UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

~~WASHINGTON, DC~~

Washington, D.C. 20549

________________________

FORM 10-Q

________________________

(Mark One)

☒
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31, 2018~~

June 30, 2022

☐
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ~~__________~~________ to ~~__________~~

________

Commission File Number: 001-38437

OP BANCORP

(Exact Name of Registrant as Specified in its Charter)

~~California~~	~~81-3114676~~
California		81-3114676
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1000 Wilshire Blvd., Suite 500, Los Angeles, CA		90017
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (213) 892-9999

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

OPBK

NASDAQ Global Market

Indicate by check mark whether the ~~registrant~~Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the ~~registrant~~Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No NO ☐

Indicate by check mark whether the ~~registrant~~Registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the ~~registrant~~Registrant was required to submit ~~and post~~ such files). Yes ☒ No NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

☒ ~~(Do not check if a smaller reporting company)~~

Smaller reporting company

☐

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the ~~registrant~~Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~Yes~~ YES☐ No NO ☒

The number of ~~May 15, 2018, there were 15,569,215~~shares outstanding ~~shares~~ of the Registrant’s ~~common stock.~~

Common Stock as of August 5, 2022 was 15,189,203.

Table of Contents

		~~Page~~
					Page
			PART I.		I - FINANCIAL INFORMATION	3

Item 1.	Financial Statements ~~(Unaudited)~~(unaudited).			4 3
			Consolidated Balance Sheets		4 3
			Consolidated Statements of Income ~~and~~		4
			Consolidated Statements of Comprehensive Income		5
			Consolidated Statements of Changes in Shareholders’ Equity		6
			Consolidated Statements of Cash Flows		7
			Notes to ~~Unaudited~~ Consolidated Financial Statements		8
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations.		30 28
Item 3.			Quantitative and Qualitative Disclosures About Market ~~Risk~~Risk.		47 60
Item 4.			Controls and ~~Procedures~~Procedures.		48 61
			PART II - OTHER INFORMATION		62
~~PART II.~~ Item 1.			~~OTHER INFORMATION~~Legal Proceedings.		62
Item 1A.			Risk Factors.		62
~~Item 1.~~			~~Legal Proceedings~~	49
~~Item 1A.~~	~~Risk Factors~~	49
Item 2.	Unregistered Sales of Equity Securities and Use of ~~Proceeds~~Proceeds.			49 62
Item 3.			Defaults Upon Senior ~~Securities~~Securities.		49 62
Item 4.			Mine Safety ~~Disclosures~~Disclosures.		49 62
Item 5.			Other ~~Information~~Information.		49 62
Item 6.			~~Exhibits~~Exhibits.		50 63

~~Signatures~~SIGNATURES		51 64

Cautionary Note Regarding Forward-Looking Statements

Certain matters set forth herein (including any exhibits hereto) constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to the Company’s current business plans and expectations regarding future operating results. Forward-looking statements may include, but are not limited to, the use of forward-looking language, such as “likely result in,” “expects,” “anticipates,” “estimates,” “forecasts,” “projects,” “intends to,” or may include other similar words or phrases, such as “believes,” “plans,” “trend,” “objective,” “continues,” “remains,” or similar expressions, or future or conditional verbs, such as “will,” “would,” “should,” “could,” “may,” “might,” “can,” or similar verbs.

These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance or achievements to differ materially from those projected. These risks and uncertainties, some of which are beyond our control, include, but are not limited to:

•business and economic conditions, particularly those affecting the financial services industry and our primary market areas;

•geopolitical developments, uncertainties or instability, catastrophic events, acts of war or terrorism;

•the uncertainties related to the coronavirus pandemic including, but not limited to, the potential adverse effect of the pandemic on the economy, our employees and customers, and our financial performance;

•the lending activities undertaken by the Company in connection with the Small Business Administration’s Paycheck Protection Program enacted thereunder, including risks to the Company with respect to the uncertain application by the Small Business Administration of loan eligibility, forgiveness and audit criteria;

•our ability to successfully manage our credit risk and the sufficiency of our allowance for loan ~~loss;~~

losses;

•factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers, ~~and~~ the success of construction projects that we finance, including any loans acquired in acquisition transactions;

•our ability to effectively execute our strategic plan and manage our growth;

•interest rate fluctuations, which could have an adverse effect on our profitability;

•liquidity issues, including fluctuations in the fair value and liquidity of the securities we hold for sale and our ability to raise additional capital, if necessary;

•external economic and/or market factors, such as changes in monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve, inflation or deflation, changes in the demand for loans, and fluctuations in consumer spending, borrowing and savings habits, which may have an adverse impact on our financial condition;

•continued or increasing competition from other financial institutions, credit unions, and non-bank financial services companies, many of which are subject to different regulations than we are;

•challenges arising from unsuccessful attempts to expand into new geographic markets, products, or services;

•restraints on the ability of Open Bank to pay dividends to us, which could limit our liquidity;

•increased capital requirements imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all;

•a failure in the internal controls we have implemented to address the risks inherent to the business of banking;

•inaccuracies in our assumptions about future events, which could result in material differences between our financial projections and actual financial performance;

•changes in our management personnel or our inability to retain, motivate and hire qualified management personnel;

•disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems;

•disruptions, security breaches, or other adverse events affecting the third-party vendors who perform several of our critical processing functions;

•an inability to keep pace with the rate of technological advances due to a lack of resources to invest in new technologies;

•risks related to potential acquisitions;

~~incremental costs and obligations associated~~•natural disasters, such as earthquakes, drought, pandemic diseases (such as the coronavirus) or extreme weather events, any of which may affect services we use or affect our customers, employees or third parties with ~~operating as a public company;~~

which we conduct business;

•the impact of any claims or legal actions to which we may be subject, including any effect on our reputation;

•compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities and tax matters, and our ability to maintain licenses required in connection with commercial mortgage origination, sale and servicing operations;

•changes in federal tax law or policy; and

•our ability to the manage the foregoing and other factors set forth in the Company’s public reports including its Registration Statement on Form S-1 effective as of March 27, 2018, and particularly the discussion of risk factors within that document.

foregoing.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report. Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by the forward looking statements in this report. In addition, our past results of operations are not necessarily indicative of our future results. You should not rely on any forward looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

PART ~~I—FINANCI~~ALI - FINANCIAL INFORMATION

Item 1. Financial ~~Statements~~

Statements.

OP BANCORP

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS ~~(unaudited)~~

~~As of March 31, 2018 and December 31, 2017~~

	March 31, 2018			December 31, 2017

($ in thousands, except share data)							($ in thousands, except share data)	June 30, 2022 (unaudited)		December 31, 2021
ASSETS							ASSETS

Cash and cash equivalents	$	69,899,816		$	63,249,952		Cash and cash equivalents	$	132,697	$	115,459
Securities available for sale, at fair value		36,864,511			41,471,711
Available-for-sale debt securities, at fair value							Available-for-sale debt securities, at fair value	174,814		150,444
Other investments		6,818,556			4,286,500		Other investments	12,205		10,999
Loans held for sale		18,570,944			15,739,305		Loans held for sale	67,255		89,428
Loans receivable, net of allowance of $9,716,168 at March 31, 2018 and $9,139,488 at December 31, 2017		784,034,862			738,884,413
Loans receivable, net of allowance of $17,702 in 2022 and $16,123 in 2021							Loans receivable, net of allowance of $17,702 in 2022 and $16,123 in 2021	1,467,016		1,297,896
Premises and equipment, net		4,707,461			4,480,792		Premises and equipment, net	4,493		4,355
Accrued interest receivable		2,503,721			2,463,486
Accrued interest receivable, net of allowance of $0 in 2022 and $205 in 2021							Accrued interest receivable, net of allowance of $0 in 2022 and $205 in 2021	5,112		4,579
Servicing assets		6,724,800			6,771,097		Servicing assets	12,708		12,720
Company owned life insurance		11,165,374			11,089,718		Company owned life insurance	21,317		11,134
Deferred tax assets		4,003,290			3,383,365
Deferred tax assets, net							Deferred tax assets, net	13,371		8,409
Operating right-of-use assets							Operating right-of-use assets	8,036		8,905
Other assets		11,549,122			9,178,491		Other assets	15,218		12,363
Total assets	$	956,842,457		$	900,998,830		Total assets	$	1,934,242	$	1,726,691

LIABILITIES AND SHAREHOLDERS’ EQUITY							LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities							Liabilities
Deposits:							Deposits:
Noninterest bearing	$	289,011,579		$	289,409,876		Noninterest bearing	$	820,311	$	774,754
Interest bearing:							Interest bearing:
Savings		3,913,735			3,838,353
Money market and others		261,506,359			247,324,292		Money market and others	519,389		380,226
Time deposits greater than $250,000		124,637,331			108,952,059		Time deposits greater than $250,000	237,634		207,288
Other time deposits		139,210,714			123,781,434		Other time deposits	164,289		171,798
Total deposits		818,279,718			773,306,014		Total deposits	1,741,623		1,534,066
Federal Home Loan Bank advances		10,000,000			25,000,000

Accrued interest payable		557,559			423,239		Accrued interest payable	612		558
Operating lease liabilities							Operating lease liabilities	9,335		10,307
Other liabilities		10,745,257			10,789,627		Other liabilities	13,180		16,538
Total liabilities		839,582,534			809,518,880		Total liabilities	1,764,750		1,561,469

Shareholders’ equity							Shareholders’ equity
Preferred stock – no par value; 10,000,000 shares authorized; no shares issued or outstanding at March 31, 2018 and December 31, 2017		—			—
Common stock – no par value; 50,000,000 shares authorized; 15,530,527 and 13,190,527 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively		90,676,860			67,925,860
Preferred stock no par value; 10,000,000 shares authorized; no shares issued or outstanding in 2022 and 2021							Preferred stock no par value; 10,000,000 shares authorized; no shares issued or outstanding in 2022 and 2021	—		—
Common stock – no par value; 50,000,000 shares authorized; 15,189,203 and 15,137,808 shares issued and outstanding in 2022 and 2021							Common stock – no par value; 50,000,000 shares authorized; 15,189,203 and 15,137,808 shares issued and outstanding in 2022 and 2021	78,718		78,718
Additional paid-in capital		5,525,959			5,279,991		Additional paid-in capital	9,089		8,645
Retained earnings		21,839,887			18,623,952		Retained earnings	92,659		79,056
Accumulated other comprehensive loss		(782,783	)		(349,853	)	Accumulated other comprehensive loss	(10,974)		(1,197)
Total shareholders’ equity		117,259,923			91,479,950		Total shareholders’ equity	169,492		165,222
Total liabilities and shareholders' equity	$	956,842,457		$	900,998,830		Total liabilities and shareholders' equity	$	1,934,242	$	1,726,691

See accompanying notes to consolidated financial statements

OP BANCORP

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME ~~AND COMPREHENSIVE INCOME~~ (unaudited)

~~For the Three Months Ended March 31, 2018 and 2017~~

	Three Months Ended
	March 31,
	2018			2017				Three Months Ended June 30,				Six Months Ended June 30,
Interest income
($ in thousand, except per share data)							($ in thousand, except per share data)	2022		2021		2022		2021
INTEREST INCOME							INTEREST INCOME
Interest and fees on loans	$	10,847,816		$	8,929,183		Interest and fees on loans	$	19,108	$	14,971	$	36,365	$	28,255
Interest on investment securities		201,516			143,610
Interest on available-for-sale debt securities							Interest on available-for-sale debt securities	703		218		1,233		454
Other interest income		130,899			112,240		Other interest income	337		160		494		272
Total interest income		11,180,231			9,185,033		Total interest income	20,148		15,349		38,092		28,981
Interest expense							Interest expense
Interest on deposits		1,533,716			971,206		Interest on deposits	1,069		763		1,723		1,640
Interest on borrowed funds		87,546			7,098
Total interest expense		1,621,262			978,304		Total interest expense	1,069		763		1,723		1,640
Net interest income		9,558,969			8,206,729		Net interest income	19,079		14,586		36,369		27,341
Provision for loan losses		575,180			541,083
Provision for (reversal of) loan losses							Provision for (reversal of) loan losses	996		(1,112)		1,337		(492)
Net interest income after provision for loan losses		8,983,789			7,665,646		Net interest income after provision for loan losses	18,083		15,698		35,032		27,833

Noninterest income
NONINTEREST INCOME							NONINTEREST INCOME
Service charges on deposits		537,445			419,735		Service charges on deposits	427		393		815		748
Loan servicing fees, net of amortization		323,771			366,215		Loan servicing fees, net of amortization	654		302		1,101		833
Gain on sale of loans		988,913			1,192,914		Gain on sale of loans	3,873		1,210		7,111		3,092
Other income		362,191			264,955		Other income	405		315		548		513
Total noninterest income		2,212,320			2,243,819		Total noninterest income	5,359		2,220		9,575		5,186
Noninterest expense
NONINTEREST EXPENSE							NONINTEREST EXPENSE
Salaries and employee benefits		4,210,811			4,023,652		Salaries and employee benefits	7,109		5,307		12,766		9,969
Occupancy and equipment		1,025,692			963,453		Occupancy and equipment	1,489		1,234		2,867		2,469
Data processing and communication		330,873			331,174		Data processing and communication	492		467		985		915
Professional fees		152,100			140,500		Professional fees	364		303		688		617
FDIC insurance and regulatory assessments		95,627			99,843		FDIC insurance and regulatory assessments	192		123		399		255
Promotion and advertising		145,349			145,682		Promotion and advertising	165		176		354		353
Directors’ fees		208,887			194,521		Directors’ fees	190		128		367		244
Foundation donation and other contributions		329,000			215,300		Foundation donation and other contributions	852		640		1,667		1,147
Other expenses		312,512			274,467		Other expenses	650		411		1,072		786
Total noninterest expense		6,810,851			6,388,592		Total noninterest expense	11,503		8,789		21,165		16,755
Income before income taxes		4,385,258			3,520,873
INCOME BEFORE INCOME TAX EXPENSE							INCOME BEFORE INCOME TAX EXPENSE	11,939		9,129		23,442		16,264
Income tax expense		1,169,323			1,375,186		Income tax expense	3,459		2,750		6,810		4,808
Net income	$	3,215,935		$	2,145,687
Earnings per share - Basic	$	0.23		$	0.16
Earnings per share - Diluted	$	0.22		$	0.15
Other comprehensive loss:
Change in unrealized loss on securities available for sale		(507,616	)		(31,102	)
Less tax effect		(74,686	)		(12,799	)
Total other comprehensive loss		(432,930	)		(18,303	)
Comprehensive income	$	2,783,005		$	2,127,384
NET INCOME							NET INCOME	$	8,480	$	6,379	$	16,632	$	11,456
EARNINGS PER SHARE - BASIC							EARNINGS PER SHARE - BASIC	$	0.55	$	0.42	$	1.08	$	0.75
EARNINGS PER SHARE - DILUTED							EARNINGS PER SHARE - DILUTED	$	0.54	$	0.42	$	1.07	$	0.75

See accompanying notes to consolidated financial statements

OP BANCORP

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)



	Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands)	2022		2021		2022		2021
NET INCOME	$	8,480	$	6,379	$	16,632	$	11,456
Other comprehensive loss:
Change in unrealized loss on securities available for sale	(5,243)		(133)		(13,881)		(879)
Tax effect	1,550		39		4,104		259
Total other comprehensive loss	(3,693)		(94)		(9,777)		(620)
COMPREHENSIVE INCOME	$	4,787	$	6,285	$	6,855	$	10,836

OP BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

~~For the Three Months ended March 31, 2018 and 2017~~

Common Stock

Additional

Accumulated
Other

Total

Shares
Outstanding

Amount

Paid-in
Capital

Retained
Earnings

Comprehensive
Income (Loss)

Shareholders’
Equity

Balance at January 1, 2017

12,896,548

$
67,499,310

$
4,611,973

$
9,387,470

$
(214,966
)

$
81,283,787

Net income

—

—

—

2,145,687

—

2,145,687

Stock issued under stock-based compensation plans

92,680

190,250

—

—

—

190,250

Stock-based compensation

—

—

179,289

—

—

179,289

Change in unrealized loss on securities
available for sale net of reclassifications
and tax effects

—

—

—

—

(18,304
)

(18,304
)
Balance at March 31, 2017

12,989,228

$
67,689,560

$
4,791,262

$
11,533,157

$
(233,270
)

$
83,780,709

Balance at January 1, 2018

13,190,527

$
67,925,860

$
5,279,991

$
18,623,952

$
(349,853
)

$
91,479,950

Net income

—

—

—

3,215,935

—

3,215,935

Stock issued under stock offering, net of expenses

2,300,000

22,637,000

—

—

—

22,637,000

Stock issued under stock-based compensation plans

40,000

114,000

—

—

—

114,000

Stock-based compensation

—

—

245,968

—

—

245,968

Change in unrealized loss on securities
available for sale net of reclassifications
and tax effects

—

—

—

—

(432,930
)

(432,930
)
Balance at March 31, 2018

15,530,527

$
90,676,860

$
5,525,959

$
21,839,887

$
(782,783
)

$
117,259,923



($ in thousands, except shares)	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
	Shares Outstanding	Amount
Balance at April 1, 2021	15,037,635	$	78,654	$	8,652	$	59,373	$	314	$	146,993
Net income	—	—		—		6,379		—		6,379
Other comprehensive loss	—	—		—		—		(94)		(94)
Stock issued under stock-based compensation plans	95,772	64		—		—		—		64
Stock-based compensation, net	—	—		(328)		—		—		(328)
Repurchase of common stock	—	—		—		—		—		—
Cash dividends declared ($0.07 per share)	—	—		—		(1,052)		—		(1,052)
Balance at June 30, 2021	15,133,407	78,718		8,324		64,700		220		$	151,962

Balance at April 1, 2022	15,137,808	$	78,718	$	8,860	$	85,694	$	(7,281)	$	165,991
Net income	—	—		—		8,480		—		8,480
Other comprehensive loss	—	—		—		—		(3,693)		(3,693)
Stock issued under stock-based compensation plans	51,395	—		(79)		—		—		(79)
Stock-based compensation, net	—	—		308		—		—		308
Repurchase of common stock	—	—		—		—		—		—
Cash dividends declared ($0.10 per share)	—	—		—		(1,515)		—		(1,515)
Balance at June 30, 2022	15,189,203	78,718		9,089		92,659		(10,974)		$	169,492

Balance at January 1, 2021	15,016,700	$	78,657	$	8,521	$	55,348	$	840	$	143,366
Net income	—	—		—		11,456		—		11,456
Other comprehensive loss	—	—		—		—		(620)		(620)
Stock issued under stock-based compensation plans	120,537	89		—		—		—		89
Stock-based compensation, net	—	—		(197)		—		—		(197)
Repurchase of common stock	(3,830)	(28)		—		—		—		(28)
Cash dividends declared ($0.17 per share)	—	—		—		(2,104)		—		(2,104)
Balance at June 30, 2021	15,133,407	$	78,718	$	8,324	$	64,700	$	220	$	151,962

Balance at January 1, 2022	15,137,808	$	78,718	$	8,645	$	79,056	$	(1,197)	$	165,222
Net income	—	—		—		16,632		—		16,632
Other comprehensive loss	—	—		—		—		(9,777)		(9,777)
Stock issued under stock-based compensation plans	51,395	—		(79)		—		—		(79)
Stock-based compensation, net	—	—		523		—		—		523
Repurchase of common stock	—	—		—		—		—		—
Cash dividends declared ($0.22 per share)	—	—		—		(3,029)		—		(3,029)
Balance at June 30, 2022	15,189,203	$	78,718	$	9,089	$	92,659	$	(10,974)	$	169,492

See accompanying notes to consolidated financial statements

OP BANCORP

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

~~For the Three Months ended March 31, 2018 and 2017~~

	Three Months Ended March 31,
	2018			2017
								Six Months Ended June 30,
($ in thousands)							($ in thousands)	2022		2021
Cash flows from operating activities							Cash flows from operating activities
Net income	$	3,215,935		$	2,145,687		Net income	$	16,632	$	11,456
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Provision for loan losses		575,180			541,083
Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities:							Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities:
Provision for (reversal of) loan losses							Provision for (reversal of) loan losses	1,337		(492)
Depreciation and amortization of premises and equipment		240,416			263,793		Depreciation and amortization of premises and equipment	671		657
Amortization of net premiums on securities		61,137			83,672		Amortization of net premiums on securities	414		503
Amortization of servicing assets							Amortization of servicing assets	2,161		1,401
Accretion of loan discounts							Accretion of loan discounts	(2,584)		(1,669)
Amortization of low income housing partnerships							Amortization of low income housing partnerships	374		254
Stock-based compensation		245,968			179,289		Stock-based compensation	602		237
Gain on sales of loans		(988,913	)		(1,192,914	)
Deferred income taxes							Deferred income taxes	(859)		(122)
Gain on sale of loans							Gain on sale of loans	(7,111)		(3,092)

Earnings on company owned life insurance		(75,656	)		(79,137	)	Earnings on company owned life insurance	(183)		(126)
Net change in fair value of equity investment with readily determinable fair value							Net change in fair value of equity investment with readily determinable fair value	293		59
Origination of loans held for sale		(16,818,745	)		(16,488,211	)	Origination of loans held for sale	(68,245)		(76,270)
Proceeds from sales of loans held for sale		14,598,457			17,922,971		Proceeds from sales of loans held for sale	90,928		36,587
Amortization of servicing assets		423,859			379,296
Net change in:							Net change in:
Accrued interest receivable		(40,235	)		(41,248	)	Accrued interest receivable	532		766
Other assets		(2,915,870	)		1,306,291		Other assets	2,473		3,495
Accrued interest payable		134,320			54,956		Accrued interest payable	53		(412)
Other liabilities		(44,370	)		(2,878,051	)	Other liabilities	(2,885)		(1,973)
Net cash from operating activities		(1,388,517	)		2,197,477
Net cash provided by operating activities							Net cash provided by operating activities	34,603		(28,741)
Cash flows from investing activities							Cash flows from investing activities
Net change in loans receivable		(45,725,629	)		(7,781,371	)	Net change in loans receivable	(32,483)		(54,826)
Proceeds from calls of securities available for sale		1,519,949			1,598,833
Proceeds from matured, called, or paid-down securities available for sale							Proceeds from matured, called, or paid-down securities available for sale	18,853		18,368
Proceeds from company owned life insurance							Proceeds from company owned life insurance	(10,000)		—
Purchase of loans							Purchase of loans	(138,007)		(97,631)
Purchase of securities available for sale							Purchase of securities available for sale	(57,518)		(39,791)

Purchase of Federal Home Loan Bank stock							Purchase of Federal Home Loan Bank stock	(1,477)		(963)
Purchase of premises and equipment, net		(467,085	)		(19,381	)	Purchase of premises and equipment, net	(808)		(385)
Purchase of other investments		(13,558	)		—
Net cash from investing activities		(44,686,323	)		(6,201,919	)
Investment in low income housing partnerships							Investment in low income housing partnerships	(374)		(189)
Net cash used in investing activities							Net cash used in investing activities	(221,814)		(175,417)
Cash flows from financing activities							Cash flows from financing activities
Net change in deposits		44,973,704			49,263,338		Net change in deposits	207,557		234,012
Cash received from stock option exercises		114,000			190,250		Cash received from stock option exercises	—		89
Borrowings/(Repayment) of Federal Home Loan Bank advances		(15,000,000	)		(10,000,000	)
Issuance of common stock, net of expenses		22,637,000			—
Net cash from financing activities		52,724,704			39,453,588

Repayment of Federal Home Loan Bank advances							Repayment of Federal Home Loan Bank advances	—		(5,000)

Repurchase of common stock							Repurchase of common stock	—		(28)
Cash dividend paid on common stock							Cash dividend paid on common stock	(3,029)		(2,104)
Payments related to tax-withholding for vested restricted stock awards							Payments related to tax-withholding for vested restricted stock awards	(79)		(434)
Net cash provided by financing activities							Net cash provided by financing activities	204,449		226,535
Net change in cash and cash equivalents		6,649,864			35,449,146		Net change in cash and cash equivalents	17,238		22,377
Cash and cash equivalents at beginning of period		63,249,952			20,126,028		Cash and cash equivalents at beginning of period	115,459		106,310
Cash and cash equivalents at end of period	$	69,899,816		$	55,575,174		Cash and cash equivalents at end of period	$	132,697	$	128,687
Supplemental cash flow information							Supplemental cash flow information
Cash paid during the period for:							Cash paid during the period for:
Income taxes	$	—		$	2,120,000		Income taxes	$	7,947	$	6,253
Interest		1,486,942			923,348		Interest	$	1,670	$	2,052

See accompanying notes to consolidated financial statements

OP BANCORP

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 1. Business ~~Description~~

and Basis of Presentation

OP Bancorp ~~(the “Company”)~~ is a California corporation ~~whose common stock is quoted on the Nasdaq Global Market under the ticker symbol, “OPBK.” The Company~~that was formed to acquire 100% of the voting equity of Open Bank (the “Bank”) and commenced operation as a bank holding company on June 1, 2016. This transaction was treated as an internal reorganization as all shareholders of the Bank became shareholders of ~~the Company. The Company~~OP Bancorp. OP Bancorp has no operations other than ownership of the Bank. The Bank is a California state-chartered and FDIC-insured financial institution, which began its operations on June 10, 2005. Headquartered in downtown Los Angeles, California, ~~the Company~~OP Bancorp operates primarily in the traditional banking business arena that includes accepting deposits and making loans and investments. ~~The Company’s~~OP Bancorp’s primary deposit products are demand and time deposits, and the primary lending products are commercial business loans to small to medium sized businesses. ~~The Company~~OP Bancorp is operating with eight full service branches in Downtown Los Angeles, Los Angeles Fashion District, Los Anageles Koreatown, Gardena, Buena Park and Santa Clara. The Company also has three loan production offices in Seattle, Washington, Dallas, Texas, and Atlanta, Georgia.

