate 5.5 % to 7.3 % 10.4 % SBA—real estate 413 Sales comparison Market data / purchase price n/a n/a OREO $ 1,237 Sales comparison approach Market data comparison ( 3.7 )% to 2.2 % ( 0.5 )% December 31, 2023 Collateral-dependent loans: SBA—real estate $ 1,432 Income approach - income capitalization Capitalization rate 9.3 % to 11.0 % 9.9 % (1) Weighted-average of inputs is based on the relative fair value of the respective assets as of December 31, 2024 and 2023. Financial Instruments : The carrying amounts and estimated fair values of financial instruments that are not carried at fair value on a recurring basis as of December 31, 2024 and 2023 are as follows. These financial assets and liabilities are measured at amortized cost basis on the Company’s Consolidated Balance Sheets: December 31, 2024 ($ in thousands) Carrying Amount Level 1 Level 2 Level 3 Fair Value Financial assets: Cash and cash equivalents $ 134,943 $ 134,943 $ — $ — $ 134,943 Loans held for sale 4,581 — 4,946 — 4,946 Loans receivable, net 1,932,056 — — 1,986,813 1,986,813 Accrued interest receivable, net 9,188 181 888 8,119 9,188 Other investments: FHLB and PCBB stock 12,805 N/A N/A N/A N/A Time deposits placed 100 — 100 — 100 Financial liabilities: Deposits 2,027,285 — 2,026,092 — 2,026,092 FHLB advances 95,000 — 94,986 — 94,986 Accrued interest payable 16,067 — 16,067 — 16,067 F-37 December 31, 2023 ($ in thousands) Carrying Amount Level 1 Level 2 Level 3 Fair Value Financial assets: Cash and cash equivalents $ 91,216 $ 91,216 $ — $ — $ 91,216 Loans receivable, net 1,743,852 — — 1,793,258 1,793,258 Accrued interest receivable, net 8,259 69 859 7,331 8,259 Other investments: FHLB and PCBB stock 12,718 N/A N/A N/A N/A Time deposits placed 95 — 95 — 95 Financial liabilities: 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 Note 14. Derivative Financial Instruments Risk Management Objective of Using Derivatives The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During 2024, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The Company had no fair value hedges nor derivatives not designated as hedges as of December 31, 2024. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income ("OCI") and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated OCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next 12 months, the Company estimates that an additional $ 47 thousand will be reclassified as a reduction to interest expense. F-38 The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet as of December 31, 2024: Derivative Assets Derivative Liabilities ($ in thousands) Notional Amount Balance Sheet Location Fair Value Notional Amount Balance Sheet Location Fair Value As of December 31, 2024 Derivatives designated as hedging instruments: Interest rate products $ 25,000 Other assets $ 368 $ 50,000 Other liabilities $ 579 Total derivatives designated as hedging instruments $ 368 $ 579 As of December 31, 2023, the Company had no derivative financial instruments. The table below presents the effect of cash flow hedge accounting on accumulated OCI for the and year ended December 31, 2024: Derivatives in Subtopic 815-20 Hedging Relationships ($ in thousands) Amount of Gain (Loss) Recognized in OCI on Derivative Amount of Gain (Loss) Recognized in OCI Included Component Amount of Gain (Loss) Recognized in OCI Excluded Component Location of Gain (Loss) Recognized from Accumulated OCI into Income Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Included Component Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Excluded Component Derivatives in cash flow hedging relationships: Interest rate products $ 75 $ 75 $ — Interest expense $ 328 $ 328 $ — Total $ 75 $ 75 $ — $ 328 $ 328 $ — The Company had no derivative instruments that affect accumulated OCI for the years ended December 31, 2023 and 2022. F-39 The table below presents the effect of the Company’s derivative financial instruments on the Statement of Income for the year ended December 31, 2024: Year Ended December 31, 2024 ($ in thousands) Interest Expense Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded $ 328 The effects of cash flow hedging: Gain (loss) on cash flow hedging relationships in Subtopic 815-20 Interest contracts Amount of loss reclassified from accumulated OCI into income $ 328 Amount of gain (loss) reclassified from accumulated OCI into income as a result that a forecasted transaction is no longer probable of occurring — Amount of loss reclassified from accumulated OCI into income - included component 328 Amount of gain (loss) reclassified from accumulated OCI into income - excluded component — The Company had no derivative instruments that affect statement of income for the years ended December 31, 2023 and 2022. The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of December 31, 2024. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Balance Sheet: Offsetting of Derivative Assets Gross Amounts of Recognized Assets Gross Amounts Offset in the Balance Sheet Net Amounts of Assets presented in the Balance Sheet Gross Amounts Not Offset in the Balance Sheet ($ in thousands) Financial Instruments Cash Collateral Received Net Amount As of December 31, 2024 Derivatives $ 368 $ — $ 368 $ — $ 368 $ — Total $ 368 $ — $ 368 $ — $ 368 $ — Offsetting of Derivative Liabilities Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Balance Sheet Net Amounts of Liabilities presented in the Balance Sheet Gross Amounts Not Offset in the Balance Sheet ($ in thousands) Financial Instruments Cash Collateral Posted Net Amount As of December 31, 2024 Derivatives $ 579 $ — $ 579 $ — $ 579 $ — Total $ 579 $ — $ 579 $ — $ 579 $ — As of December 31, 2023, the Company had no derivative financial instruments. F-40 Note 15. Regulatory Capital Matters The Bank is subject to certain risk-based capital and leverage ratio requirements under the U.S. Basel III capital rules administered by the federal and state banking agencies. Failure to be well-capitalized or to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on the Company's operations or financial condition. The Basel III capital rules also require the Bank to maintain a capital conservation buffer of 2.50 % above the minimum risk-based capital ratios in order to absorb losses during periods of economic stress, effective January 1, 2019. Banking institutions with a ratio of common equity tier 1 capital to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends. equity repurchases and compensation based on the amount of the shortfall. Management believes that as of December 31, 2024 and 2023, the Bank met all capital adequacy requirements to which they are subject to. Based on recent changes to the Federal Reserve’s definition of a “Small Bank Holding Company” that increased the threshold to $3 billion in assets, the Company is not currently subject to separate minimum capital measurements. At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank. The following table presents the regulatory capital amounts and ratios for the Company and the Bank as of dates indicated: December 31, 2024 Actual (1) Required for Capital Adequacy Purposes Minimum To be Considered "Well Capitalized" ($ in thousands) Amount Ratio Amount Ratio Amount Ratio Total capital (to risk-weighted assets) Consolidated $ 244,659 12.60 % N/A N/A N/A N/A Bank 242,966 12.50 $ 155,463 8.00 % $ 194,328 10.00 % Tier 1 capital (to risk-weighted assets) Consolidated 220,390 11.35 N/A N/A N/A N/A Bank 218,675 11.25 116,597 6.00 155,463 8.00 Common equity Tier 1 capital (to risk-weighted assets) Consolidated 220,390 11.35 N/A N/A N/A N/A Bank 218,675 11.25 87,448 4.50 126,313 6.50 Tier 1 capital (to average assets) Consolidated 220,390 9.27 N/A N/A N/A N/A Bank 218,675 9.20 95,055 4.00 118,819 5.00 (1) The capital requirements are only applicable to the Bank, and the Company's ratios are included for comparison purpose. F-41 December 31, 2023 Actual (1) Required for Capital Adequacy Purposes Minimum To be Considered "Well Capitalized" ($ in thousands) Amount Ratio Amount Ratio Amount Ratio Total capital (to risk-weighted assets) Consolidated $ 229,544 13.77 % N/A N/A N/A N/A Bank 227,773 13.66 $ 133,353 8.00 % $ 166,691 10.00 % Tier 1 capital (to risk-weighted assets) Consolidated 208,707 12.52 N/A N/A N/A N/A Bank 206,936 12.41 100,014 6.00 133,353 8.00 Common equity Tier 1 capital (to risk-weighted assets) Consolidated 208,707 12.52 N/A N/A N/A N/A Bank 206,936 12.41 75,011 4.50 108,349 6.50 Tier 1 capital (to average assets) Consolidated 208,707 9.57 N/A N/A N/A N/A Bank 206,936 9.49 87,207 4.00 109,008 5.00 (1) The capital requirements are only applicable to the Bank, and