On March 27, 2018, the Company completed its initial public offering of common stock, pursuant to which we sold an aggregate of 2,300,000 shares of our common stock at a public offering price of $11.00 per share, for aggregate net proceeds of approximately $22.6 million, after deducting underwriter discounts and commissions paid by us of approximately $1.7 million and other offering expenses of approximately $925,000. There has been no material change in the planned use of proceeds from our initial public offering as described in our Prospectus.

~~Note~~ ~~2. Summary of Significant Accounting Policies~~

~~The following is a summary of certain of the Company’s significant accounting and reporting policies.~~

~~Basis of Presentation:~~10 full-service branches.

The accompanying unaudited ~~consolidated financial statements~~Consolidated Financial Statements and notes thereto of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for Form 10-Q and conform to practices within the banking industry and include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting. The accompanying unaudited ~~consolidated financial statements~~Consolidated Financial Statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of the financial results for the interim periods ~~presented.~~presented, including eliminating intercompany transactions and balances. Certain items on the Consolidated Financial Statements and notes for prior years have been reclassified to conform to the 2022 presentation. The results of operations for the interim periods are not necessarily indicative of the results for the full year. These interim unaudited financial statements should be read in conjunction with the audited ~~consolidated financial statements~~Consolidated Financial Statements and the notes thereto ~~as of and~~included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2021 (“2021 Annual Report on Form 10-K”). Descriptions of our significant accounting policies are included in ~~our registration statement~~Note 1. Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in the 2021 Annual Report on Form ~~S-1 (333-223444) filed with~~10-K.

Recent Accounting Pronouncements Not Yet Effective

In March 2022, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ""ASU 2022-02"). ASU 2022-02 eliminates the ~~SEC on March 5, 2018~~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 ~~declared~~restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. ASU 2022-02 will be effective on ~~March 27, 2018.~~

~~Use~~January 1, 2023 though early adoption is permitted. The adoption of ~~Estimates:~~ ~~To prepare~~ASU 2022-02 is not expected to have a significant impact on our consolidated financial ~~statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect~~statements.

Note 2. Securities

The following table summarizes 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.

~~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 and Federal Home Loan Bank advances 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, withcorresponding amounts of gross unrealized ~~holding~~ gains and losses, ~~reported~~and estimated fair value of available-for-sale ("AFS") debt securities as of June 30, 2022 and December 31, 2021:



	June 30, 2022
($ in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government agencies or sponsored agency securities:
Residential mortgage-backed securities	$	51,236	$	—	$	(3,555)	$	47,681
Residential collateralized mortgage obligations	139,158		—		(12,025)		127,133
Total AFS debt securities	$	190,394	$	—	$	(15,580)	$	174,814



	December 31, 2021
($ in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government agencies or sponsored agency securities:
Residential mortgage-backed securities	$	37,555	$	178	$	(321)	$	37,412
Residential collateralized mortgage obligations	114,588		253		(1,809)		113,032
Total AFS debt securities	$	152,143	$	431	$	(2,130)	$	150,444

There were no sales of AFS debt securities during the three months ended June 30, 2022 and 2021. The amortized cost and estimated fair value of AFS debt securities as of June 30, 2022, by contractual maturity, are shown below:



($ in thousands)	Amortized Cost		Fair Value
After one year through five years	$	881	$	865
After five years through ten years	3,345		3,240
After ten years	186,168		170,709
Total AFS debt securities	$	190,394	$	174,814

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 June 30, 2022 and 2021, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in ~~other comprehensive income, net~~an amount greater than 10% of ~~tax. Interest income includes amortization of purchase premium or discount. Premiums~~shareholders’ equity.

The following table presents the fair value and ~~discounts on securities are amortized on~~ the ~~level-yield method without anticipating prepayments. Gains and~~associated gross unrealized losses on ~~sales are recorded on the trade date~~AFS debt securities by length of time those individual securities in each category have been in a continuous loss as of June 30, 2022 and ~~determined using the specific identification method.~~

December 31, 2021:



	June 30, 2022
	Less Than 12 Months				12 Months or Longer				Total
($ in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies or sponsored agency securities:
Residential mortgage-backed securities	$	42,739	$	(3,007)	$	4,942	$	(548)	$	47,681	$	(3,555)
Residential collateralized mortgage obligations	99,891		(7,905)		26,923		(4,120)		126,814		(12,025)
Total AFS debt securities	$	142,630	$	(10,912)	$	31,865	$	(4,668)	$	174,495	$	(15,580)



	December 31, 2021
	Less Than 12 Months				12 Months or Longer				Total
($ in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies or sponsored agency securities:
Residential mortgage-backed securities	$	31,120	$	(321)	$	—	$	—	$	31,120	$	(321)
Residential collateralized mortgage obligations	93,607		(1,578)		7,212		(231)		100,819		(1,809)
Total AFS debt securities	$	124,727	$	(1,899)	$	7,212	$	(231)	$	131,939	$	(2,130)

Management evaluates securities for other-than-temporary impairment (“OTTI”) on ~~at least~~ a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, ~~and~~along with the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or whether it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components, as follows: 1)(i) OTTI related to credit loss, which must be recognized in the income statement, and 2)(ii) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

~~Other investments:~~ ~~Other investments includes~~

The unrealized losses were primarily attributable to interest rate movement, not credit quality. These securities (Fannie Mae, Ginnie Mae, and Freddie Mac) are guaranteed or sponsored by agencies of the ~~followings : (i)~~U.S. government, and the issuers of the securities are of high credit quality. The Company believes that the gross unrealized losses presented in the previous tables are temporary and no credit losses are expected. As a result, the Company expects full collection of the carrying amount of these securities, does not intend to sell the securities in an unrealized loss position, and it was more-likely-than-not the Company will not have to sell these securities prior to recovery of amortized cost. Accordingly, the Company does not consider these securities to be OTTI as of June 30, 2022.

As of June 30, 2022 or December 31, 2021, there were no pledged securities to secure public deposits, borrowing and letters of credit from Federal Home Loan Bank ~~(“FHLB”~~("FHLB") ~~Stock -~~and the ~~Bank is a member~~Board of Governors of the ~~FHLB system. Members~~Federal Reserve System, and for other purposes required or permitted by law.

The following table presents the other investment securities, which are ~~required to own a certain amount of stock based~~included in Other investments on the ~~level~~Consolidated Balance Sheets as of ~~borrowings~~June 30, 2022 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’sDecember 31, 2021:



($ in thousands)	June 30, 2022		December 31, 2021
FHLB stock	$	8,483	$	7,006
PCBB stock	190		190
Mutual fund - CRA qualified	3,437		3,708
Time deposits placed in other banks	95		95
Total other investments	$	12,205	$	10,999

The Company has equity 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 are recognized in earnings.~~

~~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 loan 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 Loan Losses:~~ The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that in management’s judgment should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.

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

identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at thereadily determinable fair value of ~~the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.~~

~~Factors considered by management in determining impairment include payment status, collateral value,~~$3.4 million and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial real estate and construction loans. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Income recognition on impaired loans materially conforms to the method the Company uses for income recognition on nonaccrual loans.

Allowance for impaired loans is determined based on the present value of the estimated cash flows or on the fair value of the collateral if the loan is collateral dependent, less costs to sell. If the measured fair value is less than the recorded investment in the loan, the deficiency will be charged off against the allowance for loan losses, or alternatively, a specific allocation will be established. For consumer loans, management will generally charge off the balance if the loan is 90 days or more past due.

The general component of the allowance covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent two years. For those portfolio segments that the Company does not have sufficient historical data available to track the loss migration, the loss factors are based on the actual loss history experienced by the Company over the most recent five years. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. Related to the current national and local economic conditions, the Company has considered risk factors including the broad deterioration of property values, reduced consumer and business spending as a result of high unemployment and reduced credit availability, and the lack of confidence in a sustainable recovery.

The following portfolio segments have been identified in the Company’s loan portfolio, and are also representative of the classes within the portfolio: commercial real estate, SBA loans—real estate, SBA loans—non-real estate, commercial and industrial, home mortgage, and consumer. The Company reviews the credit risk exposure of all its portfolio segments by internally assigned grades. The Company categorizes loans into risk grades based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. For the home mortgage and consumer portfolio segments, the Company’s primary monitoring tool is reviewing past due listings to determine if the loans are performing.

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

~~Management believes that~~$3.7 million, as of ~~March 31, 2018~~June 30, 2022 and December 31, 2017 the allowance for loan losses is adequate based on information currently available. If a deterioration in the economy of the Company’s principal market area occurs, the Company’s loan portfolios could be adversely impacted and higher charge-offs and increases in non-performing assets could result. Such an adverse impact could also require a larger allowance for loan losses.

~~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.

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,~~2021, respectively, 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.

~~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.

~~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, Net:~~ Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when the legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through the completion of a deed in lieu of foreclosure or through a similar legal agreement. These assets are subsequently accounted for at the lower of their cost or fair value less estimated costs to sell. If their fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.

~~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.

~~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 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 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 three months ended March 31, 2018 or 2017.~~

~~Comprehensive Income/(Loss):~~ Comprehensive income/(loss) consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale, 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.

~~Operating Segments:~~ While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Discrete financial information is not available other than on a Company-wide basis.

~~Reclassifications:~~ ~~Some items in the prior period financial statements were reclassified to conform to the current presentation. Reclassification had no effect on prior year net income or shareholders’ equity.~~

~~Recent Accounting Pronouncements:~~

In May 2014, the Financial Accounting Standard Board (FASB) issued Accounting Standard Update (ASU) 2014-9 (ASU 2014-09), Revenue from Contracts with Customers. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer, as well as enhanced disclosure requirements. In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 to fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08 which clarified the revenue recognition implementation guidance on principal versus agent considerations and is effective during the same period as ASU 2014-09. In April 2016, the FASB issued ASU 2016-10 which clarified the revenue recognition guidance regarding the identification of performance obligations and the licensing implementation and is effective during the same period as ASU 2014-09. In May 2016, the FASB issued ASU 2016-12 which narrowly amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition. ASU 2016-12 is effective during the same period as ASU 2014-09.

The majority of the Company’s revenue consists of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09. The Company adopted the new standard beginning January 1, 2018. The Company completed its analysis for determining the extent ASU 2014-09 will affect its noninterest income, primarily in the area of fees and service charges on deposit accounts and trade finance activities. Based on the analysis performed, the Company did not have a material change in the timing or measurement of revenues related to noninterest income. This guidance did not have a material impact on the Company’s consolidated financial statements. See Note 12. Revenue Recognition for further details.

Effective January 2018, the Company adopted ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). The main objective of ASU 2016-01 is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Some of the amendments in ASU 2016-01 include the following: 1) Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value ~~recognized~~recorded in net income; 2) Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) Require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and 4) Require an entity to present separately in other comprehensive income the portion of the total changeincome. The Company invested in the ~~fair value of a liability resulting from a change in~~mutual fund for CRA purposes. For the instrument-specific credit risk when the entity has elected to measure the liability at fair value. For public business entities, the amendments of ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of ASU 2016-01 resulted in a transfer of $2.5 million of mutual ~~funds from securities available for sale to other investments~~

~~on the consolidted balance sheet. However, this standard did not have a material impact on the consolidated financial statements. See Note 13 for fair value measurement disclosures.~~

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 is intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about lease arrangements. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. Based on leases outstanding at March 31, 2018,fund, the Company ~~does not expect this ASU to have~~recorded a ~~material impact on the income statement, but does anticipate~~$120 thousand unrealized loss and a ~~$12 million increase in assets and liabilities once this ASU becomes effective.~~

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). The objective of ASU 2016-13 is to provide financial statement users with decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit. ASU 2016-13 includes provisions that require financial assets measured at amortized cost (such as loans and held to maturity (HTM) debt securities) to be presented at the net amount expected to be collected. This will be accomplished through recognition of an estimate of all current expected credit losses. The estimate will include forecasted information$7 thousand unrealized gain for the timeframe that an entity is able to develop reasonable and supportable forecasts. This is a change from the current practice of recognizing incurred losses based on the probable initial recognition threshold under current GAAP. In addition, credit losses on available for sale (AFS) debt securities will be recorded through an allowance for credit losses rather than as a write-down. Under ASU 2016-13, an entity will be able to record reversals of credit losses in current period income when the estimate of credit losses declines, whereas current GAAP prohibits reflecting those improvements in current period earnings.

ASU 2016-13 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019, and early adoption is permitted for fiscal years, including interim periods, beginning after December 15, 2018. ASU 2016-13 will be applied through a cumulative effect adjustment to retained earnings (modified-retrospective approach), except for debt securities for which an other-than-temporary impairment had been recognized before the effective date. A prospective transition approach is required for these debt securities. The Company is currently evaluating the effects of ASU 2016-13 on its financial statements and disclosures, including software solutions, data requirements and loss estimation methodologies. While the effects cannot yet be quantified, the Company expects ASU 2016-13 to add complexity and costs to its current credit loss evaluation process.

In March 2017, the FASB issued ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20) (ASU 2017-08). ASU 2017-08 amends the amortization period for certain purchased callable debt securities held at a premium. Prior to the issuance of this guidance, premiums were amortized as an adjustment of yield over the contractual life of the instrument. ASU 2017-08 requires premiums on purchased callable debt securities that have explicit, noncontingent call features that are callable at fixed prices to be amortized to the earliest call date. There are no accounting changes for securities held at a discount. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018, and early adoption is permitted. ASU 2017-08 will be applied through a cumulative effect adjustment through equity (modified-retrospective approach). The Company is currently evaluating the effects of ASU 2017-08 on its financial statements and disclosures.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718), Scope of Modification Accounting (ASU 2017-09). ASU 2017-09 clarifies when changes to the terms and conditions of share-based payment awards must be treated as modifications. Specifically, the new guidance permits companies to make certain changes to awards without accounting for them as modifications. ASU 2017-09 is effective for annual periods beginning after December 31, 2017 and will be applied prospectively to an award modified after the effective date. There have been no changes to the terms and conditions of share-based payment awards, and as a result the adoption of this standard did not have a material effect on the Company’s operating results or financial condition.

In February 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU permits a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from the Tax Act. The Company did not elect to apply the provision of ASU 2018-02.

~~Note~~ ~~3. Securities~~

The following table summarizes the amortized cost, fair value, and the corresponding amounts of gross unrealized gains and losses for available for sale securities at March 31, 2018 and December 31, 2017:

As of March 31, 2018:

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Available for sale:

U.S. Government sponsored agency securities

$
6,990,015

$
—

$
(121,935
)

$
6,868,080

Mortgage-backed securities: residential

13,379,005

—

(391,542
)

12,987,463

Collateralized mortgage obligations

17,606,822

—

(597,854
)

17,008,968

Total available for sale

$
37,975,842

$
—

$
(1,111,331
)

$
36,864,511

As of December 31, 2017:

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Available for sale:

U.S. Government sponsored agency securities

$
6,988,681

$
2,001

$
(58,674
)

$
6,932,008

Mortgage-backed securities: residential

14,109,433

—

(168,908
)

13,940,525

Collateralized mortgage obligations

18,458,814

—

(345,316
)

18,113,498

Other securities

2,518,498

—

(32,818
)

2,485,680

Total available for sale

$
42,075,426

$
2,001

$
(605,716
)

$
41,471,711

~~There were no sales of securities available for sale in~~ the three months ended ~~March 31, 2018 or 2017.~~June 30, 2022 and 2021, respectively, and a $293 thousand and a $59 thousand unrealized losses for the six months ended June 30, 2022 and 2021, respectively. The ~~amortized cost~~unrealized gains (losses) of the mutual fund are included in Other income in the Consolidated Statements of Income.

Note 3. Loans and ~~estimated fair value of securities available~~Allowance for ~~sale at March 31, 2018, by contractual maturity, are shown below. Securities without a contractual maturity are shown separately.~~

Loan Losses

As of March 31, 2018:

Amortized
Cost

Fair
Value

Available for sale:

One to five years

$
6,990,015

$
6,868,080

Mortgage-backed securities: residential

13,379,005

12,987,463

Collateralized mortgage obligations

17,606,822

17,008,968

Total available for sale

$
37,975,842

$
36,864,511

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At March 31, 2018 and December 31, 2017, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

The following table ~~summarizes securities with unrealized losses at March 31, 2018 and December 31, 2017, aggregated by length of time in a continuous unrealized loss position:~~

Less Than 12 Months

12 Months or Longer

Total

As of March 31, 2018:

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Available for sale:

U.S. Government sponsored agency securities

$
4,906,706

$
(84,035
)

$
1,961,374

$
(37,900
)

$
6,868,080

$
(121,935
)
Mortgage-backed securities: residential

7,352,009

(189,372
)

5,635,454

(202,170
)

12,987,463

(391,542
)
Collateralized mortgage obligations

9,121,786

(295,660
)

7,887,182

(302,194
)

17,008,968

(597,854
)
Total available for sale

$
21,380,501

$
(569,067
)

$
15,484,010

$
(542,264
)

$
36,864,511

$
(1,111,331
)

Less Than 12 Months

12 Months or Longer

Total

As of December 31, 2017:

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Available for sale:

U.S. Government sponsored agency securities

$
3,957,340

$
(33,620
)

$
1,974,139

$
(25,054
)

$
5,931,479

$
(58,674
)
Mortgage-backed securities: residential

7,954,428

(70,965
)

5,986,097

(97,943
)

13,940,525

(168,908
)
Collateralized mortgage obligations

9,642,028

(138,243
)

8,471,469

(207,073
)

18,113,497

(345,316
)
Other securities

2,485,680

(32,818
)

—

—

2,485,680

(32,818
)
Total available for sale

$
24,039,476

$
(275,646
)

$
16,431,705

$
(330,070
)

$
40,471,181

$
(605,716
)

~~The Company believes that~~presents the unrealized losses are temporary, arising mainly from fluctuations in interest rates and do not reflect a deterioration of credit quality of the issuers. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. The fair value is expected to recover as the securities approach maturity. Management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery.

~~There were no securities pledged as collateral at March 31, 2018 or December 31, 2017.~~

~~Other investments at March 31, 2018 and December 31, 2017, consisted of the following:~~

March 31, 2018

December 31, 2017

FHLB stock

$
4,096,500

$
4,096,500

PCBB stock

190,000

190,000

Mutual fund - CRA qualified

2,532,056

—

Total other investments

$
6,818,556

$
4,286,500

Effective January 2018, the Company adopted ASU 2016-01 and reclassified a $2.5 million of mutual fund that the Company invested to satisfy the CRA requirements from securities available for sale to other investments, which is reported at fair value. Unrealized losses on this investment are recognized in earnings, but did not have a material impact on the consolidated income statement.

~~Note 4. Loans~~

~~The~~ composition of the loan portfolio ~~was~~ as ~~follows at March 31, 2018~~of June 30, 2022 and December 31, ~~2017:~~

2021:

	March 31, 2018			December 31, 2017
Real estate:

($ in thousands)							($ in thousands)			June 30, 2022				December 31, 2021
Commercial real estate	$	455,662,700		$	420,759,900		Commercial real estate			$	776,785			$	701,450
SBA loans—real estate		103,390,716			106,924,278		SBA loans—real estate			226,302				220,099
Total real estate		559,053,416			527,684,178
SBA loans—non-real estate(1)		10,100,567			8,634,879			21,111				55,759
Commercial and industrial		114,746,789			103,681,574
Commercial and industrial ("C&I")							Commercial and industrial ("C&I")			128,620				162,543
Home mortgage		106,187,527			104,067,756		Home mortgage			331,362				173,303
Consumer		3,662,731			3,955,514		Consumer			538				865
Gross loans receivable		793,751,030			748,023,901		Gross loans receivable			1,484,718				1,314,019
Allowance for loan losses		(9,716,168	)		(9,139,488	)	Allowance for loan losses			(17,702)				(16,123)
Loans receivable, net(2)	$	784,034,862		$	738,884,413			$	1,467,016			$	1,297,896

(1)Includes SBA Paycheck Protection Program ("PPP") loans of $8.1 million and $40.6 million as of June 30, 2022 and December 31, 2021, respectively.

(2)Includes net deferred loan fees or costs, unamortized premiums and unaccreted discounts of $4.4 million and $7.0 million as of June 30, 2022 and December 31, 2021, respectively.

No loans were outstanding to related parties as of ~~March 31, 2018.~~ T~~he Company had $10,768 in loans to principal officers, directors,~~June 30, 2022 and ~~their affiliates at~~ December 31, ~~2017.~~

2021.

The following table summarizes the activity in the allowance for loan losses by portfolio segment for the three months ended ~~March 31, 2018~~June 30, 2022 and ~~2017~~2021:



($ in thousands)	Commercial Real Estate		SBA Loans— Real Estate		SBA Loans—Non- Real Estate		C&I		Home Mortgage		Consumer		Total
Three Months Ended June 30, 2022
Beginning balance	$	6,480	$	1,750	$	169	$	3,492	$	4,768	$	13	$	16,672
Provision for (reversal of) loan losses (1)	1,263		43		(61)		(1,390)		1,145		(4)		996
Charge-offs	—		—		(18)		—		—		—		(18)
Recoveries	—		7		45		—		—		—		52
Ending balance	$	7,743	$	1,800	$	135	$	2,102	$	5,913	$	9	$	17,702

Three Months Ended June 30, 2021
Beginning balance	$	8,594	$	2,030	$	292	$	2,331	$	2,075	$	17	$	15,339
(Reversal of) provision for loan losses (1)	(138)		(33)		(37)		(45)		(371)		(1)		(625)
Charge-offs	—		—		(27)		—		—		—		(27)
Recoveries	—		—		—		—		—		—		—
Ending balance	$	8,456	$	1,997	$	228	$	2,286	$	1,704	$	16	$	14,687

(1)There was ~~as follows:~~

SBA

Commercial

SBA Loans

Loans Non-

Commercial

Home

Real Estate

Real Estate

Real Estate

and Industrial

Mortgage

Consumer

Total

Three months ended March
31, 2018:

Beginning balance
$
4,801,297

$
1,082,065

$
537,967

$
1,265,456

$
1,407,742

$
44,961

$
9,139,488

Provision for loan losses

410,996

(76,299
)

(39,340
)

315,765

(32,481
)

(3,461
)

575,180

Charge-offs

—

—

—

—

—

—

—

Recoveries

—

—

1,500

—

—

—

1,500

Ending balance
$
5,212,293

$
1,005,766

$
500,127

$
1,581,221

$
1,375,261

$
41,500

$
9,716,168

Three months ended March
31, 2017:

Beginning balance
$
4,217,089

$
892,605

$
59,032

$
1,322,294

$
1,363,628

$
55,034

$
7,909,682

Provision for loan losses

1,898

29,050

452,768

(28,270
)

88,140

(2,503
)

541,083

Charge-offs

—

—

(75,894
)

—

—

—

(75,894
)
Recoveries

—

—

5,225

—

—

—

5,225

Ending balance
$
4,218,987

$
921,655

$
441,131

$
1,294,024

$
1,451,768

$
52,531

$
8,380,096

no provision for uncollectible accrued interest receivable for the three months ended June 30, 2022. Excludes reversal of uncollectible accrued interest receivable of $487 thousand for the three months ended June 30, 2021.



($ in thousands)	Commercial Real Estate		SBA Loans— Real Estate		SBA Loans—Non- Real Estate		C&I		Home Mortgage		Consumer		Total
Six Months Ended June 30, 2022
Beginning balance	$	8,150	$	2,022	$	199	$	2,848	$	2,891	$	13	$	16,123
(Reversal of) provision for loan losses (1)	(407)		(215)		(108)		(746)		3,022		(5)		1,541
Charge-offs	—		(14)		(18)		—		—		—		(32)
Recoveries	—		7		62		—		—		1		70
Ending balance	$	7,743	$	1,800	$	135	$	2,102	$	5,913	$	9	$	17,702

Six Months Ended June 30, 2021
Beginning balance	$	8,505	$	1,802	$	278	$	2,563	$	2,185	$	19	$	15,352
(Reversal of) provision for loan losses (1)	(49)		195		(23)		(277)		(481)		(6)		(641)
Charge-offs	—		—		(27)		—		—		—		(27)
Recoveries	—		—		—		—		—		3		3
Ending balance	$	8,456	$	1,997	$	228	$	2,286	$	1,704	$	16	$	14,687

(1)Excludes provision for (reversal of) uncollectible accrued interest receivable of $(204) thousand and $149 thousand for the six months ended June 30, 2022 and 2021, respectively.

The following table presents ~~the balance in~~ the allowance for loan losses and ~~the~~ recorded investment ~~in loans~~(not including accrued interest receivable) by portfolio segment and impairment methodology as of ~~March 31, 2018~~June 30, 2022 and December 31, ~~2017:~~

Loans
Individually
Evaluated
for Impairment

Loans
Collectively
Evaluated
for Impairment

Total

As of March 31, 2018:

Allowance for loan losses:

Commercial real estate

$
—

$
5,212,293

$
5,212,293

SBA loans—real estate

—

1,005,766

1,005,766

SBA loans—non-real estate

361,736

138,391

500,127

Commercial and industrial

553,453

1,027,768

1,581,221

Home mortgage

—

1,375,261

1,375,261

Consumer

—

41,500

41,500

Total

$
915,189

$
8,800,979

$
9,716,168

Loans:

Commercial real estate

$
—

$
456,753,192

$
456,753,192

SBA loans—real estate

—

103,902,484

103,902,484

SBA loans—non-real estate

361,736

9,756,228

10,117,964

Commercial and industrial

1,759,498

113,260,683

115,020,181

Home mortgage

241,163

106,369,554

106,610,717

Consumer

—

3,672,606

3,672,606

Total

$
2,362,397

$
793,714,747

$
796,077,144

As of December 31, 2017:

Allowance for loan losses:

Commercial real estate

$
—

$
4,801,297

$
4,801,297

SBA loans—real estate

—

1,082,065

1,082,065

SBA loans—non-real estate

—

537,967

537,967

Commercial and industrial

353,985

911,471

1,265,456

Home mortgage

—

1,407,742

1,407,742

Consumer

—

44,961

44,961

Total

$
353,985

$
8,785,503

$
9,139,488

Loans:

Commercial real estate

$
—

$
421,811,734

$
421,811,734

SBA loans—real estate

—

107,427,788

107,427,788

SBA loans—non-real estate

—

8,655,808

8,655,808

Commercial and industrial

353,985

103,601,098

103,955,083

Home mortgage

241,164

104,239,551

104,480,715

Consumer

20,763

3,946,491

3,967,254

Total

$
615,912

$
749,682,470

$
750,298,382

2021:



($ in thousands)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
As of June 30, 2022
Allowance for loan losses (1):
Commercial real estate	$	—	$	7,743	$	7,743
SBA loans—real estate	—		1,800		1,800
SBA loans—non-real estate	—		135		135
C&I	297		1,805		2,102
Home mortgage	—		5,913		5,913
Consumer	—		9		9
Total	$	297	$	17,405	$	17,702
Loans (2):
Commercial real estate	$	—	$	776,785	$	776,785
SBA loans—real estate	410		225,892		226,302
SBA loans—non-real estate	—		21,111		21,111
C&I	297		128,323		128,620
Home mortgage	—		331,362		331,362
Consumer	—		538		538
Total	$	707	$	1,484,011	$	1,484,718
As of December 31, 2021
Allowance for loan losses (1):
Commercial real estate	$	—	$	8,150	$	8,150
SBA loans—real estate	—		2,022		2,022
SBA loans—non-real estate	—		199		199
C&I	312		2,536		2,848
Home mortgage	—		2,891		2,891
Consumer	—		13		13
Total	$	312	$	15,811	$	16,123
Loans (2):
Commercial real estate	$	—	$	701,450	$	701,450
SBA loans—real estate	812		219,287		220,099
SBA loans—non-real estate	—		55,759		55,759
C&I	312		162,231		162,543
Home mortgage	—		173,303		173,303
Consumer	—		865		865
Total	$	1,124	$	1,312,895	$	1,314,019

(1)There was no uncollectible accrued interest receivable as of June 30, 2022. Excludes allowance for uncollectible accrued interest receivable of $205 thousand as of December 31, 2021.

(2)Excludes accrued interest receivables of $4.6 million and $4.4 million as of June 30, 2022, and December 31, 2021, respectively.

The following table presents ~~information related to~~the recorded investment of individually impaired loans ~~by class of loans~~and the specific allowance for loan losses as of June 30, 2022 and ~~for the three ended March~~December 31, ~~2018 and 2017.~~2021:



	June 30, 2022 (1)								December 31, 2021 (1)
($ in thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Related Allowance		Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Related Allowance
SBA loans—real estate	$	410	$	410	$	—	$	—	$	812	$	812	$	—	$	—
C&I	297		—		297		297		312		—		312		312
Total	$	707	$	410	$	297	$	297	$	1,124	$	812	$	312	$	312

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

Average

Interest

Recorded

Allowance

Recorded

Income

Investment

Allocated

Investment

Recognized

As of and for the three months ended March 31, 2018:

With no related allowance recorded:

Commercial and industrial

$
749,368

$
—

$
749,368

$
10,356

Home mortgage

241,163

—

241,163

—

With an allowance recorded:

SBA loans—non-real estate

361,736

361,736

361,736

—

Commercial and industrial

1,010,130

553,453

1,023,052

13,740

$
2,362,397

$
915,189

$
2,375,319

$
24,096

As of and for the three months ended March 31, 2017:

With no related allowance recorded:

Home mortgage

$
811,490

$
—

$
813,020

$
11,265

With an allowance recorded:

SBA loans—non-real estate

388,736

388,736

388,736

—

Commercial and industrial

363,700

363,700

365,510

3,926

$
1,563,926

$
752,436

$
1,567,266

$
15,191

The following table presents the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans by portfolio segment for the three months ended June 30, 2022 and June 30, 2021. The difference between interest income recognized and cash basis interest recognized was immaterial.



	Three Months Ended June 30,								Six Months Ended June 30,
	2022				2021				2022				2021
($ in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
SBA loans—real estate	$	408	$	—	$	165	$	—	$	403	$	—	$	83	$	—
													—		—
C&I	301		7		325		3		305		15		327		6
Total	$	709	$	7	$	490	$	3	$	708	$	15	$	410	$	6

The following table presents the recorded investment in nonaccrual loans and loans past due ~~greater than~~ 90 or more days and still accruing interest, by ~~class of loans~~portfolio as of ~~March 31,~~June 30, 2022 and December 31, ~~2017:~~

2021:

	Nonaccrual		Loans >90 Days Past Due & Still Accruing		Total
As of March 31, 2018:

($ in thousands)							($ in thousands)	Nonaccrual		90 or More Days Past Due & Still Accruing		Total
As of June 30, 2022							As of June 30, 2022
SBA loans—real estate							SBA loans—real estate	$	411	$	—	$	411
SBA loans—non-real estate							SBA loans—non-real estate	478		5		483
C&I							C&I	297		—		297
Home mortgage	$	241,163	$	—	$	241,163	Home mortgage	986		—		986
Total	$	241,163	$	—	$	241,163	Total	$	2,172	$	5	$	2,177
As of December 31, 2017:
As of December 31, 2021							As of December 31, 2021
SBA loans—real estate							SBA loans—real estate	$	812	$	—	$	812
SBA loans—non-real estate							SBA loans—non-real estate	837		200		1,037
C&I							C&I	313		—		313
Home mortgage	$	662,365	$	—	$	662,365	Home mortgage	1,038		—		1,038
Consumer		20,763		—		20,763
Total	$	683,128	$	—	$	683,128	Total	$	3,000	$	200	$	3,200

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

The following table represents the aging analysis of the recorded investment in past due loans as of ~~March 31, 2018~~June 30, 2022 and December 31, ~~2017:~~

2021:

	30-59 Days Past Due		60-89 Days Past Due		> 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
As of March 31, 2018:

($ in thousands)													($ in thousands)	30-59 Days Past Due		60-89 Days Past Due		> 90 Days Past Due		Total Past Due		Loans Not Past Due		Total (1)
As of June 30, 2022													As of June 30, 2022
Commercial real estate	$	—	$	—	$	—	$	—	$	456,753,192	$	456,753,192	Commercial real estate	$	—	$	—	$	—	$	—	$	776,785	$	776,785
SBA—real estate		139,659		—		—		139,659		103,762,825		103,902,484	SBA—real estate	—		—		—		—		226,302		226,302
SBA—non-real estate		86,905		—		—		86,905		10,031,059		10,117,964	SBA—non-real estate	145		—		82		227		20,884		21,111
Commercial and industrial		—		—		—		—		115,020,181		115,020,181
C&I													C&I	—		—		—		—		128,620		128,620
Home mortgage		—		—		241,163		241,163		106,369,554		106,610,717	Home mortgage	344		844		—		1,188		330,174		331,362
Consumer		—		—		—		—		3,672,606		3,672,606	Consumer	—		—		—		—		538		538
	$	226,564	$	—	$	241,163	$	467,727	$	795,609,417	$	796,077,144
As of December 31, 2017:
Total													Total	$	489	$	844	$	82	$	1,415	$	1,483,303	$	1,484,718
As of December 31, 2021													As of December 31, 2021
Commercial real estate	$	—	$	—	$	—	$	—	$	421,811,734	$	421,811,734	Commercial real estate	$	—	$	—	$	—	$	—	$	701,450	$	701,450
SBA—real estate		139,806		—		—		139,806		107,287,982		107,427,788	SBA—real estate	—		—		419		419		219,680		220,099
SBA—non-real estate		61,611		—		—		61,611		8,594,197		8,655,808	SBA—non-real estate	76		336		881		1,293		54,466		55,759
Commercial and industrial		—		—		—		—		103,955,083		103,955,083
C&I													C&I	—		—		—		—		162,543		162,543
Home mortgage		—		—		662,365		662,365		103,818,350		104,480,715	Home mortgage	—		—		893		893		172,410		173,303
Consumer		—		—		—		—		3,967,254		3,967,254	Consumer	—		—		—		—		865		865
Total													Total	$	76	$	336	$	2,193	$	2,605	$	1,311,414	$	1,314,019
	$	201,417	$	—	$	662,365	$	863,782	$	749,434,600	$	750,298,382

~~Troubled Debt Restructurings: As~~

(1)Excludes accrued interest receivables of ~~March 31, 2018~~$4.6 million and $4.4 million as of June 30, 2022, and December 31, ~~2017,~~2021, respectively.

Troubled Debt Restructurings: When, for economic or legal reasons related to a borrower’s financial difficulties, the Company ~~had~~grants a ~~recorded investment in~~concession for other than an insignificant period of time to a borrower that the Company would not otherwise consider, the related loan is classified as a troubled debt ~~restructurings~~restructuring (“TDR”), the balance of ~~$351,185~~which totaled $297 thousand and ~~$353,985,~~$313 thousand as of June 30, 2022 and December 31, 2021, respectively. ~~The~~As of June 30, 2022 and December 31, 2021, the Company has allocated ~~$351,185~~$297 thousand and ~~$353,985~~$313 thousand of specific reserves to ~~customers whose~~the loan ~~terms have been modified in troubled debt restructurings~~classified as ~~of March 31, 2018 and December 31, 2017,~~TDRs, respectively. The Company has not committed to lend any additional amounts to customers with outstanding loans that are classified as ~~troubled debt restructurings.~~

TDRs.

Modifications made were primarily extensions of existing payment modifications on loans previously identified as ~~troubled debt restructurings.~~TDRs. There were no new loans identified as ~~trouble debt restructurings~~TDRs during the three and six months ended ~~March 31, 2018 or December 31, 2017.~~June 30, 2022 and 2021. There were no payment defaults during the ~~three~~six months ended ~~March 31, 2018 or December 31, 2017~~June 30, 2022 and 2021 of loans that had been modified as ~~troubled debt restructurings~~TDRs within the previous twelve months.

Loan Payment Deferrals: As of June 30, 2022, one C&I loan with outstanding balance of $454 thousand was under COVID-19 loan payment modification.

Paycheck Protection Program loans: A provision in the CARES Act created the PPP, which is administered by the SBA. The PPP was intended to provide loans to small businesses to pay expenses related to their employees, rent, mortgage interest, and utilities. The loans may be forgiven conditioned upon the client providing applicable documentation evidencing their compliant with the terms of the program, including compliance regarding the use of funds. The Bank is an approved SBA lender and began accepting applications for the program on April 3, 2020.

As of June 30, 2022, the Company had loans outstanding with a carrying value of $8.1 million, which were recorded in the SBA – non-real estate. Since the PPP’s inception through June 30, 2022, the Company has funded $154.5 million, and $151.3 million of principal forgiveness has been provided on qualifying PPP loans.

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 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.

As of ~~March 31, 2018~~June 30, 2022 and December 31, ~~2017,~~2021, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	Pass		Special Mention		Substandard		Doubtful		Total
As of March 31, 2018:

($ in thousands)											($ in thousands)	Pass		Special Mention		Substandard		Doubtful		Total (1)
As of June 30, 2022											As of June 30, 2022
Commercial real estate	$	456,753,192	$	—	$	—	$	—	$	456,753,192	Commercial real estate	$	776,785	$	—	$	—	$	—	$	776,785
SBA loans—real estate		102,575,944		—		1,326,540		—		103,902,484	SBA loans—real estate	225,120		—		1,182		—		226,302
SBA loans—non-real estate		9,982,402		107,166		28,396		—		10,117,964	SBA loans—non-real estate	20,555		—		515		41		21,111
Commercial and industrial		113,260,683		—		1,759,498		—		115,020,181
C&I											C&I	128,323		—		297		—		128,620
Home mortgage		106,369,554		—		241,163		—		106,610,717	Home mortgage	330,377		—		985		—		331,362
Consumer		3,672,606		—		—		—		3,672,606	Consumer	538		—		—		—		538
	$	792,614,381	$	107,166	$	3,355,597	$	—	$	796,077,144
As of December 31, 2017:
Total											Total	$	1,481,698	$	—	$	2,979	$	41	$	1,484,718
As of December 31, 2021											As of December 31, 2021
Commercial real estate	$	421,811,734	$	—	$	—	$	—	$	421,811,734	Commercial real estate	$	701,450	$	—	$	—	$	—	$	701,450
SBA loans—real estate		106,405,966		—		1,021,822		—		107,427,788	SBA loans—real estate	218,408		—		1,691		—		220,099
SBA loans—non-real estate		8,594,375		32,702		28,731		—		8,655,808	SBA loans—non-real estate	54,762		—		966		31		55,759
Commercial and industrial		103,601,098		—		353,985		—		103,955,083
C&I											C&I	162,230		—		313		—		162,543
Home mortgage		103,818,350		—		662,365		—		104,480,715	Home mortgage	172,265		—		1,038		—		173,303
Consumer		3,946,491		—		20,763		—		3,967,254	Consumer	865		—		—		—		865
Total											Total	$	1,309,980	$	—	$	4,008	$	31	$	1,314,019
	$	748,178,014	$	32,702	$	2,087,666	$	—	$	750,298,382

(1)Excludes accrued interest receivables of $4.6 million and $4.4 million as of June 30, 2022, and December 31, 2021, respectively.

Note 5.4. Premises and ~~equipment~~

Equipment

The ~~Company’s~~following table presents information regarding the premises and equipment ~~consisted~~as of ~~the following at March 31, 2018~~June 30, 2022 and December 31, ~~2017:~~

2021:

	March 31, 2018			December 31, 2017

($ in thousands)							($ in thousands)	June 30, 2022		December 31, 2021
Leasehold improvements	$	5,394,244		$	5,061,520		Leasehold improvements	$	7,765	$	7,375
Furniture and fixtures		2,552,850			2,492,623		Furniture and fixtures	3,786		3,530
Equipment and others		1,748,899			1,677,175		Equipment and others	3,118		2,955
Total cost		9,695,993			9,231,318
Total premises and equipment							Total premises and equipment	14,669		13,860
Accumulated depreciation		(4,988,532	)		(4,750,526	)	Accumulated depreciation	(10,176)		(9,505)
Net book value	$	4,707,461		$	4,480,792
Total premises and equipment, net							Total premises and equipment, net	$	4,493	$	4,355

Total depreciation expense included in occupancy and equipment expenses was ~~$240,416,~~$341 thousand and ~~$263,793~~$329 thousand for the three months ended ~~March 31, 2018~~June 30, 2022 and ~~2017,~~2021, respectively, and $671 thousand and $657 thousand for the six months ended June 30, 2022 and 2021, respectively.

Note 6.5. Servicing Assets

~~Activity~~

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 June 30, 2022 and December 31, 2021.

The following table presents an analysis of the changes in activity for loan servicing assets during the three months ended ~~March 31, 2018~~June 30, 2022 and ~~2017 is as follows:~~

2021:

	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017

								Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands)							($ in thousands)	2022		2021		2022		2021
Beginning balance	$	6,771,097		$	6,782,555		Beginning balance	$	12,341	$	7,492	$	12,720	$	7,360
Additions		377,562			479,654
Additions from loans sold with servicing retained							Additions from loans sold with servicing retained	1,357		277		2,149		847
Additions from purchase of servicing rights							Additions from purchase of servicing rights	0		0		—		6,097
Amortized to expense		(423,859	)		(379,296	)	Amortized to expense	(990)		(963)		(2,161)		(1,401)
Ending balance	$	6,724,800		$	6,882,913		Ending balance	$	12,708	$	12,903	$	12,708	$	12,903

~~There was no valuation allowance recorded against the carrying value of the servicing assets as of March 31, 2018 or 2017.~~

The fair value of the servicing assets was ~~$8,296,183 at March 31, 2018,~~$15.2 million as of June 30, 2022, which was determined using discount rates ranging from ~~4.15%~~5.17% to ~~10.40%~~11.4% and prepayment speeds ranging from ~~11.1%~~15.0% to ~~11.8%~~15.5%, depending on the stratification of the specific assets.

The fair value of the servicing assets was ~~$8,940,415 at March 31, 2017,~~$15.5 million as of June 30, 2021, which was determined using discount rates ranging from ~~4.47%~~4.8% to ~~10.72%~~11.9% and prepayment speeds ranging from ~~9.7%~~14.2% to ~~10.6%,~~14.4% depending on the stratification of the specific assets.

Note 7.6. Deposits

Time deposits that exceed the FDIC insurance limit of ~~$250,000 at March 31, 2018~~$250 thousand as of June 30, 2022 and December 31, ~~2017~~2021 were ~~$124,637,331~~$237.6 million and ~~$108,952,059,~~$207.3 million, respectively.

The following table presents the scheduled contractual maturities of time deposits ~~were~~ as ~~follows at March 31, 2018:~~

of June 30, 2022:

March 31, 2018

2018 remaining

$
184,486,181

2019

78,181,973

2020

884,212

Thereafter

295,679

Total

$
263,848,045



($ in thousands)
Remainder of 2022	$	218,549
2023	179,137
2024	2,653
2025	1,059
2026 and thereafter	525
Total	$	401,923

Deposits from principal officers, directors, and their affiliates ~~at March 31, 2018~~as of June 30, 2022 and December 31, ~~2017~~2021 were ~~$1,614,564~~$1.4 million and ~~$1,068,580,~~$1.2 million, respectively.

Note 8.7. Borrowing ~~arrangements~~

Arrangements

As of ~~March~~June 30, 2022 and December 31, ~~2018,~~2021, the Company had ~~a $10 million advance outstanding~~no borrowings from the ~~Federal Home Loan Bank~~FHLB of San Francisco. The ~~maturity date of this advance was April 2, 2018 and the interest rate on the advances was 1.87%. The advance was paid off on April 2, 2018 as scheduled. In addition, the~~ Company has a letter of credit with the FHLB in the amount of ~~$49,000,000~~$67.0 million to secure a public ~~deposit.~~

deposit as of both June 30, 2022 and December 31, 2021.

The Company had available borrowings from the following institutions as of ~~March 31, 2018:~~

June 30, 2022:

March 31, 2018

Federal Home Loan Bank—San Francisco

$
166,242,000

Federal Reserve Bank

96,607,000

Pacific Coast Bankers Bank

4,000,000

Zions Bank

5,500,000

Total

$
272,349,000



($ in thousands)
FHLB—San Francisco	$	398,940
Federal Reserve Bank	164,671
Pacific Coast Bankers Bank	50,000
Zions Bank	25,000
First Horizon Bank	25,000
Total	$	663,611

The Company has pledged approximately ~~$640,624,000~~$1.02 billion and $958.3 million of loans as collateral for these lines of credit as of ~~March~~June 30, 2022 and December 31, ~~2018.~~

2021, respectively.

Note 9.8. Income ~~Taxes~~

~~On December 22, 2017, H.R.1, commonly known as the~~ Tax Cuts and Jobs Act (the “Tax Act”), was signed into law, which among other items reduced the federal corporate tax rate to 21% from 35%, effective January 1, 2018. U.S. generally accepted accounting principles required companies to re-measure certain tax-related assets and liabilities as of the date of enactment of the new legislation with resulting tax effects accounted for in the reporting period of enactment. The Company concluded that the enactment of the Tax Act caused its net deferred tax assets (“DTA”) to be re-measured at the new lower tax rate. The Company performed an analysis and determined the value of the net DTA should be reduced by $1.3 million, which was recognized as a one-time, incremental income tax expense in the fourth quarter of 2017.

The Company’s income tax expense was ~~$1.2~~$3.5 million and ~~$1.4~~$2.8 million for the three months ended ~~March 31, 2018~~June 30, 2022 and ~~2017,~~2021, respectively, and $6.8 million and $4.8 million for the six months ended June 30, 2022 and 2021, respectively. The effective income tax rate was ~~26.7 percent~~29.0% and ~~39.1 percent~~30.1% for the three months ended ~~March 31, 2018~~June 30, 2022 and ~~2017, respectively. The significant decrease in the effective tax rate~~2021, respectively and 29.1% and 29.6% for the ~~first quarter of 2018 was due to the enactment the Tax Act.~~

six months ended June 30, 2022 and 2021, respectively.

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 ~~2014~~2018 and for state taxing authorities for tax years prior to ~~2013.~~

2017.

There were no significant unrealized tax benefits recorded as of ~~March 31, 2018~~June 30, 2022 and ~~2017,~~2021, and the Company does not expect any significant increase in unrealized tax benefits in the next twelve months.

Note ~~10.~~9. Commitments and Contingencies

~~Lease Commitments~~: The Company leases its headquarters and office facilities from nonaffiliated parties under operating leases. Rent expense for the three months ended March 31, 2018 and December 31, 2017 was $521,782 and $471,884, respectively. Rent commitments related to the lease of the Company’s main office and branch facilities, before considering renewal options and additional lessor charges, were as follows:

2018 remaining

$
1,231,143

2019

1,737,769

2020

1,779,970

2021

1,830,979

2022

1,825,952

Thereafter

3,797,971

Total

$
12,203,784

Off-Balance-Sheet Credit Risk: ~~The commitments and contingent liabilities include various~~In the normal course of business, the Company enters into commitments to extend credit such as loan commitments and standby letters of credits (“SBLC”s). These commitments expose the Company to varying degrees of credit ~~which arise in~~and market risk and are subject to the ~~normal course of business. Commitments~~same credit and market risk limitation reviews as those instruments recorded on the Consolidated Balance Sheets. Loan commitments represent arrangements to ~~extend credit are legally binding loan commitments with set expiration dates.~~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. ~~They~~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 ~~intended~~expected to ~~be disbursed, subject to certain conditions,~~expire without being drawn upon, ~~request of~~ the ~~borrower.~~

commitment amounts do not necessarily represent future funding requirements.