the Company's ratios are included for comparison purpose. Note 16. Earnings Per Share Basic EPS is calculated using the two-class method. Under the two-class method, all earnings (distributed and undistributed) are allocated to common stock and participating securities. The Company grants restricted stock awards, which entitle recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to dividends paid to holders of the Company's common stock. These restricted stock awards meet the definition of participating securities based on their respective rights to receive nonforfeitable dividends, and they are treated as a separate class of securities in computing basic EPS. Participating securities are not included as incremental shares in computing diluted EPS. Diluted EPS incorporates the potential impact of contingently issuable shares. Diluted EPS is calculated under both the two-class and treasury stock methods, and the more dilutive amount is reported. For each of the periods presented in the table below, diluted EPS calculated under two-class method was more dilutive. F-42 The following table presents the calculation of net income applicable to common stockholders and basic and diluted EPS for the years ended December 31, 2024, 2023 and 2022: Year Ended December 31, ($ in thousands, except share and per share data) 2024 2023 2022 Basic Net income $ 21,069 $ 23,918 $ 33,310 Distributed and undistributed earnings allocated to participating securities ( 375 ) ( 476 ) ( 704 ) Net income allocated to common shares $ 20,694 $ 23,442 $ 32,606 Weighted average common shares outstanding 14,871,876 15,149,597 15,171,240 Basic earnings per common share $ 1.39 $ 1.55 $ 2.15 Diluted Net income allocated to common shares $ 20,694 $ 23,442 $ 32,606 Weighted average common shares outstanding for basic earnings per common share 14,871,876 15,149,597 15,171,240 Add: Dilutive effects of assumed exercises of stock options — 9,260 60,178 Average shares and dilutive potential common shares 14,871,876 15,158,857 15,231,418 Diluted earnings per common share $ 1.39 $ 1.55 $ 2.14 No share of common stock was antidilutive for the years ended December 31, 2024, 2023 and 2022. Note 17. Parent Company Condensed Financial Statements The following tables present the Parent Company-only condensed financial statements: Condensed Balance Sheets December 31, ($ in thousands) 2024 2023 Assets Cash and cash equivalents $ 1,463 $ 1,653 Investment in bank subsidiary 203,278 190,855 Other assets 390 177 Total assets $ 205,131 $ 192,685 Liabilities and shareholders' equity Other liabilities $ 138 $ 59 Shareholders’ equity 204,993 192,626 Total liabilities and shareholders' equity $ 205,131 $ 192,685 F-43 Condensed Statements of Income and Comprehensive Income Year Ended December 31, ($ in thousands) 2024 2023 2022 Income Dividends from bank subsidiary $ 10,560 $ 11,789 $ 6,675 Expense Salaries and employee benefits 238 227 219 Occupancy and equipment 56 49 49 Directors’ fees 219 228 214 Other expense 512 445 395 Total expense 1,025 949 877 Income before income tax benefit and undistributed net income of bank subsidiary 9,535 10,840 5,798 Income tax benefit 295 252 202 Equity in undistributed net income of bank subsidiary 11,239 12,826 27,310 Net income 21,069 23,918 33,310 Other comprehensive income (loss), net of tax 38 2,392 ( 16,646 ) Comprehensive income $ 21,107 $ 26,310 $ 16,664 Condensed Statements of Cash Flows Year Ended December 31, ($ in thousands) 2024 2023 2022 Cash flows from operating activities Net income $ 21,069 $ 23,918 $ 33,310 Adjustments: Equity in undistributed net loss of bank subsidiary ( 21,799 ) ( 24,615 ) ( 33,985 ) Change in other assets ( 213 ) 145 ( 164 ) Change in other liabilities 79 59 ( 33 ) Net cash used in operating activities ( 864 ) ( 493 ) ( 872 ) Cash flows from investing activities Net cash from investing activities — — — Cash flows from financing activities Repurchase of common stock ( 2,743 ) ( 3,934 ) — Cash dividend paid on common stock ( 7,143 ) ( 7,269 ) ( 6,674 ) Proceeds from subsidiaries 10,560 11,789 6,675 Net cash provided by (used in) financing activities 674 586 1 Net change in cash and cash equivalents ( 190 ) 93 ( 871 ) Cash and cash equivalents at beginning of year 1,653 1,560 2,431 Cash and cash equivalents at end of year $ 1,463 $ 1,653 $ 1,560 F-44