The Company ~~evaluates~~applies the ~~creditworthiness of each customer.~~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 ~~if deemed necessary by the Company upon the extension of credit, is~~may be obtained based on management’s ~~evaluation~~assessment of ~~the borrower.~~a customer’s credit. Collateral ~~for commercial and industrial loans may vary, but~~ may include securities, accounts receivable, inventory, property, plant and equipment, and income producing commercial or other properties.

The following table ~~shows~~presents the distribution of undisbursed ~~loan~~credit-related commitments as of ~~the dates indicated:~~

June 30, 2022 and December 31, 2021:

	March 31, 2018		December 31, 2017
Commitments to extend credit	$	53,060,000	$	60,748,000

($ in thousands)					($ in thousands)	June 30, 2022		December 31, 2021
Loan commitments					Loan commitments	$	193,884	$	116,511
Standby letter of credit		1,937,000		1,627,000	Standby letter of credit	4,892		4,477
Commercial letter of credit		1,479,000		1,608,000	Commercial letter of credit	1,945		1,028
Total undisbursed loan commitments	$	56,476,000	$	63,983,000
Total undisbursed credit related commitments					Total undisbursed credit related commitments	$	200,721	$	122,016

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 June 30, 2022 and December 31, 2021:



($ in thousands)	June 30, 2022		December 31, 2021
Investments in low-income housing partnerships	$	7,537	$	7,911
Unfunded commitments to fund investments for low-income housing partnerships	$	4,332	$	4,825

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 2039.

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 $187 thousand and $127 thousand for the three months ended June 30, 2022 and 2021, respectively, and $374 thousand and $254 thousand for the six months ended June 30, 2022 and 2021, respectively. Additionally, the Company recognized tax credits and other benefits from the investments in low-income housing partnerships of $160 thousand and $114 thousand for the three months ended June 30, 2022 and 2021, respectively, and $320 thousand and $228 thousand for the six months ended June 30, 2022 and 2021, respectively.

Note ~~11. Stock-based~~10. Stock-Based Compensation

The Company has ~~two~~3 stock-based compensation plans currently in effect as of ~~March 31, 2018,~~June 30, 2022, as described further below. Total compensation cost that has been charged against earnings for these plans infor the three months ended ~~March 31, 2018~~June 30, 2022 and ~~2017~~2021 was ~~$245,968~~$308 thousand and ~~$179,289,~~$106 thousand, respectively, and $523 thousand and $236 thousand for the six months ended June 30, 2022 and 2021, respectively.

2005 Plan: In 2005, the Board of Directors and shareholders of the Bank approved a stock option plan for the benefit of directors and employees of the Bank (the “2005 Plan”). The 2005 Plan was assumed by the Company in 2016 at the time of the bank holding company reorganization. Under the 2005 Plan, the Bank was authorized to grant options to purchase up to 770,000 shares of the Company’s common stock.

The exercise prices of the options may not be less than ~~100 percent~~100% of the fair value of the Company’s common stock at the date of grant.

The options, when granted, vest either immediately or ratably over five years from the date of the grant and expire after ten years if not exercised.

~~There were~~ The 2005 Plan expired in 2015, and no ~~stock options granted~~future grants can be made under the 2005 ~~Plan during the three months ended March 31, 2018 or 2017.~~

Plan.

A summary of the transactions under the 2005 Plan for the ~~three~~six months ended ~~March 31, 2018~~June 30, 2022 is as follows:

			Weighted
	Number of		Average		Aggregate
	Options		Exercise		Intrinsic
	Outstanding		Price		Value
Outstanding, as of January 1, 2018		335,000	$	3.99
($ in thousands, except share data)							($ in thousands, except share data)	Number of Options Outstanding	Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding, as of January 1, 2022							Outstanding, as of January 1, 2022	52,000	$	6.37	$	333
Options granted		—		—			Options granted	—	—
Options exercised		—		—			Options exercised	—	—
Options forfeited		—		—			Options forfeited	—	—
Options expired		—		—			Options expired	—	—
Outstanding, as of March 31, 2018		335,000		3.99	$	2,832,700
Outstanding, as of June 30, 2022							Outstanding, as of June 30, 2022	52,000	$	6.37	$	214
Fully vested and expected to vest		328,500		3.95	$	2,791,960	Fully vested and expected to vest	52,000	$	6.37	$	214
Vested		309,000	$	3.81	$	2,669,740	Vested	52,000	$	6.37	$	214

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

	Three Months Ended		Three Months Ended
	March 31, 2018		March 31, 2017
						Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands)					($ in thousands)	2022		2021		2022		2021
Intrinsic value of options exercised	$	—	$	115,250	Intrinsic value of options exercised	$	—	$	42	$	—	$	174
Cash received from option exercises		—		76,250	Cash received from option exercises	$	—	$	64	$	—	$	64
Tax benefit realized from option exercised		—		—	Tax benefit realized from option exercised	$	—	$	—	$	—	$	20

~~There were no shares available for grant under the 2005 Plan as of March 31, 2018.~~

The weighted average remaining contractual term of stock options outstanding under the 2005 Plan ~~at March 31, 2018~~as of June 30, 2022 was ~~3.31~~1.26 years. The weighted average remaining contractual term of stock options that were exercisable ~~at March 31, 2018~~as of June 30, 2022 was ~~3.12~~1.26 years.

As All of ~~March 31, 2018,~~ the ~~Company had approximately $15,983 of unrecognized compensation costs related to unvested~~ stock options that are outstanding under the 2005 ~~Plan. The Company expects to recognize these costs over a weighted average period~~Plan were fully vested as of ~~0.50 year.~~

June 30, 2022.

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 percent~~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. ~~Option prices~~The 2010 Plan expired in August 2020, and no further grants can be made under the 2010 Plan are to be equal to the fair value of the Company’s common stock on the date of grant. There were no stock options granted under the 2010 Plan during the three months ended March 31, 2018 or 2017.

Plan.

Restricted stock awards issued under the 2010 Plan may or may not be ~~subject to vesting provisions. Awards which were granted in the three months ended March 31, 2018 and 2017 are not~~ 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 ~~issued~~outstanding under the 2010 Plan for the ~~three~~six months ended ~~March 31, 2018~~June 30, 2022 is as follows:

				Weighted
	Number of			Average		Aggregate
	Options			Exercise		Intrinsic
	Outstanding			Price		Value
Outstanding, as of January 1, 2018		795,000		$	4.22
($ in thousands, except share data)								($ in thousands, except share data)	Number of Options Outstanding	Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding, as of January 1, 2022								Outstanding, as of January 1, 2022	210,000	$	8.00	$	1,000
Options granted		—			—			Options granted	—	—
Options exercised		(40,000	)		2.85			Options exercised	—	—
Options forfeited		—			—			Options forfeited	—	—
Options expired		—			—			Options expired	—	—
Outstanding, as of March 31, 2018		755,000			4.29	$	6,160,100
Outstanding, as of June 30, 2022								Outstanding, as of June 30, 2022	210,000	$	8.00	$	523
Fully vested and expected to vest		725,000			4.14	$	6,026,600	Fully vested and expected to vest	210,000	$	8.00	$	523
Vested		635,000		$	3.59	$	5,626,100	Vested	210,000	$	8.00	$	523

Information related to stock options exercised under the 2010 Plan for the periods indicated follows:

	Three Months Ended		Three Months Ended
	March 31, 2018		March 31, 2017
						Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands)					($ in thousands)	2022		2021		2022		2021
Intrinsic value of options exercised	$	286,000	$	176,000	Intrinsic value of options exercised	$	—	$	—	$	—	$	86
Cash received from option exercises		114,000		114,000	Cash received from option exercises	$	—	$	—	$	—	$	25
Tax benefit realized from option exercised		72,608		57,020	Tax benefit realized from option exercised	$	—	$	—	$	—	$	—

The weighted average remaining contractual term of stock options outstanding ~~under the 2010 Plan at March 31, 2018~~as of June 30, 2022 was ~~3.50~~1.76 years. The weighted average remaining contractual term of stock options that were exercisable ~~at March 31, 2018~~as of June 30, 2022 was ~~3.03~~1.76 years.

A summary of the changes in the ~~Company’s~~Company's non-vested restricted stock awards under the 2010 Plan for the ~~three~~six months ended ~~March 31, 2018~~June 30, 2022 is as follows:

	Shares Issued		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Non-vested, as of January 1, 2018		453,500	$	5.95

($ in thousands, except share data)							($ in thousands, except share data)	Shares Issued	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Non-vested, as of January 1, 2022							Non-vested, as of January 1, 2022	21,000	$	7.95	$	268
Awards granted		—		—			Awards granted	—	—
Awards vested		—		—			Awards vested	—	—
Awards forfeited		—		—			Awards forfeited	(3,000)	6.37
Non-vested, as of March 31, 2018		453,500	$	5.95	$	5,646,075
Non-vested, as of June 30, 2022							Non-vested, as of June 30, 2022	18,000	$	8.21	$	189

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

Three Months Ended

Three Months Ended

March 31, 2018

March 31, 2017

Tax benefit realized from awards vested

$
—

$
91,080



	Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands)	2022		2021		2022		2021
Tax (provision) benefit realized from awards vested	$	—	$	(85)	$	—	$	(85)

~~There were 218,605 shares available for grant under the 2010 Plan as of March 31, 2018 (in either stock options or restricted stock awards).~~

As of ~~March 31, 2017,~~June 30, 2022, the Company had approximately ~~$2,264,155~~$40 thousand of unrecognized compensation cost related to unvested ~~stock options and~~ restricted stock awards under the 2010 Plan. The Company expects to recognize these costs over a weighted average period of ~~2.13~~1.78 years. No

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 ~~were vested~~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 June 30, 2022.

Restricted stock awards issued under the 2021 Plan may or may not be subject to vesting provisions. Owners of the restricted stock awards shall have all rights of a shareholder including the right to vote the shares and to all dividends (cash or stock). 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 ~~three~~Company’s non-vested restricted stock awards under the 2021 Plan for the six months ended ~~March 31, 2018.~~

June 30, 2022 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, 2022	176,641	$	9.90	$	2,254
Awards granted	217,553	12.59
Awards vested	(58,798)	9.90
Awards forfeited	(3,030)	9.90
Non-vested, as of June 30, 2022	332,366	$	11.66	$	3,487

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



	Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands)	2022		2021		2022		2021
Tax benefit realized from awards vested	$	12	$	—	$	12	$	—

There were 1,116,087 shares available for future grants of either stock options or restricted stock awards under the 2021 Plan as of June 30, 2022. The Company had approximately $3.6 million of unrecognized compensation cost related to unvested restricted stock awards under the 2021 Plan as of June 30, 2022. The Company expects to recognize these costs over a weighted average period of 3.02 years.

Note ~~12. Revenue Recognition~~

~~Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"~~11. Employee Benefit Plan

The Company sponsors a defined contribution plan, 401(k) profit sharing plan (the “401(k) Plan”), ~~establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts~~designed to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

~~The majority of our revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans, letters of credit, and investment securities,~~retirement benefits financed by participant contributions, as well as ~~revenue related~~contributions from the Company. Employees are eligible to our mortgage servicing activities and revenue on bank owned life insurance, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Descriptions of our revenue-generating activities that are within the scope of ASC 606, which are presented in our income statements as components of noninterest income are as follows:

~~Service charges on deposits~~: Income from service charges on deposits is within the scope of ASC 606. These include general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue on these types of fees are recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed. Payment for such performance obligations are generally received at the time the performance obligations are satisfied. $193,000 or 1.6% of total revenuesparticipate in the 401(k) Plan as of the first day of the first calendar month after the date they have completed three months ~~ended March 31, 2018,~~ of service charges on deposits is related to these revenue streams. Service charges on deposits also include overdraft and NSF fees. Overdraft fees are charged when a depositor has a draw on their account that has inadequate funds. In certain instances,with the Company ~~at its sole discretion, may pay~~and have attained the age of 18. Each employee is allowed to contribute to the party requesting the draw on the deposit account, the balance of the draw for which there are inadequate funds rather than denying payment of the item. The Company then charges a fee for this short term extension of credit401(k) Plan up to the ~~depositor for~~maximum percentage allowable, not ~~complying with~~to exceed the ~~balance requirements stipulated in the deposit agreement with the Bank, and as well as to cover the cost~~limits of advancing those funds. NSF fees are charged to customers when in the event of a draw on the customer's account that has insufficient funds to meet the payment of the draw (such as through written checks or ACH transactions),applicable IRS Code Sections. Each year, the Company ~~returns~~may, in its discretion, make matching contributions to the ~~item rather than paying~~401(k) Plan. Total employer contributions to the ~~balance of the draw for which the customer has inadequate funds. This typically happens when the customer has fairly sizable draws or multiple draws on an account that has inadequate funds~~401(k) Plan amounted to ~~meet the demands for payment. $344,000, or 2.9% of total revenues in the three months ended March 31, 2018, of service charges on deposits is from overdraft~~$223 thousand and ~~NSF fees.~~

~~Wire transfer fee income:~~ This revenue stream is generated through the processing of customers’ incoming and outgoing wire transfers. Income generated from wire transfer fees is within the scope of ASC 606 and approximately $77,000, or 0.7% of total revenues$195 thousand for the three months ended ~~March 31, 2018, is included in other income in noninterest income.~~

~~Gain or loss on sale of OREO:~~ This revenue stream is recorded when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contractJune 30, 2022 and ~~whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized~~2021, respectively and ~~the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price~~$426 thousand and related gain or loss on sale if a significant financing component is present. This revenue stream is within the scope of ASC 606 and is included in other income in noninterest income, but no revenues were generated from gains and losses on the sale of OREO$369 thousand for the ~~three~~six months ended ~~March 31, 2018.~~

~~Other revenue streams that are recorded in other income in noninterest income include revenue generated from letters of credit~~June 30, 2022 and ~~income on bank owned life insurance. These revenue streams are either not material or out of scope of ASC 606.~~

2021.

Note ~~13.~~12. Fair Value of Financial Instruments

Fair value is defined as the ~~exchange~~ price that would be received ~~for~~to sell an asset or the price that would be paid to transfer a liability ~~(exit price)~~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~~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 ~~measurement date. There are three levels~~lowest level of ~~inputs that may be used~~input significant to ~~measure~~the fair ~~values:~~

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.

~~The Company~~

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 ~~following methods and significant assumptions~~general classification of such instruments pursuant to ~~estimate fair value:~~

the valuation hierarchy.

Securities ~~Available for Sale~~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 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.

Assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021 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)
June 30, 2022
U.S. Government agencies or sponsored agency securities:
Residential mortgage-backed securities	$	47,681	$	—	$	47,681	$	—
Residential collateralized mortgage obligations	127,133		—		127,133		—
Other investments:
Mutual fund - CRA qualified	$	3,437	$	3,437	$	—	$	—

December 31, 2021
U.S. Government agencies or sponsored agency securities:
Residential mortgage-backed securities	$	37,412	$	—	$	37,412	$	—
Residential collateralized mortgage obligations	$	113,032	$	—	$	113,032	$	—
Other investments:
Mutual fund - CRA qualified	$	3,708	$	3,708	$	—	$	—

There were no transfers of assets or liabilities between the Level 1 and Level 2 classifications for the three months ended June 30, 2022 or 2021.

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.

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s judgment, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the credit department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.

~~Assets and liabilities measured at~~

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 ~~recurring~~nonrecurring basis ~~at March 31 2018~~as of June 30, 2022 and December 31, ~~2017 are summarized below:~~

2021:

Fair Value Measuring Using

Quoted

Significant Other

Significant

Prices in

Observable

Unobservable

Total

Active Markets

Inputs

Inputs

Fair Value

(Level 1)

(Level 2)

(Level 3)

As of March 31, 2018:

U.S. Government sponsored agency securities

$
6,868,080

$
—

$
6,868,080

$
—

Mortgage-backed securities - residential

12,987,463

—

12,987,463

—

Collateralized mortgage obligations

17,008,968

—

17,008,968

—

Other investments:

Mutual fund - CRA qualified

2,532,056

2,532,056

—

—

As of December 31, 2017:

U.S. Government sponsored agency securities

$
6,932,008

$
—

$
6,932,008

$
—

Mortgage-backed securities - residential

13,940,525

—

13,940,525

—

Collateralized mortgage obligations

18,113,498

—

18,113,498

—

Other securities

2,485,680

2,485,680

—

—



	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)
June 30, 2022
Impaired loans	$	410	$	—	$	—	$	410

December 31, 2021
Impaired loans	$	814	$	—	$	—	$	814

~~There were no transfers between level 1 and level 2~~

The following table presents the increase 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:



	Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands)	2022		2021		2022		2021
Impaired loans	$	5	$	3	$	15	$	7

The following table presents information about significant unobservable inputs utilized in the ~~three months ended March 31, 2018 or 2017. There were no assets or liabilities measured at~~Company’s nonrecurring Level 3 fair value measurements as of June 30, 2022 and December 31, 2021:

($ in thousands)

Fair Value
Measurements
(Level 3)

Valuation
Techniques

Unobservable
Inputs

Range of
Inputs

Weighted-

Average of

Inputs (1)

June 30, 2022

Impaired loans:

SBA loans—real estate

410

Income approach -

income capitalization

Capitalization rate

12.0%

December 31, 2021

Impaired loans:

SBA loans—real estate

419

Market approach

Market data

comparison

2% to 17%

8.7%

SBA loans—real estate

395

Income approach -

income capitalization

Capitalization rate

12.0%

(1)Weighted-average of inputs is based on ~~a non-recurring basis at March~~the relative fair value of the respective assets as of June 30, 2022 and December 31, ~~2018 or 2017.~~

2021.

Financial Instruments: The carrying amounts and estimated fair values of financial instruments that are not carried at fair value ~~at March~~on a recurring basis as of June 30, 2022 and December 31, ~~2018~~2021 are as ~~follows:~~

As of March 31, 2018:

Carrying
Amount

Level 1

Level 2

Level 3

Value

Financial Assets:

Cash and cash equivalents

$
69,899,816

$
69,899,816

$
—

$
—

$
69,899,816

Loans held for sale

18,570,944

—

20,270,185

—

20,270,185

Loans receivable, net

784,034,862

—

—

779,565,863

779,565,863

Accrued interest receivable

2,503,721

—

177,607

2,326,114

2,503,721

Other investments:

FHLB and PCBB stock

4,286,500

N/A

N/A

N/A

N/A

Financial Liabilities:

Deposit

$
818,279,718

$
—

$
817,655,673

$
—

$
817,655,673

FHLB Advances

10,000,000

—

10,000,000

—

10,000,000

Accrued interest payable

557,559

—

557,559

—

557,559

~~The carrying amounts~~follows. These financial assets and ~~estimated fair values of financial instruments not carried~~liabilities are measured at ~~fair value at December 31, 2017 are as follows:~~

As of December 31, 2017:

Carrying
Amount

Level 1

Level 2

Level 3

Value

Financial Assets:

Cash and cash equivalents

$
63,249,952

$
63,249,952

$
—

$
—

$
63,249,952

Loans held for sale

15,739,305

—

17,203,060

—

17,203,060

Loans receivable, net

738,884,413

—

—

731,436,572

731,436,572

Accrued interest receivable

2,463,486

—

189,005

2,274,481

2,463,486

FHLB and PCBB stock

4,286,500

N/A

N/A

N/A

N/A

Financial Liabilities:

Deposit

$
773,306,014

$
—

$
773,071,521

$
—

$
773,071,521

FHLB Advances

25,000,000

—

25,000,000

—

25,000,000

Accrued interest payable

423,239

—

423,239

—

423,239

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

~~(a) Cash and Cash equivalents~~

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

~~(b) Loans Held for Sale~~

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

~~(c) Loans Receivable, Net~~

~~Fair values of loans, excluding loans held for sale, are based~~amortized cost basis on the exit price notion set forth by ASU 2016-01 effective January 1, 2017 and estimated using discounted cash flow analyses. The estimation of fair values of loans results in a Level 3 classification as it requires various assumptions and considerable judgement to incorporate factors relevant when selling loans to market participants, such as funding costs, return requirements of likely buyers and performance expectations of the loans given the current market environment and quality of loans. Estimated fair value of loans carried at cost at December 31, 2017 were based on an entry price notion.

~~(d) Other Investments~~

Fair value of CRA qualified mutual fund is readily determinable using quoted prices and is classified as Level 1. It is not practical to determine the fair value of FHLB and PCBB stock due to restrictions placed on their transferability.

~~(e) Deposits~~

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 2 classification. The carrying amounts of variable rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date resulting in a Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

~~(f) Federal Home Loan Bank Advances~~

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

Company’s Consolidated Balance Sheets:



	June 30, 2022
($ in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Value
Financial Assets:
Cash and cash equivalents	$	132,697	$	132,697	$	—	$	—	$	132,697
Loans held for sale	67,255		—		73,765		—		73,765
Loans receivable, net	1,467,016		—		—		1,413,910		1,413,910
Accrued interest receivable, net	5,112		31		479		4,602		5,112
Other investments:
FHLB and PCBB stock	8,673		N/A		N/A		N/A		N/A
Time deposits placed	95		—		95		—		95
Servicing assets	12,708		—		—		15,237		15,237
Financial Liabilities:
Deposit	1,741,623		—		1,735,594		—		1,735,594

Accrued interest payable	612		—		612		—		612

~~(g) Accrued Interest Receivable/Payable~~

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

~~(h) Off-balance Sheet Instruments~~

Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.



	December 31, 2021
($ in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Value
Financial Assets:
Cash and cash equivalents	$	115,459	$	115,459	$	—	$	—	$	115,459
Loans held for sale	89,428		—		99,301		—		99,301
Loans receivable, net	1,297,896		—		—		1,291,926		1,291,926
Accrued interest receivable, net	4,579		—		348		4,231		4,579
Other investments:
FHLB and PCBB stock	7,196		N/A		N/A		N/A		N/A
Time deposits placed	95		—		95		—		95
Servicing assets	12,720		—		—		15,505		15,505
Financial Liabilities:
Deposit	1,534,066		—		1,534,066		—		1,534,066

Accrued interest payable	558		—		558		—		558

Note ~~14.~~13. Regulatory Capital Matters

~~Banks and bank holding companies are~~

The Bank is subject to ~~regulatory~~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 ~~administered~~could result in certain mandatory and possible additional discretionary actions by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.regulators that, if undertaken, could have an adverse material effect on the Company's operations or financial condition. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under the Basel III capital rules also require the ~~Company must hold~~Bank to maintain a capital conservation buffer of 2.5% above the ~~adequately capitalized~~minimum risk-based capital ~~ratios. The~~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 ~~is being phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffers for 2016, 2017~~will face constraints on dividends. equity repurchases and ~~2018 are 0.625%, 1.25% and 1.875%, respectively. The net unrealized gain or loss~~compensation based on ~~available for sale securities is not included in computing regulatory capital.~~the amount of the shortfall. Management believes that as of ~~March 31, 2018~~June 30, 2022 and December 31, ~~2017,~~2021, the ~~Company and~~ Bank ~~meet~~met all capital adequacy requirements to which they are ~~subject.~~

~~Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized,~~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 critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growthratios for the Company and ~~expansion, and capital restoration plans are required. At December 31, 2017 and 2016, the most recent regulatory notifications categorized~~ the Bank as ~~well capitalized under~~of dates indicated:



	June 30, 2022
	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	$	197,993	13.51	%	N/A		N/A		N/A		N/A
Bank	195,748		13.36	%	$	117,244	8.00	%	$	146,555	10.00	%
Tier 1 capital (to risk-weighted assets)
Consolidated	180,096		12.29	%	N/A		N/A		N/A		N/A
Bank	177,851		12.14	%	87,933		6.00	%	117,244		8.00	%
Common equity Tier 1 capital (to risk-weighted assets)
Consolidated	180,096		12.29	%	N/A		N/A		N/A		N/A
Bank	177,851		12.14	%	65,950		4.50	%	95,261		6.50	%
Tier 1 capital (to average assets)
Consolidated	180,096		9.48	%	N/A		N/A		N/A		N/A
Bank	177,851		9.36	%	75,988		4.00	%	94,985		5.00	%

(1)The capital requirements are only applicable to the ~~regulatory framework~~Bank, and the Company's ratios are included for ~~prompt corrective action. There~~comparison purpose.



	December 31, 2021
	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	$	182,439	13.66	%	N/A		N/A		N/A		N/A
Bank	179,882		13.47	%	$	106,857	8.00	%	$	133,572	10.00	%
Tier 1 capital (to risk-weighted assets)
Consolidated	165,944		12.42	%	N/A		N/A		N/A		N/A
Bank	163,387		12.23	%	80,143		6.00	%	106,857		8.00	%
Common equity Tier 1 capital (to risk-weighted assets)
Consolidated	165,944		12.42	%	N/A		N/A		N/A		N/A
Bank	163,387		12.23	%	60,107		4.50	%	86,822		6.50	%
Tier 1 capital (to average assets)
Consolidated	165,944		9.58	%	N/A		N/A		N/A		N/A
Bank	163,387		9.44	%	69,266		4.00	%	86,582		5.00	%

(1)The capital requirements are ~~no conditions or events since that notification that management believes have changed~~only applicable to the ~~institution’s category.~~

~~Actual~~Bank, and ~~required capital amounts (in thousands) and~~the Company's ratios ~~exclusive of the capital conservation buffer,~~ are ~~presented below at March 31, 2018 and December 31, 2017:~~

��

Required for

Minimum

Capital Adequacy

To be Considered

Actual

Purposes

"Well Capitalized"

(Dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

As of March 31, 2018:

Total capital (to risk-weighted assets)

Consolidated

$
127,461

16.17
%

$
63,057

8.00
%

N/A

N/A

Bank

127,394

16.16
%

63,051

8.00
%

78,814

10.00
%
Tier 1 capital (to risk-weighted assets)

Consolidated

117,681

14.93
%

47,292

6.00
%

N/A

N/A

Bank

117,614

14.92
%

47,288

6.00
%

63,051

8.00
%
Common equity Tier 1 capital

(to risk-weighted assets)

Consolidated

117,681

14.93
%

35,469

4.50
%

N/A

N/A

Bank

117,614

14.92
%

35,466

4.50
%

51,229

6.50
%
Tier 1 capital (to average assets)

Consolidated

117,681

13.09
%

35,962

4.00
%

N/A

N/A

Bank

117,614

13.09
%

35,950

4.00
%

44,938

5.00
%
included for comparison purpose.

Required for

Minimum

Capital Adequacy

To be Considered

Actual

Purposes

"Well Capitalized"

(Dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

As of December 31, 2017:

Total capital (to risk-weighted assets)

Consolidated

$
100,713

13.49
%

$
59,729

8.00
%

N/A

N/A

Bank

100,648

13.48
%

59,726

8.00
%

74,658

10.00
%
Tier 1 capital (to risk-weighted assets)

Consolidated

91,510

12.26
%

44,797

6.00
%

N/A

N/A

Bank

91,445

12.25
%

44,795

6.00
%

59,726

8.00
%
Common equity Tier 1 capital

(to risk-weighted assets)

Consolidated

91,510

12.26
%

33,597

4.50
%

N/A

N/A

Bank

91,445

12.25
%

33,596

4.50
%

48,528

6.50
%
Tier 1 capital (to average assets)

Consolidated

91,510

10.46
%

35,009

4.00
%

N/A

N/A

Bank

91,445

10.45
%

35,007

4.00
%

43,759

5.00
%

Note ~~15.~~14. Earnings ~~per~~Per Share

~~The~~

Basic EPS is calculated using the two-class ~~method is used in the calculation of basic and diluted earnings per share.~~method. Under the two-class method, all earnings ~~available~~(distributed and undistributed) are allocated to common ~~shares are allocated between common shares~~stock and participating securities. The ~~Company’s~~Company grants restricted stock awards, ~~are considered participating securities as~~which entitle recipients to receive nonforfeitable dividends during the ~~unvested awards have non-forfeitable rights~~vesting period on a basis equivalent to dividends paid ~~or unpaid,~~to holders of the Company's common stock. These restricted stock awards meet the definition of participating

securities based on ~~unvested awards. The factors used~~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 ~~earnings per~~table below, diluted EPS calculated under two-class method was more dilutive.

The following table presents the calculation of net income applicable to common stockholders and basic and diluted EPS for the three and six months ended June 30, 2022 and 2021:



	Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands, except share and per share data)	2022		2021		2022		2021
Basic
Net income	$	8,480	$	6,379	$	16,632	$	11,456
Undistributed earnings allocated to participating securities	(205)		(60)		(346)		(112)
Net income allocated to common shares	8,275		6,319		16,286		11,344
Weighted average common shares outstanding	15,141,975		15,056,484		15,139,903		15,039,773
Basic earnings per common share	$	0.55	$	0.42	$	1.08	$	0.75
Diluted
Net income allocated to common shares	$	8,275	$	6,319	$	16,286	$	11,344
Weighted average common shares outstanding for basic earnings per common share	15,141,975		15,056,484		15,139,903		15,039,773
Add: Dilutive effects of assumed exercises of stock options	92,602		72,967		98,210		59,630
Average shares and dilutive potential common shares	15,234,577		15,129,451		15,238,113		15,099,403
Diluted earnings per common share	$	0.54	$	0.42	$	1.07	$	0.75

No share ~~computation follow:~~

Three Months Ended

March 31,

2018

2017

Basic

Net income

$
3,215,935

$
2,145,687

Undistributed earnings allocated to participating securities

(106,101
)

(98,007
)
Net income allocated to common shares

3,109,834

2,047,680

Weighted average common shares outstanding

13,292,083

12,925,946

Basic earnings per common share

$
0.23

$
0.16

Diluted

Net income allocated to common shares

$
3,109,834

$
2,047,680

Weighted average common shares outstanding for basic earnings per common share

13,292,083

12,925,946

Add: Dilutive effects of assumed exercises of stock options

534,873

415,349

Average shares and dilutive potential common shares

13,826,956

13,341,295

Diluted earnings per common share

$
0.22

$
0.15

~~No shares~~ of common stock ~~were~~was antidilutive for the three and six months ended ~~March 31, 2018. Stock options~~June 30, 2022 and ~~restricted stock awards for 525,000 shares~~2021.

Note 15. Subsequent Events

The Company has evaluated subsequent events through the issuance of ~~common stock were~~these financial statements and is not ~~considered~~aware of any material items that would require disclosure in ~~computing diluted earnings per common share for~~ the ~~three months ended March 31, 2017 because they were antidilutive.~~

notes to the financial statements or would be required to be recognized as of June 30, 2022.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~

Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with ~~the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of~~ our ~~registration statement on Form S-1 filed with the SEC for the year ended December 31, 2017 and our unaudited consolidated~~historical financial statements and the related notes ~~included~~thereto contained in this ~~quarterly report~~Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

OVERVIEW

We are a bank holding company headquartered in Los Angeles, California. Our commercial community banking activities are operated through Open Bank, our banking subsidiary. We offer commercial banking services to small and medium-sized businesses, their owners and retail customers primarily in the Korean-American community.

Our results of operations depend primarily on ~~Form 10-Q.~~

~~Completion~~our net interest income. We drive our income from interest received on our loan portfolio and the fee income we receive in connection with our deposits, and the sale and service of ~~Initial Public Offering~~

~~On March~~SBA loans. Our major operating expenses are the interest we pay on deposits, the salaries and related benefits we pay our management and staff, and the rent we pay on our leased properties. We rely primarily on locally-generated deposits, mostly from the

Korean-American market within California, to fund our loan activities. We currently operate eight branches in Los Angeles County and Orange County, one branch in Santa Clara County, and one branch in Carrollton, Texas. We have four loan production offices in Atlanta, Georgia, Aurora, Colorado, and Lynnwood and Seattle, Washington.

The following significant items are of note as of or for the three and six months ended June 30, 2022 compared to as of or the same periods ended June 30, 2021:

As of June 30, 2022 compared to as of June 30, 2021

•Total assets were $1.93 billion, an increase of $332.4 million, or 20.7%, from $1.60 billion.

•Gross loans were $1.48 billion, an increase of $238.9 million, or 19.2%, from $1.25 billion.

•Total deposits were $1.74 billion, an increase of $307.5 million, or 21.4%, from $1.43 billion.

•Shareholders’ equity was $169.5 million, an increase of $17.5 million, of 11.5%, from $152.0 million.

For the three months ended June 30, 2022 compared to the three months ended June 30, 2021

•Net income was $8.5 million or $0.54 per diluted common share, an increase of $2.1 million, or 32.9%, from $6.4 million or $0.42 per diluted common share.

•Net interest income increased to $19.1 million, an increase of $4.5 million, or 30.8%, from $14.6 million.

For the six months ended June 30, 2022 compared to the six months ended June 30, 2021

•Net income was $16.6 million or $1.07 per diluted common share, an increase of $5.2 million, or 45.2%, from $11.5 million or $0.75 per diluted common share.

•Net interest income increased to $36.4 million, an increase of $9.0 million, or 33.0%, from $27.3 million.

SELECTED FINANCIAL DATA



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
($ in thousands, except share and per share data)	2022			2021			2022			2021
Income Statement Data:
Interest income	$	20,148		$	15,349		$	38,092		$	28,981
Interest expense	1,069			763			1,723			1,640
Net interest income	19,079			14,586			36,369			27,341
Provision for loan losses	996			(1,112)			1,337			(492)
Noninterest income	5,359			2,220			9,575			5,186
Noninterest expense	11,503			8,789			21,165			16,755
Income before income taxes	11,939			9,129			23,442			16,264
Income tax expense	3,459			2,750			6,810			4,808
Net income	8,480			6,379			16,632			11,456
Per Share Data:
Basic income per share	0.55			0.42			1.08			0.75
Diluted income per share	0.54			0.42			1.07			0.75
Book value per share	11.16			10.04			11.16			10.04
Shares of common stock outstanding	15,189,203			15,133,407			15,189,203			15,133,407

Performance Ratios:
Return on average assets (1)	1.79		%	1.68		%	1.82		%	1.56		%
Return on average equity (1)	20.29		%	17.10		%	19.92		%	15.58		%
Yield on total loans (1)	4.91		%	4.83		%	4.88		%	4.73		%
Yield on average earning assets (1)	4.44		%	4.19		%	4.36		%	4.13		%
Cost of average interest bearing liabilities (1)	0.50		%	0.42		%	0.42		%	0.46		%
Cost of deposits (1)	0.25		%	0.23		%	0.21		%	0.26		%
Net interest margin (1)	4.21		%	3.98		%	4.16		%	3.90		%
Efficiency ratio (2)	47.07		%	52.30		%	46.07		%	51.51		%
							46.07		%	51.51		%

(1) Annualized

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



	As of
($ in thousands)	June 30, 2022			December 31, 2021
Balance Sheet Data:
Gross loans receivable	$	1,484,718		$	1,314,019
Loans held for sale	67,255			89,428
Allowance for loan losses	17,702			16,123
Total assets	1,934,242			1,726,691
Deposits	1,741,623			1,534,066
Shareholders’ equity	169,492			165,222
Asset Quality Data:
Net charge-offs to average gross loans receivable (1)	(0.01)		%	0.02		%
Nonperforming loans to gross loans receivable	0.15		%	0.24		%
Allowance for loan losses to nonperforming loans	813.14		%	503.84		%
Allowance for loan losses to gross loans receivable	1.19		%	1.23		%
Balance Sheet and Capital Ratios:
Gross loans receivable to deposits	85.25		%	85.66		%
Noninterest-bearing deposits to deposits	47.10		%	50.50		%
Average equity to average total assets	8.84		%	9.71		%
Leverage ratio	9.48		%	9.58		%
Common equity tier 1 ratio	12.29		%	12.42		%
Tier 1 risk-based capital ratio	12.29		%	12.42		%
Total risk-based capital ratio	13.51		%	13.66		%

(1) Annualized

Loan Payment Deferrals Related to the COVID-19 Pandemic

In early 2020, we began providing payment deferrals of up to 12 months for our commercial and consumer borrowers who had been adversely impacted by the COVID-19 pandemic and had not been delinquent over 30 days on payments at the time of the borrowers’ deferral requests. For the loans modified under this program, in accordance with the provisions of Section 4013 of the CARES Act and the interagency statement issued by bank regulatory agencies, we elected to not apply troubled debt structuring classification to borrowers who were current as of December 31, 2019. As of June 30, 2022, total outstanding balance of remaining in deferment status balance was $454 thousand or 0.03% of the total portfolio, down from 0.4% as of December 31, 2021.

Paycheck Protection Program

Beginning in April 2020, we accepted applications under the PPP administered by the SBA under the CARES Act, as amended by the Economic Aid Act enacted on December 27, ~~2018,~~2020 and have originated loans to qualified small businesses. Under the terms of the program, loans funded through the PPP are eligible to be forgiven if certain requirements are met, including using the funds for certain costs relating to payroll, healthcare and qualifying mortgage interest, rent and utility payments. To the extent not forgiven, loans are subject to terms of the program. Since the PPP’s inception through June 30, 2022, we completed our initial public offering of common stock, pursuant to which we sold an aggregate of 2,300,000 shares of our common stock at a public offering price of $11.00 per share, for aggregate net proceeds of approximately $22.6 million, after deducting underwriter discounts and commissions paid by us of approximately $1.7have funded $154.5 million, and ~~other offering expenses~~$151.3 million of ~~approximately $925,000. There~~principal forgiveness has been ~~no material change~~provided on qualifying PPP loans. As of June 30, 2022, there were unamortized net deferred fees and unaccreted discounts of $220 thousand to be recognized over the estimated life of the loan as a yield adjustment on the loans. If a loan is paid off or forgiven by the SBA prior to its projected estimated life, the remaining unamortized deferred fees will be recognized as interest income in ~~the planned use of proceeds from our initial public offering as described in our Prospectus.~~

that period.

Critical Accounting Policies and Estimates

Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and conform to general practices within the industry in which we operate. To prepare financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the

financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statement. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.

The following is a discussion of the critical accounting policies and significant estimates that require us to make complex and subjective judgments. Additional information about these policies can be found in the “Notes to Consolidated Financial Statements, Note 21. Summary of ~~our unaudited consolidated financial statements included in this quarterly report on Form 10-Q.~~

Significant Accounting Policies.”

Allowance for Loan Losses

The allowance for loan losses (“ALL”) is a valuation allowance for probable incurred credit losses. Loan losses are charged against the ~~allowance~~ALL when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the ~~allowance.~~ALL. Management estimates the ~~allowance~~ALL balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the ~~allowance~~ALL may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The ALL is maintained at a level that management believes is appropriate to provide for known and inherent incurred loan losses as of the date of the ~~consolidated balance sheet~~Consolidated Balance Sheets and we have established methodologies for the determination of its adequacy. The methodologies are set forth in a formal policy and take into consideration the need for an overall general valuation allowance as well as specific allowances that are determined on an individual loan basis.

The evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. While management uses available information to recognize losses on loans, changes in economic or other conditions may necessitate revision of the estimate in future periods.

~~Servicing Assets~~

Servicing assets are recognized separately when loans are sold and the rights to service loans are retained. When loans are sold, servicing assets are recorded at fair value in accordance with ASC Topic 860, ~~Transfers and Servicing~~ (“ASC 860”). Fair value is based on market prices for comparable servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The fair value of servicing rights is highly sensitive to changes in underlying assumptions. Changes in the prepayment speed and discount rate assumptions have the most significant impact on the fair value of servicing assets.

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.

RESULTS OF OPERATIONS

Net Income ~~Taxes~~

We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance may be established. We consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities an assets, including projections of future taxable income. These judgments and estimates are reviewed on a continual basis as regulatory and business factors change. See Note 9 of our unaudited consolidated financial statements included in this quarterly report on Form 10-Q, for additional information. A valuation allowance for deferred tax assets may be required in the future if the amounts of taxes recoverable through loss carry backs decline, if we project lower levels of future taxable income, or we project lower levels of tax planning strategies. Such valuation allowance would be established through a charge to income tax expense that would adversely affect our operating results.

~~Selected Financial Data~~

Financial Highlights (unaudited)

(Dollars in thousands, except per share data)

As of or for the Three Months Ended

March 31,

March 31,

2018

2017

Income Statement Data:

Interest income

$
11,180

$
9,185

Interest expense

1,621

978

Net interest income

9,559

8,207

Provision for loan losses

575

541

Noninterest income

2,212

2,244

Noninterest expense

6,811

6,389

Income before taxes

4,385

3,521

Provision for income taxes

1,169

1,375

Net Income

$
3,216

$
2,146

Diluted earnings per share

$
0.22

$
0.15

Balance Sheet Data:

Loans held for sale

$
18,571

$
925

Gross loans, net of unearned income

793,751

681,937

Allowance for loan losses

9,716

8,380

Total assets

956,842

800,188

Deposits

818,280

711,047

Shareholders’ equity

117,260

83,781

Performance Ratios:

Return on average assets (annualized)

1.43
%

1.10
%
Return on average equity (annualized)

13.64
%

10.39
%
Net interest margin (annualized)

4.56
%

4.47
%
Efficiency ratio ⁽¹⁾

57.86
%

61.13
%
Credit Quality:

Nonperforming loans

$
592

$
364

Nonperforming assets

592

364

Net charge-offs to average gross loans (annualized)

0.00
%

0.04
%
Nonperforming assets to gross loans plus OREO

0.07
%

0.05
%
ALL to nonperforming loans

1641
%

2302
%
ALL to gross loans

1.22
%

1.23
%
Capital Ratios:

Leverage ratio

13.09
%

10.74
%
Common equity tier 1 ratio

14.93
%

12.41
%
Tier 1 risk-based capital ratio

14.93
%

12.41
%
Total risk-based capital ratio

16.17
%

13.66
%

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

~~Results of Operations—Comparison for the Three Months Ended March 31, 2018 and March 31, 2017~~

~~The following discussion of our results of operations compares the three months ended March 31, 2018 to the three months ended March 31, 2017.~~

We reported net income for the three months ended ~~March 31, 2018~~June 30, 2022 of ~~$3.2~~$8.5 million, compared to net income of ~~$2.1~~$6.4 million for the ~~three months ended March 31, 2017.~~same period of 2021. The increase was primarily due to a ~~$1.4~~$4.8 million increase in ~~net~~ interest income, partially offset by a ~~$422,000~~$2.1 million increase in ~~noninterest~~provision for loan losses.



	Three Months Ended June 30,
($ in thousands)	2022		2021		Change
Interest income	$	20,148	$	15,349	$	4,799
Interest expense	1,069		763		306
Net interest income	19,079		14,586		4,493
Provision for loan losses	996		(1,112)		2,108
Noninterest income	5,359		2,220		3,139
Noninterest expense	11,503		8,789		2,714
Income before taxes	11,939		9,129		2,810
Income tax expense	3,459		2,750		709
Net income	$	8,480	$	6,379	$	2,101

We reported net income for the six months ended June 30, 2022 of $16.6 million, compared to net income of $11.5 million for the same period of 2021. The increase was primarily due to a $9.1 million increase in interest income, partially offset by a $1.8 million increase in provision for loan losses and a $2.0 million increase in income tax expense.



	Six Months Ended June 30,
($ in thousands)	2022		2021		Change
Interest income	$	38,092	$	28,981	$	9,111
Interest expense	1,723		1,640		83
Net interest income	36,369		27,341		9,028
Provision for loan losses	1,337		(492)		1,829
Noninterest income	9,575		5,186		4,389
Noninterest expense	21,165		16,755		4,410
Income before taxes	23,442		16,264		7,178
Income tax expense	6,810		4,808		2,002
Net income	$	16,632	$	11,456	$	5,176

Net Interest Income

The management of interest income and expense is fundamental to our financial performance. Net interest income, the difference between interest income and interest expense, is the largest component of the Company’s total revenue. Management closely monitors both total net interest income and the net interest margin (net interest income divided by average earning assets). We seek to maximize net interest income without exposing the Company to an excessive level of interest rate risk through our asset and liability policies. Interest rate risk is managed by monitoring the pricing, maturity and repricing options of all classes of interest-bearing assets and liabilities. Our net interest margin is also adversely impacted by the reversal of interest on nonaccrual loans and the reinvestment of loan payoffs into lower yielding investment securities and other short-term investments.

The following table presents, for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average ~~yields;~~yields, (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average ~~rates;~~rates, (iii) net interest ~~income;~~income, (iv) the interest rate ~~spread;~~spread, and (v) the net interest margin.

Three months Ended March 31,

2018

2017

(Dollars in thousands)

Average
Balance

Interest
and Fees

Yield /
Rate

Average
Balance

Interest
and Fees

Yield /
Rate

Earning assets:

Federal funds sold and other investments (1)

$
21,887

$
144

2.64
%

$
22,169

$
112

2.03
%
Securities available for sale

38,211

188

1.97

34,749

144

1.65

Total investments

60,098

332

2.21

56,918

256

1.80

Real estate

444,224

5,535

5.05

362,083

4,245

4.75

SBA

134,935

2,550

7.67

114,699

2,023

7.15

C & I

100,187

1,366

5.53

98,436

1,230

5.07

Home Mortgage

104,254

1,345

5.16

105,062

1,367

5.21

Consumer

3,630

52

5.68

4,814

64

5.46

Loans (2)

787,230

10,848

5.58

685,094

8,929

5.27

Total earning assets

847,328

11,180

5.34

742,012

9,185

5.01

Noninterest-earning assets

52,084

37,887

Total assets

899,412

779,899

Interest-bearing liabilities:

NOW and savings deposits

6,404

4

0.25
%

5,457

3

0.25
%
Money market deposits

260,912

708

1.10

258,434

544

0.85

Time deposits

243,597

822

1.37

187,613

424

0.92

Total interest-bearing deposits

510,913

1,534

1.22

451,504

971

0.87

Borrowings

23,779

87

1.49

4,233

7

0.68

Total interest-bearing liabilities

534,692

1,621

1.23

455,737

978

0.87

Noninterest-bearing liabilities:

Noninterest-bearing deposits

260,221

236,194

Other noninterest-bearing liabilities

10,180

5,386

Total noninterest-bearing liabilities

270,401

241,580

Shareholders’ equity

94,319

82,582

Total liabilities and shareholders’ equity

$
899,412

$
779,899

Net interest income / interest rate spreads

$
9,559

4.11
%

$
8,207

4.14
%
Net interest margin

4.56
%

4.47
%
Cost of deposits & cost of funds:

Total deposits / cost of deposits

$
771,134

$
1,534

0.81
%

$
687,698

$
971

0.57
%
Total funding liabilities / cost of funds

$
794,913

$
1,622

0.83
%

$
691,931

$
978

0.57
%

~~(1)~~

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

~~(2)~~

~~Average loan balances include non-accrual loans and loans held for sale.~~



	Three Months Ended June 30,
	2022						2021
($ in thousands)	Average Balance		Interest and Fees		Yield / Rate (1)		Average Balance		Interest and Fees		Yield / Rate (1)
Interest-earning assets:
Interest-bearing deposits in other banks	$	79,628	$	197	0.98	%	$	107,280	$	28	0.10	%
Federal funds sold and other investments (2)	11,966		140		4.70		10,865		132		4.85
Available-for-sale debt securities	165,499		703		1.70		108,960		218		0.80
Total investments	257,093		1,040		1.62		227,105		378		0.67
Real estate loans	751,610		8,743		4.67		670,224		7,725		4.62
SBA loans	353,138		5,707		6.48		346,702		4,816		5.57
Commercial and industrial loans	160,291		1,811		4.53		101,362		983		3.89
Home mortgage loans	294,341		2,837		3.86		122,588		1,431		4.67
Consumer & other loans	684		10		5.49		1,182		16		5.30
Loans (3)	1,560,064		19,108		4.91		1,242,058		14,971		4.83
Total interest-earning assets	1,817,157		20,148		4.44		1,469,163		15,349		4.19
Noninterest-earning assets	73,594						49,151
Total assets	$	1,890,751					$	1,518,314

Interest-bearing liabilities:
Money market deposits and others	$	470,013	$	503	0.43	%	$	366,922	$	281	0.31	%
Time deposits	389,059		566		0.58		366,603		482		0.53
Total interest-bearing deposits	859,072		1,069		0.50		733,525		763		0.42
Borrowings	—		—		—		3,025		—		0.00
Total interest-bearing liabilities	859,072		1,069		0.50		736,550		763		0.42
Noninterest-bearing liabilities:
Noninterest-bearing deposits	843,788						615,385
Other noninterest-bearing liabilities	20,720						17,119
Total noninterest-bearing liabilities	864,508						632,504
Shareholders’ equity	167,171						149,260
Total liabilities and shareholders’ equity	$	1,890,751					$	1,518,314
Net interest income / interest rate spreads			$	19,079	3.94	%			$	14,586	3.77	%
Net interest margin					4.21	%					3.98	%

Cost of deposits					0.25	%					0.23	%
Cost of funds					0.25	%					0.23	%

(1)Annualized

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

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



	Six Months Ended June 30,
	2022						2021
($ in thousands)	Average Balance		Interest and Fees		Yield / Rate (1)		Average Balance		Interest and Fees		Yield / Rate (1)
Interest-earning assets:
Interest-bearing deposits in other banks	$	83,231	$	238	0.57	%	$	98,654	$	51	0.10	%
Federal funds sold and other investments (2)	11,465		256		4.45		10,478		221		4.21
Available-for-sale debt securities	161,230		1,233		1.53		101,000		454		0.90
Total investments	255,926		1,727		2.70		210,132		726		1.38	%
Real estate loans	731,413		16,545		4.56		661,907		15,191		4.63
SBA loans	355,916		11,542		6.54		307,787		8,096		5.30
Commercial and industrial loans	158,334		3,348		4.26		108,803		2,055		3.81
Home mortgage loans	255,936		4,911		3.84		124,135		2,882		4.64
Consumer & other loans	780		19		5.15		1,184		31		5.24
Loans (3)	1,502,379		36,365		4.88		1,203,816		28,255		4.73
Total interest-earning assets	1,758,305		38,092		4.36		1,413,948		28,981		4.13
Noninterest-earning assets	68,334						50,422
Total assets	$	1,826,639					$	1,464,370

Interest-bearing liabilities:
Money market deposits and others	$	441,314	$	754	0.34	%	$	351,943	$	551	0.32	%
Time deposits	381,879		969		0.51		364,216		1,089		0.60
Total interest-bearing deposits	823,193		1,723		0.42		716,159		1,640		0.46
Borrowings	—		—		—		4,007		—		—
Total interest-bearing liabilities	823,193		1,723		0.42		720,166		1,640		0.46
Noninterest-bearing liabilities:
Noninterest-bearing deposits	813,791						580,134
Other noninterest-bearing liabilities	22,649						16,993
Total noninterest-bearing liabilities	836,440						597,127
Shareholders’ equity	167,006						147,077
Total liabilities and shareholders’ equity	$	1,826,639					$	1,464,370

Net interest income / interest rate spreads			$	36,369	3.94	%			$	27,341	3.67	%
Net interest margin					4.16	%					3.90	%

Cost of deposits					0.21	%					0.26	%
Cost of funds					0.21	%					0.25	%

(1)Annualized

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

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following tables set forth the effects of changing rates and volumes on our net interest income during the period shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Change applicable to both volume and rate have been allocated to ~~volume.~~

volume and rate ratably.

Three Months Ended March 31,

2018 over 2017

Change due to:

(Dollars in thousands)

Volume

Rate

Interest
Variance

Earning assets:

Federal funds sold and other investments

$
(1
)

$
33

$
32

Securities available for sale

15

29

44

Total investments

14

62

76

Real estate

1,009

281

1,290

SBA

373

154

527

C & I

22

114

136

Home Mortgage

(10
)

(12
)

(22
)
Consumer

(15
)

3

(12
)
Loans

1,379

540

1,919

Total earning assets

1,393

602

1,995

NOW and savings deposits

1

-

1

Money market deposits

5

159

164

Time deposits

151

247

398

Total interest-bearing deposits

157

406

563

Borrowings

64

16

80

Total interest-bearing liabilities

221

422

643

Net interest income

$
1,172

$
180

$
1,352

~~Interest~~



	Three Months Ended June 30,
	2022 vs 2021
	Increases (Decreases) Due to Change in
($ in thousands)	Volume		Rate		Total
Interest-earning assets:
Interest-bearing deposits in other banks	$	(38)	$	207	$	169
Federal funds sold and other investments	20		(12)		8
Available-for-sale debt securities	177		308		485
Total investments	159		503		662
Real estate loans	943		75		1,018
SBA loans	(61)		952		891
Commercial and industrial loans	387		441		828
Home mortgage loans	706		700		1,406
Consumer & other loans	(6)		—		(6)
Total loans	1,969		2,168		4,137
Total interest-earning assets	2,128		2,671		4,799
Interest-bearing liabilities:
Money market deposits and others	97		125		222
Time deposits	28		56		84
Total interest-bearing deposits	125		181		306
Borrowings	—		—		—
Total interest-bearing liabilities	125		181		306
Net interest income	$	2,003	$	2,490	$	4,493



	Six Months Ended June 30,
	2022 vs 2021
	Increases (Decreases) Due to Change in
($ in thousands)	Volume		Rate		Total
Interest-earning assets:
Interest-bearing deposits in other banks	$	(27)	$	214	$	187
Federal funds sold and other investments	33		2		35
Available-for-sale debt securities	367		412		779
Total investments	373		628		1,001
Real estate loans	1,584		(230)		1,354
SBA loans	1,314		2,132		3,446
Commercial and industrial loans	672		621		1,293
Home mortgage loans	1,019		1,010		2,029
Consumer & other loans	(11)		(1)		(12)
Total loans	4,578		3,532		8,110
Total interest-earning assets	4,951		4,160		9,111
Interest-bearing liabilities:
Money market deposits and others	144		59		203
Time deposits	42		(162)		(120)
Total interest-bearing deposits	186		(103)		83
Borrowings	—		—		—
Total interest-bearing liabilities	186		(103)		83
Net interest income	$	4,765	$	4,263	$	9,028

Comparison for the Three Months ended June 30, 2022 and 2021

Net interest income increased ~~$2.0~~$4.5 million, or ~~21.7%~~30.8%, to ~~$11.2~~$19.1 million for the three months ended ~~March 31, 2018~~June 30, 2022 from ~~$9.2~~$14.6 million for the same period of 2021, primarily due to higher interest income on loans. A $4.1 million increase in ~~2017. Interest expense increased $643,000, or 65.7%, to $1.6 million~~interest income on loans for the three months ended ~~March 31, 2018 from $978,000 for~~June 30, 2022, compared with the same period in 2017. For the three months ended March 31, 2018, net interest income increased $1.4 million, or 16.5%, to $9.6 million compared to $8.2 million for the same period in 2017. The increase in net interest incomeof 2021, was primarily ~~attributable~~due to ~~the~~higher average loan balance from loan growth in ~~average~~home loans, real estate loans, and ~~the increase in the average~~C&I loans.

Average yield on ~~loans, partially offset by the growth~~interesting-bearing deposits in ~~average interest-bearing deposits and higher rates paid on interest-bearing deposits. The net interest spread and net interest margin~~other banks was 0.98% for the three months ended ~~March 31, 2018 were 4.11% and 4.56%, respectively, compared with 4.14% and 4.47%, respectively,~~June 30, 2022, an 88 basis point increase from 0.10% for the same period ~~in 2017.~~

of 2021, primarily due to the Federal Reserve’s rate increases. Average ~~loans increased $102.1 million, or 14.9%, to $787.2 million~~yield on available-for-sale debt securities was 1.70% for the three months ended ~~March 31, 2018~~June 30, 2022, a 90 basis point increase from ~~$685.1 million~~0.80% for the same period ~~in 2017.~~ of 2021, primarily due to purchases of securities that earn higher yields than existing investment portfolio.

Average ~~securities increased $5.9 million, or 17.1%, to $40.7 million~~loan yield was 4.91% for the three months ended ~~March 31, 2018~~June 30, 2022, an 8 basis point increase from ~~$34.8 million~~4.83% for the same period ~~in 2017. Average interest-earning assets increased $105.3 million, or 14.2%, to $847.3 million for the three months ended March 31, 2018 from $742.0 million for the same period in 2017.~~of 2021. The increase ~~in average loans~~ was primarily due to ~~new loan production, and the~~a 22 basis point increase in average securities was due to securities purchases. Average interest-bearing liabilities increased $79.0 million, or 17.3 percent, to $534.7 million for the three months ended March 31, 2018, compared with $455.7 million for the same period in 2017. The increase in average interest-bearing liabilities resulted primarily from an increase in average time deposits and borrowings. Average noninterest-bearing demand deposits increased $24.0 million, or 10.2%, to $260.2 million for the three months ended March 31, 2018 compared to $236.2 million for the same period in 2017.

~~The average~~contractual loan yield ~~on loans increased 31 basis points to 5.58% for the three months ended March 31, 2018 from 5.27% for the same period in 2017, primarily due to cumulative~~as a result of market rate increases by the Federal Reserve, partially offset by an 8 basis point decrease from lower SBA discount accretion income as a result of 75lower SBA loan payoffs and a 7 basis ~~points through three rate hikes~~point decrease in amortization of ~~25 basis points in each~~net deferred fees as a result of ~~June 2017, December 2017 and March 2018. The average yield~~lower payoffs on ~~securities increased 33 basis points to 1.98%~~SBA PPP loans.

Average cost of interest-bearing deposits was 0.50% for the three months ended ~~March 31, 2018~~June 30, 2022, an 8 basis point increase from ~~1.65%~~0.42% for the same period ~~in 2017, attributable~~of 2021, primarily due to ~~purchasing higher yielding securities. The average yield on interest-earning assets increased 33 basis points to 5.34%~~the Federal Reserve’s rate increases. Average cost of deposits was 0.25% for the three months ended ~~March~~

~~31, 2018~~June 30, 2022, a 2 basis point increase from ~~5.01%~~0.23% for the same period ~~in 2017. The~~of 2021, primarily due to the Federal Reserve’s rate increases, partially offset by higher average ~~cost~~balance of ~~interest-bearing liabilities increased 36 basis points to 1.23%~~noninterest-bearing deposits.

Net interest margin was 4.21% for the three months ended ~~March 31, 2018~~June 30, 2022, an increase of 23 basis point from ~~0.87%~~3.98% for the same period of 2021, primarily due to a 25 basis point increase in ~~2017.~~

~~Provision for Loan Losses~~

Credit risk is inherent in the business of making loans. We establish an allowance for loan losses through charges to earnings, which are shown in the statements of operations as the provision for loan losses. Specifically identifiable and quantifiable known losses are promptly charged off against the allowance. The provision for loan losses is determined by conducting a quarterly evaluation of the adequacy of our allowance for loan losses and charging the shortfall or excess, if any, to the current quarter’s expense. This has the effect of creating variability in the amount and frequency of charges to earnings. The provision for loan losses and level of allowance for each period are dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, management’s assessment of the quality of the loan portfolio, the valuation of problem loans and the general economic conditions in our market area.

~~The provision for loan losses~~average yield on interest-earning assets.

Comparison for the ~~three~~Six Months ended June 30, 2022 and 2021

Net interest income increased $9.0 million, or 33.0%, to $36.4 million for the six months ended ~~March 31, 2018 was $575,000 compared to $541,000~~June 30, 2022 from $27.3 million for the same period of 2021, primarily due to higher interest income on loans. A $8.1 million increase in ~~2017, an~~interest income on loans for the six months ended June 30, 2022, compared with the same period of 2021, was primarily due to higher average loan balance from loan growth in home loans and real estate loans, and lower average cost of deposits.

Average yield on interesting-bearing deposits in other banks was 0.57% for the six months ended June 30, 2022, a 47 basis point increase from 0.10% for the same period of ~~$34,000, or 6.3%.~~2021, primarily due to the Federal Reserve’s rate increases. Average yield on available-for-sale debt securities was 1.53% for the six months ended June 30, 2022, a 63 basis point increase from 0.90% for the same period of 2021, primarily due to purchases of securities earning higher yields than existing investment portfolio.

Average loan yield was 4.88% for the six months ended June 30, 2022, a 15 basis point increase from 4.73% for the same period of 2021. The increase was primarily due to a ~~$111.9 million, or 16.4%,~~22 basis point increase in ~~gross~~contractual loan yield as a result of market rate increases by the Federal Reserve.

Average cost of interest-bearing deposits was 0.42% for the six months ended June 30, 2022, a 4 basis point decrease from 0.46% for the same period of 2021. Average cost of deposits was 0.21% for the six months ended June 30, 2022, a five basis point decrease from 0.26% for the same period of 2021, primarily due to higher average balance of noninterest-bearing deposits.

Net interest spread was 3.94% for the six months ended June 30, 2022, a 27 basis point increase from 3.67% for the same period of 2021. Net interest margin was 4.16% for the six months ended June 30, 2022, a 26 basis point increase from 3.90% for the same period of 2021, primarily due to a 23 basis point increase in average yield on interest-earning assets.

Provision for Loan Losses

Management evaluated the qualitative and quantitative factors on all loan types to reflect the COVID-19 pandemic’s prolonged potential adverse impacts on national, state, and local economic and business conditions. The provision for loan losses was $996 thousand for the three months ended June 30, 2022, an increase of $2.1 million compared to a $1.1 million reversal of loan losses for the same period of 2021. The provision for loan losses was $1.3 million for the six months ended June 30, 2022, an increase of $1.8 million compared to a $492 thousand reversal of loan losses for the same period of 2021. The increases was primarily due to quantitative reserves from loan growth in home loans ~~to $793.8 million at March 31, 2018 from $681.9 million at March 31, 2017.~~ and real estate loans.

The allowance for loan losses as a percentage of gross loans was ~~1.22%~~1.19% as of June 30, 2022 and 1.23% ~~at March~~as of December 31, ~~2018 and 2017, respectively.~~

2021.

Noninterest Income

On January 1, 2018 the Company adopted ASC Topic 606, as revised under ASUs 2014-09, 2014-08 and 2016-20, and noninterest income disclosures for periods beginning after January 1, 2018 are presented under revised ASC Topic 606. The adoption of this standard did not have a material impact on interest income.

While interest income remains the largest single component of total revenues, noninterest income is also an important component. A portion of our noninterest income is associated with SBA lending activity, consisting of gains on the sale of loans sold in the secondary market and servicing income from loans sold with servicing retained. The servicing assets that result from the sales of SBA loans with servicing retained are amortized over the expected term of the loans using a method approximating the interest method. Servicing income generally declines as the respective loans are repaid. Other sources of noninterest income include loan servicing fees, service charges and fees, and gains on the sale of securities.

~~Noninterest income~~

Comparison for the ~~three months~~Three Months ended March 31, 2018 was $2.21 million, a decrease of $32,000, or 1.4%, compared to $2.24 million for the same period in 2017. The decrease was primarily attributable to decreased gains on sale of SBA loans, partially offset by increased service charges on deposit accounts. Gains on SBA loan sales were $989,000 for the three months ended March 31, 2018, a decrease of $204,000 from $1.2 million from the same period in 2017 as the volume of loan sales decreased to $13.4 million from $16.4 million in the same period in 2017. Service charges on deposit accounts increased $117,000 to $537,000 in the three months ended March 31, 2018 compared to $420,000 thousand in the same period in 2018, primarily due to increased activities on noninterest bearing deposit accounts.

June 30, 2022 and 2021

The following table sets forth the various components of our noninterest income for the three months ended ~~March 31, 2018~~June 30, 2022 and ~~2017:~~

Three Months Ended March 31,

(Dollars in thousands)

2018

2017

Increase
(decrease)

Noninterest income:

Service charges on deposit accounts

$
537

$
420

$
117

Loan servicing fees, net of amortization

324

366

(42
)
Gain on sale of loans

989

1,193

(204
)
Other income and fees

362

265

97

Total noninterest income

$
2,212

$
2,244

$
(32
)
2021:



	Three Months Ended June 30,
($ in thousands)	2022		2021		$ Change		% Change
Noninterest income:
Service charges on deposit	$	427	$	393	$	34	8.7	%
Loan servicing fees, net of amortization	654		302		352		116.6
Gain on sale of loans	3,873		1,210		2,663		220.1
Other income	405		315		90		28.6
Total noninterest income	$	5,359	$	2,220	$	3,139	141.4	%

Noninterest ~~Expense~~

~~Noninterest expense~~income for the three months ended ~~March 31, 2018~~June 30, 2022 was ~~$6.8~~$5.4 million, an increase of $3.1 million, or 141.4%, compared to ~~$6.4~~$2.2 million for the same period of 2021, primarily due to a $2.7 million increase in ~~2017,~~gain on sale of loans.

Gain on sale of loans was $3.9 million for the three months ended June 30, 2022, compared to $1.2 million for the same period of 2021, an increase of ~~$422,000,~~$2.7 million or ~~6.6%~~220.1%. The increase was primarily ~~attributable~~due to ~~increased salaries~~higher sales volume partially offset by lower average premium on loan sales. We sold $58.6 million of SBA loans with an average premium of 7.02% for the three months ended June 30, 2022, compared to a sale of $10.6 million of SBA loans with an average premium of 11.48% in the same period of 2021.

Loan service fees, net of amortization, were $654 thousand, for the three months ended June 30, 2022, compared to $302 thousand for the same period of 2021. The increase was primarily due to an increase in loan servicing portfolio and ~~employee benefits, occupancy expense,~~lower amortization of loan servicing fees as a result of lower SBA loan payoffs.

Comparison for the Six Months ended June 30, 2022 and 2021

The following table sets forth the various components of our ~~contribution~~noninterest income for the six months ended June 30, 2022 and 2021:



	Six Months Ended June 30,
($ in thousands)	2022		2021		$ Change		% Change
Noninterest income:
Service charges on deposit	$	815	$	748	$	67	9.0	%
Loan servicing fees, net of amortization	1,101		833		268		32.2
Gain on sale of loans	7,111		3,092		4,019		130.0
Other income	548		513		35		6.8
Total noninterest income	$	9,575	$	5,186	$	4,389	84.6	%

Noninterest income for the six months ended June 30, 2022 was $9.6 million, an increase of $4.4 million, or 84.6%, compared to $5.2 million for the ~~Open Stewardship Foundation (“Foundation”)~~same period of 2021, primarily due to a $4.0 million increase in gain on sale of loans.

Gain on sale of loans was $7.1 million for the six months ended June 30, 2022, compared to $3.1 million for the same period of 2021, an increase of $4.0 million or 130.0%.

The increase was primarily due to higher sales volume partially offset by lower average premium on loan sales. We sold $90.4 million of SBA loans with an average premium of 8.43% for the six months ended June 30, 2022, compared to a sale of $33.0 million of SBA loans with an average premium of 10.82% in the same period of 2021.

Noninterest Expense

Comparison for the Three Months ended June 30, 2022 and 2021

The following table sets forth the major components of our noninterest expense for the three months ended ~~March 31, 2018~~June 30, 2022 and ~~2017:~~

2021:

	Three Months Ended March 31,
(Dollars in thousands)	2018		2017		Increase (decrease)

									Three Months Ended June 30,
($ in thousands)								($ in thousands)	2022		2021		$ Change		% Change
Noninterest expense:								Noninterest expense:
Salaries and employee benefits	$	4,211	$	4,024	$	187		Salaries and employee benefits	$	7,109	$	5,307	$	1,802	34.0	%
Occupancy and equipment		1,026		963		63		Occupancy and equipment	1,489		1,234		255		20.7
Data processing and communication		331		331		-		Data processing and communication	492		467		25		5.4
Professional fees		152		141		11		Professional fees	364		303		61		20.1
FDIC insurance and regulatory assessments		96		100		(4	)	FDIC insurance and regulatory assessments	192		123		69		56.1
Promotion and advertising		145		146		(1	)	Promotion and advertising	165		176		(11)		(6.3)
Directors' fees and stock-based compensation		209		195		14
Directors' fees								Directors' fees	190		128		62		48.4
Foundation donation and other contributions		329		215		114		Foundation donation and other contributions	852		640		212		33.1
Other expenses		312		274		38		Other expenses	650		411		239		58.2
Total noninterest expense		6,811		6,389		422		Total noninterest expense	$	11,503	$	8,789	$	2,714	30.9	%

Noninterest expense for the three months ended June 30, 2022 was $11.5 million, compared with $8.0 million for the same period of 2021, an increase of $2.7 million, or 30.9%. The increase was primarily attributable to higher salaries and employee benefits, occupancy and equipment, and foundation donation and other contributions.

Salaries and employee benefits expense for the three months ended ~~March 31, 2017 increased $187,000, or 4.6%,~~June 30, 2022 was $7.1 million, compared to ~~$4.2 million from $4.0~~$5.3 million for the same period ~~in 2017. This~~of 2021, an increase of $1.8 million, or 34.0%. The increase was ~~attributable~~primarily due to an increase in ~~the number~~salaries as a result of additional employees to support continued growth ~~annual salary adjustments,~~of the Company and ~~increased benefit costs. The average number of full-time equivalent employees was 136.5~~a decrease in deferred loan origination costs compared to higher origination costs related to SBA PPP loans.

Occupancy and ~~129.6 in~~equipment expense for the three months ended ~~March 31, 2018~~June 30, 2022 was $1.5 million, compared to $1.2 million for the same period of 2021, an increase of $255 thousand, or 20.7%. The increase was primarily due to a new branch opened in the first quarter of 2022.

Foundation donation and ~~2017, respectively.~~

other contributions for the three months ended June 30, 2022 were $852 thousand, compared to $640 thousand for the same period of 2021, an increase of $212 thousand, or 33.1%. The increase was primarily due to higher donation accruals for Open Stewardship Foundation as a result of higher net income.

Comparison for the Six Months ended June 30, 2022 and 2021

The following table sets forth the major components of our noninterest expense for the six months ended June 30, 2022 and 2021:



	Six Months Ended June 30,
($ in thousands)	2022		2021		$ Change		% Change
Noninterest expense:
Salaries and employee benefits	$	12,766	$	9,969	$	2,797	28.1	%
Occupancy and equipment	2,867		2,469		398		16.1
Data processing and communication	985		915		70		7.7
Professional fees	688		617		71		11.5
FDIC insurance and regulatory assessments	399		255		144		56.5
Promotion and advertising	354		353		1		0.3
Directors' fees	367		244		123		50.4
Foundation donation and other contributions	1,667		1,147		520		45.3
Other expenses	1,072		786		286		36.4
Total noninterest expense	$	21,165	$	16,755	$	4,410	26.3	%

Noninterest expense for the six months ended June 30, 2022 was $21.2 million, compared with $16.8 million for the same period of 2021, an increase of $4.4 million, or 26.3%. The increase was primarily attributable to higher salaries and employee benefits, occupancy and equipment, and foundation donation and other contributions.

Salaries and employee benefits expense for the six months ended June 30, 2022 was $12.8 million, compared to $10.0 million for the same period of 2021, an increase of $2.8 million, or 28.1%. The increase was primarily due to increased salaries as a result of additional employees to support continued growth of the Company.

Occupancy and equipment expense for the six months ended June 30, 2022 was $2.9 million, compared to $2.5 million for the same period of 2021, an increase of $398 thousand, or 16.1%. The increase was primarily due to a new branch opened in the first quarter of 2022 and increased ~~$63,000,~~equipment expense to support our continued growth.

Foundation donation and other contributions for the six months ended June 30, 2022 were $1.7 million, compared to $1.1 million for the same period of 2021, an increase of $520 thousand, or ~~6.5%,~~45.3%. The increase was primarily due to ~~$1.0~~higher donation accruals for Open Stewardship Foundation as a result of higher net income.

Income Tax Expense

Income tax expense was $3.5 million for the three months ended ~~March 31, 2018~~June 30, 2022, compared to ~~$963,000~~$2.8 million for the same period ~~in 2017.~~of 2021. The increase was primarily due to ~~the commencement~~higher tax provision as a result of ~~the lease for the Santa Clara office in mid-2017 which opened in April 2018,~~higher net income. Effective tax rates were 29.0% and ~~the increased rental expense from the lease renewals of the Fashion District and Gardena Offices in 2017.~~

~~Our aggregate donations to the Foundation and other charitable and community contributions~~30.1% for the three months ended March 31, 2018 were $329,000 compared to $215,000 for the same period in 2017, an increase of $114,000, or 53.0%. The increase was due to increased donation accruals for the Foundation, which is directly proportionate to the growth in our after tax income. On an annual basis, we donate 10% of our consolidated net income after taxes to the Foundation.

~~Income Tax Expense~~

~~On December 22, 2017, H.R.1, commonly known as the Tax Cuts~~June 30, 2022 and Jobs Act (the “Tax Act”), was signed into law, which among other items reduced the federal corporate tax rate to 21% from 35%, effective January 1, 2018. U.S. generally accepted accounting principles required companies to re-measure certain tax-related assets and liabilities as of the date of enactment of the new legislation with resulting tax effects accounted for in the reporting period of enactment. The Company concluded that the enactment of the Tax Act caused its net deferred tax assets (“DTA”) to be re-measured at the new lower tax rate. The Company performed an analysis and determined the value of the net DTA should be reduced by $1.3 million, which was recognized as a one-time, incremental income tax expense in the fourth quarter of 2017.

~~Income tax expense was $1.2 million and $1.4 million for the three months ended March 31, 2018 and 2017,~~2021, respectively. The effective income tax rate was 26.7 percent and 39.1 percent for the three months ended March 31, 2018 and 2017, respectively. The significant decrease in the effective tax rate was primarily attributable to the enactment the Tax Act.

FINANCIAL CONDITION

~~Financial Condition~~

Total assets increased $55.8 million, or 6.2%, to $956.8 million at March 31, 2018 compared to $901.0 million at December 31, 2017. This increase primarily resulted from an increase of $45.8 million, or 6.1%, in gross loans and an increase of $6.6 million in cash and cash equivalents. We funded our asset growth primarily with an increase of $45.0 million in deposits and a $22.6 million of net proceeds from our initial public offering on March 29, 2018, partially offset by a decrease of $15.0 million in FHLB advances.

Investment ~~portfolio~~

Portfolio

The securities portfolio is the second largest component of our interest earning assets, and the structure and composition of this portfolio is important to an analysis of our financial condition. The portfolio serves the following purposes: (i) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender; (ii) it provides liquidity to even out cash flows from the loan and deposit activities of customers; (iii) it can be used as an interest rate risk management tool, because it provides a large base of assets, the maturity and interest rate characteristics of which can be changed more readily than the loan portfolio to better match changes in the deposit base and our other funding sources; and (iv) it is an alternative interest-earning use of funds when loan demand is weak or when deposits grow more rapidly than loans.

We classify our securities as either available-for-sale or held-to-maturity at the time of purchase. Accounting guidance requires available-for-sale securities to be marked to fair value with an offset to accumulated other comprehensive income (loss), a component of shareholders’ equity. Monthly adjustments are made to reflect changes in the fair value of our available-for-sale securities.

All ~~of the~~ securities in our investment portfolio were classified as available-for-sale ~~at March 31, 2018.~~as of June 30, 2022. There were no held-to-maturity or trading securities in our investment portfolio ~~at March 31, 2018.~~as of June 30, 2022. All available-for-sale securities are carried at fair ~~value.~~ value and consist of U.S. government agencies or sponsored agency securities.

Securities available-for-sale ~~consist primarily of US government-sponsored agency securities, home mortgage-backed securities and collateralized mortgage obligations.~~

~~Securities available-for-sale decreased $4.6~~increased $24.4 million, or ~~11.1%~~16.2%, to ~~$36.9~~$174.8 million at ~~March 31, 2018~~June 30, 2022 from ~~$41.5~~$150.4 million at December 31, ~~2017,~~2021, primarily due to purchases of $57.5 million, partially offset by principal paydowns of $18.9 million and unrealized loss increases of $13.9 million for the paydowns on home mortgage-backed securities and collateralized mortgage obligations and the reclassification of CRA qualified mutual fund to other investments following the adoption of ASU 2016-01 effective January 2018.six months ended June 30, 2022. No issuer of the available-for-sale securities, other than ~~FNMA~~U.S. Government and ~~FHLMC,~~its agencies, comprised more than ten percent of our shareholders’ equity as of ~~March 31, 2018 or~~June 30, 2022 and December 31, ~~2017.~~

2021.

The following table summarizes the fair value of the available-for-sale securities portfolio as of the dates presented.

March 31, 2018

December 31, 2017

Amortized

Fair

Unrealized

Amortized

Fair

Unrealized

(Dollars in thousands)

Cost

Value

Gain/(Loss)

Cost

Value

Gain/(Loss)

Available for sale

U.S. Government agencies

$
6,990

$
6,868

$
(122
)

$
6,989

$
6,932

$
(57
)
Mortgage-backed securities: residential

13,379

12,988

(391
)

14,109

13,941

(168
)
Collateralized mortgage obligations

17,607

17,009

(598
)

18,459

18,113

(346
)
Other securities

—

—

—

2,518

2,486

(32
)
Total available for sale

$
37,976

$
36,865

$
(1,111
)

$
42,075

$
41,472

$
(603
)



	June 30, 2022						December 31, 2021
($ in thousands)	Amortized Cost		Fair Value		Unrealized Gain/(Loss)		Amortized Cost		Fair Value		Unrealized Gain/(Loss)
U.S. Government agencies or sponsored agency securities:
Residential mortgage-backed securities	$	51,236	$	47,681	$	(3,555)	$	37,555	$	37,412	$	(143)
Residential collateralized mortgage obligations	139,158		127,133		(12,025)		114,588		113,032		(1,556)
Total available-for-sale debt securities	$	190,394	$	174,814	$	(15,580)	$	152,143	$	150,444	$	(1,699)

Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. At ~~March 31, 2018,~~June 30, 2022, we evaluated the securities which had an unrealized loss for other than temporary impairment ~~(OTTI)~~(“OTTI”) and determined all decline in value to be temporary. We anticipate full recovery of amortized cost with respect to these securities by maturity, or sooner in the event of a more favorable market interest rate environment. We do not intend to sell these securities and it is not more likely than not that we will be required to sell them before recovery of the amortized cost basis, which may be at maturity.

The following table sets forth certain information regarding contractual maturities and the weighted average yields of our investment securities as of the dates presented. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. ~~We have no securities with contractual maturities due in one year or less as of March 31, 2018.~~

As of March 31, 2018

Due after One Year

Due after Five Years

Through Five Years

Through Ten Years

Due after Ten Years

Weighted

Weighted

Weighted

Amortized

Average

Amortized

Average

Amortized

Average

(Dollars in thousands)

Cost

Yield

Cost

Yield

Cost

Yield

Available for sale

U.S. Government agencies

$
6,990

1.68
%

$
—

—
%

$
—

—
%
Mortgage-backed securities - residential

—

—
%

5,207

1.98
%

8,172

1.89
%
Collateralized mortgage obligations

—

—
%

—

—
%

17,607

2.03
%
Total available for sale

$
6,990

1.68
%

$
5,207

1.98
%

$
25,779

1.82
%



	June 30, 2022
	Due in One Year or Less				Due after One Year Through Five Years				Due after Five Years Through Ten Years				Due after Ten Years
($ in thousands)	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield
U.S. Government agencies or sponsored agency securities:
Residential mortgage-backed securities	$	—	—	%	$	881	2.18	%	$	2,212	2.01	%	$	48,143	1.85	%
Residential collateralized mortgage obligations	—		—		—		—		1,133		1.94		138,025		1.78
Total available-for-sale debt securities	$	—	—	%	$	881	2.18	%	$	3,345	1.99	%	$	186,168	1.80	%

We have not used interest rate swaps or other derivative instruments to hedge fixed rate loans or securities to otherwise mitigate interest rate risk.

Loans

Our loans represent the largest portion of our earning assets, substantially greater than the securities portfolio or any other asset category, and the quality and diversification of the loan portfolio is an important consideration when reviewing our financial condition.

~~At March 31, 2018, gross~~

On May 24, 2021, the Company completed the purchase of the Hana’s loan portfolio and paid approximately $97.6 million that included loans ~~including deferred costs totaled $793.8 million compared to $748.0~~of $100.0 million at ~~December 31, 2017, an increase~~a fair value discount of ~~$45.8~~$8.9 million, ~~or 6.1%.~~ servicing assets of $6.1 million and accrued interest receivable of $398 thousand.

The ~~increase in our gross~~following table summarizes the consideration paid for the loan portfolio and the amounts of assets purchased:



($ in thousands)
Consideration
Cash	$	97,631
Recognized amounts of identifiable assets purchased:
Loans (1)	$	100,003
Loan discounts	(8,867)
Accrued interest receivable	398
Servicing assets	6,097
Total recognized identifiable assets	$	97,631

(1) Consists of $92.2 million of SBA loans, ~~resulted from organic growth in most~~$6.9 million PPP loans and $919 thousand of ~~our loan categories.~~

real estate loans.

The loan distribution table that follows sets forth our gross loans outstanding, and the percentage distribution in each category as of the dates indicated:

	March 31, 2018						December 31, 2017
(Dollars in thousands)	Amount			% of Total			Amount			% of Total
Real estate:

														June 30, 2022				December 31, 2021
($ in thousands)													($ in thousands)	Amount		% of Total		Amount		% of Total
Commercial real estate	$	455,663			57	%	$	420,760			56	%	Commercial real estate	$	776,785	52.2	%	$	701,450	53.3	%
SBA loan - real estate		103,390			13	%		106,924			14	%	SBA loan - real estate	226,302		15.2		220,099		16.8
Total real estate		559,053			70	%		527,684			70	%
SBA loan - non-real estate		10,101			1	%		8,635			1	%	SBA loan - non-real estate	21,111		1.4		55,759		4.2
Commercial and industrial		114,747			15	%		103,681			14	%	Commercial and industrial	128,620		8.7		162,543		12.4
Home mortgage		106,188			13	%		104,068			14	%	Home mortgage	331,362		22.3		173,303		13.2
Consumer		3,662			1	%		3,955			1	%	Consumer	538		—		865		0.1
Gross loans		793,751			100	%		748,023			100	%
Gross loans receivable													Gross loans receivable	1,484,718		100.0	%	1,314,019		100.0	%
Allowance for loan losses		(9,716	)					(9,139	)				Allowance for loan losses	(17,702)				(16,123)
Net loans	$	784,035					$	738,884
Loans receivable, net (1)													Loans receivable, net (1)	$	1,467,016			$	1,297,896

(1) Includes net deferred loan fees or costs, unamortized premiums and unaccreted discounts of $4.4 million and $7.0 million as of June 30, 2022 and December 31, 2021, respectively.

Gross loans increased $170.7 million, or 13.0%, to $1.48 billion as of June 30, 2022, compared to $1.31 billion as of December 31, 2021. The increase was primarily attributable to new loan production of $272.0 million and home mortgage loan purchases of $138.0 million, offset by loan payoffs and paydowns of $143.9 million and SBA loan sales of $89.8 million.

The following tables presents the ~~maturity~~contractual loan maturities by loan category and the contractual distribution of ~~our~~ loans to changes in interest rates as of ~~March 31, 2018~~June 30, 20221 and December 31, ~~2017. The table shows the distribution of such loans between those loans with predetermined (fixed) interest rates and those with variable (floating) interest rates.~~

2021:

	As of March 31, 2018
					Due after One Year
	Due in One Year or Less				Through Five Years				Due after Five Years							June 30, 2022
			Adjustable				Adjustable				Adjustable					Due in One Year or Less				Due after One Year Through Five Years				Due after Five Years
(Dollars in thousands)	Fixed Rate		Rate		Fixed Rate		Rate		Fixed Rate		Rate		Total
Real estate:
($ in thousands)															($ in thousands)	Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Total
Commercial real estate	$	25,358	$	48,475	$	187,024	$	88,936	$	44,699	$	61,171	$	455,663	Commercial real estate	$	19,947	$	61,593	$	354,219	$	98,022	$	215,030	$	27,974	$	776,785
SBA loans - real estate		—		—		—		—		—		103,390		103,390
Total real estate		25,358		48,475		187,024		88,936		44,699		164,561		559,053
SBA loan - non-real estate		—		—		—		759		—		9,342		10,101
SBA loans—real estate															SBA loans—real estate	—		—		—		38		—		226,264		226,302
SBA loan—non- real estate															SBA loan—non- real estate	5		84		8,088		4,535		—		8,399		21,111
Commercial and industrial		—		69,969		1,905		28,100		—		14,773		114,747	Commercial and industrial	1,590		50,043		1,412		33,455		22,802		19,318		128,620
Home mortgage		—		—		—		—		106,188		—		106,188	Home mortgage	—		—		—		—		314,090		17,272		331,362
Consumer		—		1,651		9		1,111		—		891		3,662	Consumer	—		3		—		535		—		—		538
Gross loans	$	25,358	$	120,095	$	188,938	$	118,906	$	150,887	$	189,567	$	793,751	Gross loans	$	21,542	$	111,723	$	363,719	$	136,585	$	551,922	$	299,227	$	1,484,718

	As of December 31, 2017
					Due after One Year
	Due in One Year or Less				Through Five Years				Due after Five Years							December 31, 2021
			Adjustable				Adjustable				Adjustable					Due in One Year or Less				Due after One Year Through Five Years				Due after Five Years
(Dollars in thousands)	Fixed Rate		Rate		Fixed Rate		Rate		Fixed Rate		Rate		Total
Real estate:
($ in thousands)															($ in thousands)	Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Total
Commercial real estate	$	24,364	$	38,629	$	171,457	$	88,328	$	39,120	$	58,862	$	420,760	Commercial real estate	$	32,142	$	64,919	$	317,631	$	116,053	$	132,727	$	37,978	$	701,450
SBA loans - real estate		—		—		—		—		—		106,924		106,924
Total real estate		24,364		38,629		171,457		88,328		39,120		165,786		527,684
SBA loan - non-real estate		—		—		—		764		—		7,871		8,635
SBA loans—real estate															SBA loans—real estate	—		—		—		42		395		219,662		220,099
SBA loan—non- real estate															SBA loan—non- real estate	612		128		39,995		5,147		—		9,877		55,759
Commercial and industrial		—		58,900		2,188		25,876		—		16,717		103,681	Commercial and industrial	13,886		66,111		193		43,207		22,885		16,261		162,543
Home mortgage		—		—		—		—		104,068		—		104,068	Home mortgage	—		—		—		—		154,864		18,439		173,303
Consumer		—		1,821		11		1,202		—		921		3,955	Consumer	—		216		—		649		—		—		865
Gross loans	$	24,364	$	99,350	$	173,656	$	116,170	$	143,188	$	191,295	$	748,023	Gross loans	$	46,640	$	131,374	$	357,819	$	165,098	$	310,871	$	302,217	$	1,314,019

Our loan portfolio is concentrated in commercial real estate with the remaining balances in SBA loans (unguaranteed portion and PPP loans), home mortgage and commercial (primarily manufacturing, wholesale, and services oriented entities)~~, SBA loans (unguaranteed portion) with the remaining balance in home mortgage, and consumer loans.~~. We do not have any material concentrations by industry or group of industries in the loan portfolio. However, ~~83.8%~~89.9% of our gross loans ~~was~~were secured by real property as of ~~March 31, 2018,~~June 30, 2022, compared to ~~84.5%~~83.3% as of December 31, ~~2017.~~

2021.

Loans — Commercial Real Estate:We have established concentration limits in the loan portfolio for commercial real estate loans, commercial and industrial loans, and unsecured lending, among others. All loan types are within established limits. We use underwriting guidelines to assess the borrowers’ historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios. Financial and performance covenants are used in commercial lending agreements to allow us to react to a borrower’s deteriorating financial condition, should that occur.

Commercial real estate loans include owner-occupied and non-occupied commercial real estate. We originate both fixed and adjustable rate loans. Adjustable rate loans are based on the Wall Street Journal prime rate. ~~At March~~Our commercial real estate loan portfolio totaled $776.8 million at June 30, 2022 compared to $701.5 million at December 31, ~~2018,~~2021. During the six months ended June 30, 2022, we originated $111.8 million of commercial real estate loans. As of June 30, 2022, approximately ~~56%~~75.9% of the commercial real estate portfolio consisted of fixed-rate loans. Our policy maximum loan-to-value, or LTV, is 70% for commercial real estate loans. ~~At March 31, 2018,~~As of June 30, 2022, our average loan to value for commercial real estate loans was ~~approximately 54%~~59%. ~~Our commercial real estate loan portfolio totaled $455.7 million at March 31, 2018 compared to $420.8 million at December 31, 2017.~~

Loans — SBA Loans: We are designated as an SBA Preferred Lender under the SBA Preferred Lender Program. We offer mostly SBA 7(a) variable-rate loans. We generally sell the 75% guaranteed portion of the SBA loans that we originate. Our SBA loans are typically made to small-sized manufacturing, wholesale, retail, hotel/motel and service businesses for working capital needs or business expansions. SBA loans have maturities up to 25 years. Typically, non-real estate secured loans mature in less than 10 years. Collateral may also include

inventory, accounts receivable and equipment, and may include personal guarantees. Our unguaranteed SBA loans collateralized by real estate are monitored by collateral type and included in our CRE Concentration Guidance.

As of ~~March 31, 2018,~~June 30, 2022, our SBA portfolio totaled ~~$103.4~~$247.4 million, including $8.1 million of SBA PPP loans, compared to ~~$106.9~~$275.9 million, including $40.6 million of SBA PPP loans as of December 31, 2021. We originated $92.5 million for the six months ended June 30, 2022. We sold SBA loans of $90.4 million with 8.43% average premium and $33.0 million with 10.82% average premium during the six months ended June 30, 2022 and 2021, respectively.

From our total SBA loan portfolio, $226.3 million is secured by real estate and $21.1 million is unsecured or secured by business assets as of June 30, 2022.

Loans — Commercial and Industrial: Commercial and industrial loans totaled $128.6 million as of June 30, 2022, compared to $162.5 million as of December 31, ~~2017. The decrease was primarily due to slower origination of SBA loans in~~2021. We originated $14.6 million for the ~~three~~six months ended ~~March 31, 2018. We originated $16.4 million in the three months ended March 31, 2018 compared to $23.0 million in the same period in 2017.~~

~~Commercial and industrial loans totaled $114.7 million at March 31, 2018 compared to $103.7 million at December 31, 2017. The increase resulted primarily from organic loan growth.~~

June 30, 2022.

Loans - Home Mortgage: We originate mainly non-qualified, alternative documentation single-family home mortgage loans (“home mortgage”) primarily through ~~broker relationships, but also through~~ our retail branch network and our correspondent lender network. The primary loan product is a five-year or seven-year hybrid adjustable rate mortgage, which reprices after five years to the one-year ~~LIBOR~~SOFR plus certain spreads. We ~~originate the non-qualified single-family home~~also purchase residential mortgage loans ~~held by us for investment.~~ from third party mortgage originators based on the review of their underwriting and file quality as opportunities arise

Home mortgage loans totaled ~~$106.2~~$331.4 million ~~at March 31, 2018~~as of June 30, 2022, compared to ~~$104.1~~$173.3 million atas of December 31, ~~2017, an increase~~2021. For the six months ended June 30, 2022, we originated $53.1 million of ~~$2.1~~home mortgage loans and purchased $138.0 million ~~or 2.0%.~~

of home mortgage loans from third party mortgage originators.

Loan Servicing

As of ~~March 31, 2018~~June 30, 2022 and December 31, ~~2017,~~2021, we serviced ~~$306.1~~$686.4 million and ~~$309.3~~$667.0 million, respectively, of SBA loans for others. Activity for loan servicing rights was as follows:

	Three Months Ended March 31,
(Dollars in thousands)	2018			2017			Increase (decrease)

											Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands)										($ in thousands)	2022		2021		2022		2021
Beginning balance	$	6,771		$	6,783		$	(12	)	Beginning balance	$	12,341	$	7,492	$	12,720	$	7,360
Additions		378			479			(101	)
Additions from loans sold with servicing retained										Additions from loans sold with servicing retained	1,357		277		2,149		847
Additions from purchase of servicing rights										Additions from purchase of servicing rights	—		6,097		—		6,097
Amortized to expense		(424	)		(379	)		(45	)	Amortized to expense	(990)		(963)		(2,161)		(1,401)
Ending balance	$	6,725		$	6,883		$	(158	)	Ending balance	$	12,708	$	12,903	$	12,708	$	12,903

Loan servicing rights are ~~included in accrued interest receivable and other assets~~reported on our ~~consolidated balance sheets~~Consolidated Balance Sheets and reported net of amortization.

Allowance for ~~loan losses~~

Loan Losses

The allowance for loan losses is an estimate of probable incurred losses in the loan portfolio. Loans are charged-off against the allowance when management believes a loan balance is uncollectible. Subsequent recoveries, if any, are credited to the allowance for loan losses. Management’s methodology for estimating the allowance balance consists of several key elements, which include specific allowances on individual impaired loans and the formula driven allowances on pools of loans with similar risk characteristics. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.

The allowance for loan losses is determined on a quarterly basis and reflects management’s estimate of probable incurred credit losses inherent in the loan portfolio. We also rely on internal and external loan review procedures to further assess individual loans and loan pools, and economic data for overall industry and geographic trends. The computation includes ~~elements~~element of judgment and high levels of subjectivity.

A loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans include loans on non-accrual status and performing restructured loans. Income from loans on non-accrual status is recognized to the extent cash is received and when the loan’s principal balance is deemed collectible. Depending on a particular loan’s circumstances, we measure impairment of a loan based upon either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s

observable market price, or the fair value of the collateral less estimated costs to sell if the loan is collateral dependent. A loan is considered collateral dependent when repayment of the loan is based solely on the liquidation of the collateral. Fair value, where possible, is determined by independent appraisals, typically on an annual basis. Between appraisal periods, the fair value may be adjusted based on specific events, such as if deterioration of quality of the collateral comes to our attention as part of our problem loan monitoring process, or if discussions with the borrower lead us to believe the last appraised value no longer reflects the actual market value for the collateral. The impairment amount on a collateral-dependent loan is charged-off to the allowance if deemed not collectible and the impairment amount on a loan that is not collateral-dependent is set up as a specific reserve.

In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructuring. These concessions may include a reduction of the interest rate, principal or accrued interest, extension of the maturity date or other actions intended to minimize potential losses. Loans restructured at a rate equal to or greater than that of a new loan with comparable risk at the time the loan is modified may be excluded from restructured loan disclosures in years subsequent to the restructuring if the loans are in compliance with their modified terms. A restructured loan is considered impaired despite its accrual status and a specific reserve is calculated based on the present value of expected cash flows discounted at the loan’s effective interest rate or the fair value of the collateral less estimated costs to sell if the loan is collateral dependent. Interest income on impaired loans is accrued as earned, unless the loan is placed on non-accrual status.

The allowance for loan losses was ~~$9.7~~$17.7 million at ~~March 31, 2018~~June 30, 2022, compared to ~~$9.1~~$16.1 million at December 31, ~~2017,~~2021. The provision for loan losses was $996 thousand for the three months ended June 30, 2022, compared to the reversal of loan losses of $1.1 million for the same period in 2021, primarily due to an increase of ~~$577,000, or 6.3%.~~$746 thousand in quantitative reserves from loan growth in real estate and home mortgage loans and an adjustment of $270 thousand in qualitative assessments of our loan portfolio for the three months ended June 30, 2022. The ~~increase~~provision for loan losses was $1.3 million for the six months ended June 30, 2022, compared to the reversal of loan losses of $492 thousand for the same period in 2021, primarily due to ~~the overall~~an increase in quantitative reserves from loan growth in ~~the size~~real estate and home mortgage loans and an adjustment in qualitative assessments of our ~~gross~~ loan portfolio ~~which grew $45.8 million, or 6.1%, to $793.8 million at March 31, 2018 from $748.0 million at December 31, 2017.~~

for the six months ended June 30, 2022.

In determining the allowance and the related provision for loan losses, we consider three principal elements: (i) valuation allowances based upon probable losses identified during the review of impaired commercial and industrial, commercial real estate, construction and land development ~~loans,~~loans; (ii) allocations, by loan classes, on loan portfolios based on historical loan loss experience and qualitative ~~factors~~factors; and (iii) review of the credit discounts in relationship to the valuation allowance calculated for purchased loans. Provisions for loan losses are charged to operations to record changes to the total allowance to a level deemed appropriate by us.

It is the policy of management to maintain the allowance for loan losses at a level adequate for risks inherent in the loan portfolio. The ~~Federal Reserve Board~~FDIC and the ~~California Department of Business Oversight~~DFPI also review the allowance for loan losses as an integral part of their examination process. Based on information currently available, management believes that our allowance for loan losses is adequate. However, the loan portfolio can be adversely affected if California economic conditions and the real estate market in our market area were to weaken. The effect of such events, although uncertain at this time, could result in an increase in the level of nonperforming loans and increased loan losses, which could adversely affect our future growth and profitability. No assurance of the ultimate level of credit losses can be given with any certainty.

Analysis of the Allowance for Loan ~~Losses.~~

Losses

The following table provides an analysis of the allowance for loan losses, provision for loan losses and net charge-offs, by category, ~~as of and~~ for the three months ended ~~March~~June 30, 2022 and 2021:



	As of and for the Three Months Ended June 30,
	2022									2021
($ in thousands)	Beginning		(Reversal of) Provision (1)		Net (Charge-offs) Recoveries		Ending			Beginning		(Reversal of) Provision (1)		Net (Charge-offs) Recoveries		Ending
Commercial real estate	$	6,480	$	1,263	$	—	$	7,743		$	8,594	$	(138)	$	—	$	8,456
SBA loans—real estate	1,750		43		7		1,800			2,030		(33)		—		1,997
SBA loan—non- real estate	169		(61)		27		135			292		(37)		(27)		228
Commercial and industrial	3,492		(1,390)		—		2,102			2,331		(45)		—		2,286
Home mortgage	4,768		1,145		—		5,913			2,075		(371)		—		1,704
Consumer	13		(4)		$	—	9			17		(1)		—		16
Total	$	16,672	$	996	$	34	$	17,702		$	15,339	$	(625)	$	(27)	$	14,687
Gross loans (2)							$	1,484,718								$	1,245,866
Average loans (2)							$	1,461,081								$	1,198,890
Net (recoveries) charge-offs to average gross loans							(0.01)		%							0.01		%
Allowance for loan losses to gross loans							1.19		%							1.18		%

(1)There was no provision for uncollectible accrued interest receivable for the three months ended June 30, 2022. Excludes reversal of uncollectible accrued interest receivable of $487 thousand for the three months ended June 30, 2021.

(2)Excludes loans held for sale.

The following table provides an analysis of the allowance for loan losses, provision for loan losses and net charge-offs, by category, for the six months ended June 30, 2022 and 2021:



	As of and for the Three Six Ended June 30,
	2022									2021
($ in thousands)	Beginning		(Reversal of) Provision (1)		Net (Charge-offs) Recoveries		Ending			Beginning		(Reversal of) Provision (1)		Net (Charge-offs) Recoveries		Ending
Commercial real estate	$	8,150	$	(407)	$	—	$	7,743		$	8,505	$	(49)	$	—	$	8,456
SBA loans—real estate	2,022		(215)		(7)		1,800			1,802		195		—		1,997
SBA loan—non- real estate	199		(108)		44		135			278		(23)		(27)		228
Commercial and industrial	2,848		(746)		—		2,102			2,563		(277)		—		2,286
Home mortgage	2,891		3,022		—		5,913			2,185		(481)		—		1,704
Consumer	13		(5)		$	1	9			19		(6)		$	3	16
Total	$	16,123	$	1,541	$	38	$	17,702		$	15,352	$	(641)	$	(24)	$	14,687
Gross loans (2)							$	1,484,718								$	1,245,866
Average loans (2)							$	1,406,075								$	1,169,338
Net (recoveries) charge-offs to average gross loans							(0.01)		%							0.00		%
Allowance for loan losses to gross loans							1.19		%							1.18		%

(1)There was no provision for uncollectible accrued interest receivable for the three months ended June 30, 2022. Excludes reversal of uncollectible accrued interest receivable of $149 thousand for the three months ended June 30, 2021.

(2)Excludes loans held for sale.

The following table presents an allocation of the allowance for loan losses by portfolio as of June 30, 2022 and December 31, ~~2018 and 2017.~~

2021:

As of and For the Three Months Ended March 31,

2018

2017

Net

ALLL

Net

ALLL

(Dollars in thousands)

Provision

Charge-offs

Balance

Provision

Charge-offs

Balance

Real estate:

Commercial real estate

$
411

$
—

$
5,212

$
2

$
—

$
4,219

SBA loans - real estate

(76
)

—

1,006

29

—

922

Total real estate

335

—

6,218

31

—

5,141

SBA loan - non-real estate

(40
)

(2
)

500

453

71

441

Commercial and industrial

316

—

1,581

(28
)

—

1,294

Home mortgage

(33
)

—

1,375

88

—

1,452

Consumer

(3
)

—

42

(3
)

—

52

Total

$
575

$
(2
)

$
9,716

$
541

$
71

$
8,380

Gross loans

$
793,751

$
681,937

Average gross loans

787,230

685,095

Net charge-offs to average gross loans

(0.00
) %

0.04
%
Allowance for loans losses to gross loans

1.22
%

1.23
%



	June 30, 2022				December 31, 2021
($ in thousands)	Amount		% to Total		Amount		% to Total
Commercial real estate	$	7,743	43.7	%	$	8,150	50.5	%
SBA loans—real estate	1,800		10.2	%	2,022		12.5	%
SBA loan—non- real estate	135		0.8	%	199		1.2	%
Commercial and industrial	2,102		11.9	%	2,848		17.7	%
Home mortgage	5,913		33.4	%	2,891		17.9	%
Consumer	9		0.1	%	13		0.1	%
Total	$	17,702	100.0	%	$	16,123	100.0	%

~~(1)~~

~~Net charge-offs are loan charge-offs net of loan recoveries.~~

~~Non-performing Loans~~

Nonperforming Assets

Loans are considered delinquent when principal or interest payments are past due 30 days or more. Delinquent loans may remain on accrual status between 30 days and 90 days past due. Loans on which the accrual of interest has been discontinued are designated as non-accrual loans. Typically, the accrual of interest on loans is discontinued when principal or interest payments are 90 days past due ~~90 days~~ or when, in the opinion of management, there is a reasonable doubt as to collectability in the normal course of business. When

loans are placed on non-accrual status, all interest previously accrued, but not collected, is reversed against current period interest income. Income on non-accrual loans is subsequently recognized only to the extent that cash is received, and the loan’s principal balance is deemed collectible. Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable.

Nonperforming loans include loans that are 90 days past due and still accruing, loans accounted for on a non-accrual basis and accruing restructured loans. Nonperforming assets consist of nonperforming loans plus OREO.

Nonperforming loans were $2.2 million at June 30, 2022, compared to $3.2 million at December 31, 2021. As of June 30, 2022 and December 31, 2021, nonaccrual loans of $346 thousand and $166 thousand, respectively were the guaranteed portion of SBA loans that are in liquidation.

Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as OREO until sold, and is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. We had no OREO ~~at March 31, 2018~~as of June 30, 2022 and December 31, ~~2017.~~

Non-performing loans include loans 90 days past due and still accruing, loans accounted for on a non-accrual basis and accruing restructured loans. Non-performing assets consist of non-performing loans plus OREO.

Non-performing loans were $592,000 at March 31, 2018 compared to $1.0 million at December 31, 2017. The decrease was primarily due to a decrease of $445,000 in non-accrual loans as one non-accrual home mortgage loan with a $422,000 loan balance outstanding as of December 31, 2017, was paid off during the three months ended March 31, 2018.

Classified loans were $3.4 million at March 31, 2018, an increase of $1.3 million compared to $2.1 million at December 31, 2017. The increase in classified loans was primarily due to one lending relationship with a $1.4 million loan outstanding, which was downgraded to substandard.

2021.

The following table sets forth the allocation of our ~~non-performing~~nonperforming assets among our different asset categories as of the dates indicated. ~~Non-performing~~Nonperforming loans include non-accrual loans, loans past due 90 days or more and still accruing interest, and loans modified under troubled debt restructurings.

(Dollars in thousands)

March 31, 2018

December 31, 2017

Non-accrual loans

$
241

$
683

Past due loans 90 days or more and still accruing

—

—

Accruing troubled debt restructured loans

351

354

Total non-performing loans

592

1,037

Other real estate owned

—

—

Total non-performing assets

$
592

$
1,037

Non-performing loans to gross loans

0.07
%

0.14
%
Non-performing assets to total assets

0.07
%

0.14
%
Allowance for loan losses to non-performing loans

1641
%

881
%



($ in thousands)	June 30, 2022			December 31, 2021
Nonaccrual loans	$	2,172		$	3,000
Past due loans 90 days or more and still accruing	5			200
Accruing troubled debt restructured loans	—			—
Total nonperforming loans	2,177			3,200
Other real estate owned	—			—
Total nonperforming assets	$	2,177		$	3,200
Nonperforming loans to gross loans	0.15		%	0.24		%
Nonperforming assets to total assets	0.11		%	0.19		%
Allowance for loan losses to nonperforming loans	813		%	504		%

Deposits

and Other Sources of Funds

We gather deposits primarily through our branch locations. We offer a variety of deposit products including demand deposits accounts, interest-bearing products, savings accounts and certificate of deposits. We ~~put continued~~dedicate continuing effort into gathering noninterest demand deposits accounts through marketing to our existing and new loan customers, customer referrals, our marketing staff and various involvement with community networks.

Total deposits at March 31, 2018 were $818.3 million, representing an increase of $45.0 million, or 5.8%, compared to $773.3 million at December 31, 2017. As of March 31, 2018, 35.3% of total deposits were comprised of noninterest-bearing demand accounts, 32.4% of interest-bearing transaction accounts and 32.2% of time deposits.

The following table ~~summarizes our average deposit balances and weighted average rates for~~show the ~~three months ended March 31, 2018 and December 31, 2017:~~

composition of deposits by type as of the dates presented:

	March 31, 2018					December 31, 2017
			Weighted					Weighted
	Average		Average			Average		Average				June 30, 2022				December 31, 2021
(Dollars in thousands)	Balance		Rate			Balance		Rate
($ in thousands)											($ in thousands)	Amount		Percent		Amount		Percent
Noninterest-bearing demand	$	260,221		—	%	$	268,691		—	%	Noninterest-bearing demand	$	820,311	47.1	%	$	774,754	50.5	%
Interest-bearing:											Interest-bearing:
NOW and Savings deposits		6,404		0.25			6,504		0.25
Money market		260,912		1.10			267,676		0.97
Money market and others											Money market and others	519,389		29.8		380,226		24.8
Time deposits (more than $250,000)											Time deposits (more than $250,000)	237,634		13.6		207,288		13.5
Time deposits ($250,000 or less)		131,397		1.38			118,021		1.25		Time deposits ($250,000 or less)	164,289		9.4		171,798		11.2
Time deposits (more than $250,000)		112,200		1.36			102,313		1.22
Total interest-bearing		510,913		1.22			494,514		1.08		Total interest-bearing	921,312		52.9		759,312		49.5
Total deposits	$	771,134		0.81	%	$	763,205		0.70	%	Total deposits	$	1,741,623	100.0	%	$	1,534,066	100.0	%

The following tables set forth the maturity of time deposits as of ~~March 31, 2018 and December 31, 2017:~~

June 30, 2022:

	As of March 31, 2018
	Maturity Within:
	Three		Three to		Six to 12		After					Maturity Within:
(Dollars in thousands)	Months		Six Months		Months		12 Months		Total
($ in thousands)											($ in thousands)	Three Months		Three to Six Months		Six to 12 Months		After 12 Months		Total
Time deposits (more than $250,000)											Time deposits (more than $250,000)	$	118,765	$	29,487	$	87,744	$	1,638	$	237,634
Time deposits ($250,000 or less)	$	46,178	$	39,175	$	45,233	$	8,625	$	139,211	Time deposits ($250,000 or less)	41,015		29,282		86,899		7,093		164,289
Time deposits (greater than $250,000)		55,686		13,129		51,789		4,033		124,637
Total time deposits	$	101,864	$	52,304	$	97,022	$	12,658	$	263,848	Total time deposits	$	159,780	$	58,769	$	174,643	$	8,731	$	401,923

As of December 31, 2017

Maturity Within:

Three

Three to

Six to 12

After

(Dollars in thousands)

Months

Six Months

Months

12 Months

Total

Time deposits ($250,000 or less)

$
49,491

$
28,128

$
37,414

$
8,748

$
123,781

Time deposits (greater than $250,000)

52,245

13,673

36,832

6,202

108,952

Total time deposits

$
101,736

$
41,801

$
74,246

$
14,950

$
232,733

~~Borrowed Funds~~

Other than deposits, we also utilized FHLB advances as a supplementary funding source to finance our operations. The advances from the FHLB are collateralized by residential and commercial real estate loans. ~~At March 31, 2018~~As of June 30, 2022, and December 31, ~~2017,~~2021, we had maximum borrowing capacity from the FHLB of ~~$302.8~~$482.0 million and ~~$308.5~~$417.6 million, respectively. ~~We had $10 million~~As of ~~advances from FHLB at March 31, 2018, compared to $25 million at~~June 30, 2022 and December 31, ~~2017.~~

2021, we had no borrowings from FHLB.

Liquidity

and Capital Recourses

Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.

Our liquidity position is supported by management of liquid assets and access to alternative sources of funds. Our liquid assets include cash, interest-bearing deposits in correspondent banks, federal funds sold, and fair value of unpledged investment securities. Other available sources of liquidity include wholesale deposits, and additional borrowings from correspondent banks, FHLB advances, and the Federal Reserve discount window.

Our short-term and long-term liquidity requirements are primarily met through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, and increases in customer deposits. Other alternative sources of funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis.

Deposits are the primarily funding source for the Bank. Deposits provide a stable source of ~~March 31, 2018~~funding and ~~December 31, 2017, we~~reduce the Company's reliance on the wholesale funding markets. The following table presents the loan and deposit balances, the loans-to-deposit ratios, and deposits as a percentage of total liabilities as of dates presented:



($ in thousands)	June 30, 2022			December 31, 2021
Deposits	$	1,741,623		$	1,534,066
Deposits as a % of total liabilities	98.7		%	98.2		%
Loans, net	$	1,467,016		$	1,297,896
Loans-to-deposits ratio	84.2		%	84.6		%

In addition to deposits, the Company has access to various sources of wholesale funding, as well as borrowing capacity at the FHLB, Federal Reserve, and correspondent banks to sustain an adequate liquid asset portfolio, meet daily cash demands and allow management flexibility to execute the business strategy. Economic conditions and the stability of capital markets impact the access to and the cost of wholesale funding. The access to capital markets is also affected by the ratings received from various credit rating agencies.

We had ~~$9.5~~$100.0 million of unsecured federal funds lines with no amounts ~~advanced.~~advanced as of June 30, 2022 and December 31, 2021. In addition, on such dates we had lines of credit from the Federal Reserve discount window of ~~$96.6~~$164.7 million and ~~$92.8~~$141.6 million, respectively. The Federal Reserve discount window lines were collateralized by a pool of commercial real estate loans and commercial and industrial loans totaling ~~$162.6~~$248.3 million and ~~$156.2~~$240.6 million as of ~~March 31, 2018~~June 30, 2022 and December 31, ~~2017,~~2021, respectively. We did not have any borrowings outstanding with the Federal Reserve ~~at March 31, 2018~~as of June 30, 2022 or December 31, ~~2017,~~2021 and our borrowing capacity is limited only by eligible collateral.

At March 31, 2018, we had a $10 million advance from the FHLB which had an overnight borrowing interest rate of 1.87%. We had a $25 million FHLB advance outstanding at December 31, 2017 which was an overnight borrowing at an interest rate of 1.41%.

Based on the values of loans pledged as collateral, we had ~~$166.2~~$398.9 million of additional borrowing availability with the FHLB as of ~~March 31, 2018.~~June 30, 2022. We also maintain relationships in the capital markets with brokers to issue certificates of deposit and money market accounts.

The Company maintains liquidity in the form of cash and cash equivalents, and unencumbered high-quality and liquid AFS debt securities. The following table presents the Company's liquid assets as of dates presented:



($ in thousands)	June 30, 2022		December 31, 2021
Cash and cash equivalents	$	132,697	$	115,459
AFS debt securities	174,814		150,444
Total liquid assets	$	307,511	$	265,903

The following tables summarizes short- and long-term material cash requirements as of June 30, 2022, which we believe that we will be able to fund these obligations through cash generated from our operations and available alternative sources of funds:



	Material Cash Requirements
($ in thousands)	Within One Year		One to Three Years		Three to Five Years		After Five Years		Indeterminable maturity (1)		Total
Deposits (2)	$	218,549	$	181,790	$	1,584	$	—	$	1,339,700	$	1,741,623
Operating lease commitments	2,210		3,631		2,796		3,547		—		12,184

Commitments to fund investment for Low Income Housing Tax Credit	1,328		2,784		28		192		—		4,332
Total contractual obligations	$	222,087	$	188,205	$	4,408	$	3,739	$	1,339,700	$	1,758,139

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

(2)Excludes accrued interest.

In addition to contractual obligations, other commitments of the Company impact liquidity. These include unused commitments to extend credit, standby letters of credit and commercial letters of credit. Since many of these commitments expire without being drawn upon, and each customer must continue to meet the conditions established in the contract, the total amount of these commercial commitments does not necessarily represent the future cash requirements of the Company. The Company's liquidity sources have been, and are expected to be, sufficient to meet the cash requirements of its lending activities, Information about the Company's loan commitments, standby letters of credit and commercial letters of credit is provided in Note 9. Commitments and Contingencies to the Consolidated Financial Statements in this Form 10-Q.

Capital Requirements

We are subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for “prompt corrective action” ~~(described below)~~, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under

regulatory accounting policies. The capital amounts and classifications are subject to qualitative judgments by the federal banking regulators ~~about~~regarding components, risk weightings and other factors. Qualitative measures established by regulation to ensure capital adequacy required us to maintain minimum amounts and ~~ratio~~various ratios of CET1 capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets, referred to as the “leverage ratio.”

In the wake of the global financial crisis of 2008 and 2009, the role of capital has become fundamentally more important, as banking regulators have concluded that the amount and quality of capital held by banking organizations was insufficient to absorb losses during periods of severely distressed economic conditions. The Dodd-Frank Act and new banking regulations promulgated by the U.S. federal banking regulators to implement the Basel III Capital Rules have established strengthened capital standards for banks and bank holding companies and require more capital to be held in the form of common stock. These provisions, which generally became applicable to us on January 1, 2015, impose meaningfully more stringent regulatory capital requirements than those applicable to us prior to that date. In addition, the Basel III Capital Rules will implement a concept known as the “capital conservation buffer.” In general, banks and bank holding companies will be required to hold a buffer of common equity Tier 1 capital equal to 2.5% of risk-weighted assets over each minimum capital ratio to avoid being subject to limits on capital distributions (e.g., dividends, stock buybacks, etc.) and certain discretionary bonus payments to executive officers. For community banks, the capital conservation buffer requirement commenced on January 1, 2016, with a gradual phase-in. Full compliance with the capital conservation buffer will be required by January 1, 2019.

The table below also summarizes the capital requirements applicable to us and the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as our and the Bank’s capital ratios as of ~~March 31, 2018~~June 30, 2022 and December 31, ~~2017. We and the~~2021. The Bank exceeded all regulatory capital requirements under the Basel III Capital Rules and were considered to be “well-capitalized” as of the dates reflected in the table below. As of ~~March 31, 2018,~~June 30, 2022, the FDIC categorized us as well-capitalized under the prompt corrective action framework. There have been no conditions or events since ~~March 31, 2018~~June 30, 2022 that management believes would change this classification.

Regulatory

Capital Ratio

Requirements,

Regulatory

Minimum

including fully

Capital Ratio

To be Considered

phased in Capital

Actual

Requirements

"Well Capitalized"

Conservation Buffer

(Dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

As of March 31, 2018:

Total capital (to risk-weighted assets)

Consolidated

$
127,461

16.17
%

$
63,057

8.00
%

N/A

N/A

$
82,762

10.50
%
Bank

127,394

16.16
%

63,051

8.00
%

78,814

10.00
%

82,755

10.50
%
Tier 1 capital (to risk-weighted assets)

Consolidated

117,681

14.93
%

47,292

6.00
%

N/A

N/A

66,998

8.50
%
Bank

117,614

14.92
%

47,288

6.00
%

63,051

8.00
%

66,992

8.50
%
CET1 capital (to risk-weighted assets)

Consolidated

117,681

14.93
%

35,469

4.50
%

N/A

N/A

55,174

7.00
%
Bank

117,614

14.92
%

35,466

4.50
%

51,229

6.50
%

55,170

7.00
%
Tier 1 capital (to average assets)

Consolidated

117,681

13.09
%

35,962

4.00
%

N/A

N/A

35,962

4.00
%
Bank

117,614

13.09
%

35,950

4.00
%

44,938

5.00
%

35,950

4.00
%

Regulatory

Capital Ratio

Requirements,

Regulatory

Minimum

including fully

Capital Ratio

To be Considered

phased in Capital

Actual

Requirements

"Well Capitalized"

Conservation Buffer

(Dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

As of December 31, 2017:

Total capital (to risk-weighted assets)

Consolidated

$
100,713

13.49
%

$
59,729

8.00
%

N/A

N/A

$
78,394

10.50
%
Bank

100,648

13.48
%

59,726

8.00
%

74,658

10.00
%

78,391

10.50
%
Tier 1 capital (to risk-weighted assets)

Consolidated

91,510

12.26
%

44,797

6.00
%

N/A

N/A

63,462

8.50
%
Bank

91,445

12.25
%

44,795

6.00
%

59,726

8.00
%

63,459

8.50
%
CET1 capital (to risk-weighted assets)

Consolidated

91,510

12.26
%

33,597

4.50
%

N/A

N/A

52,263

7.00
%
Bank

91,445

12.25
%

33,596

4.50
%

48,528

6.50
%

52,260

7.00
%
Tier 1 capital (to average assets)

Consolidated

91,510

10.46
%

35,009

4.00
%

N/A

N/A

35,009

4.00
%
Bank

91,445

10.45
%

35,007

4.00
%

43,759

5.00
%

35,007

4.00
%

~~Contractual Obligations~~



As of June 30, 2022	Actual (1)				Regulatory Capital Ratio Requirements				Minimum to be Considered "Well Capitalized"				Regulatory Capital Ratio Requirements, including fully phased in Capital Conservation Buffer
($ in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital (to risk-weighted assets)
Consolidated	$	197,993	13.51	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	195,748		13.36	%	$	117,244	8.00	%	$	146,555	10.00	%	$	153,883	10.50	%
Tier 1 capital (to risk-weighted assets)
Consolidated	180,096		12.29	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	177,851		12.14	%	87,933		6.00	%	117,244		8.00	%	124,572		8.50	%
CET1 capital (to risk-weighted assets)
Consolidated	180,096		12.29	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	177,851		12.14	%	65,950		4.50	%	95,261		6.50	%	102,589		7.00	%
Tier 1 leverage (to average assets)
Consolidated	180,096		9.48	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	177,851		9.36	%	75,988		4.00	%	94,985		5.00	%	75,988		4.00	%

(1) The ~~following tables contain supplemental information regarding our total contractual obligations at March 31, 2018~~capital requirements are only applicable to the Bank, and ~~December 31, 2017:~~

the Company's ratios are included for comparison purpose.

Payments Due at March 31, 2018

Within

One to

Three to

After Five

(Dollars in thousands)

One Year

Three Years

Five Years

Years

Total

Deposits without a stated maturity

$
554,432

$
—

$
—

$
—

$
554,432

Time deposits

251,190

12,400

258

—

263,848

Operating lease commitments

1,662

3,542

3,646

3,354

12,204

Advanced from FHLB

10,000

—

—

—

10,000

Total contractual obligations

$
817,284

$
15,942

$
3,904

$
3,354

$
840,484

Payments Due at December 31, 2017

Within

One to

Three to

After Five

(Dollars in thousands)

One Year

Three Years

Five Years

Years

Total

Deposits without a stated maturity

$
540,573

$
—

$
—

$
—

$
540,573

Time deposits

217,783

14,768

182

—

232,733

Operating lease commitments

1,630

3,251

3,378

3,763

12,022

Advanced from FHLB

25,000

—

—

—

25,000

Total contractual obligations

$
784,986

$
18,019

$
3,560

$
3,763

$
810,328



As of December 31, 2021	Actual (1)				Regulatory Capital Ratio Requirements				Minimum to be Considered "Well Capitalized"				Regulatory Capital Ratio Requirements, including fully phased in Capital Conservation Buffer
($ in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital (to risk-weighted assets)
Consolidated	$	182,439	13.66	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	179,882		13.47	%	$	106,857	8.00	%	$	133,572	10.00	%	$	140,250	10.50	%
Tier 1 capital (to risk-weighted assets)
Consolidated	165,944		0.12%		N/A		N/A		N/A		N/A		N/A		N/A
Bank	163,387		0.12%		80,143		6.00	%	106,857		8.00	%	113,536		8.50	%
CET1 capital (to risk-weighted assets)
Consolidated	165,944		0.12%		N/A		N/A		N/A		N/A		N/A		N/A
Bank	163,387		12.23	%	60,107		4.50	%	86,822		6.50	%	93,500		7.00	%
Tier 1 leverage (to average assets)
Consolidated	165,944		9.58	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	163,387		9.44	%	69,266		4.00	%	86,582		5.00	%	69,266		4.00	%

~~We believe that we will be able~~

(1) The capital requirements are only applicable to ~~meet our contractual obligations as they come due through~~ the ~~maintenance of adequate cash levels. We expect to maintain adequate cash levels through profitability, loan~~Bank, and ~~securities repayment and maturity activity and continued deposit gathering activities. We have in place various borrowing mechanisms~~the Company's ratios are included for ~~both short-term and long-term liquidity needs.~~

~~Off-Balance Sheet Arrangements~~

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in our consolidated balance sheet. The contractual or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if we deem collateral is necessary upon extension of credit, is based on management’s credit evaluation of the counterparty.

Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. They are intended to be disbursed, subject to certain condition, upon request of the borrower.

~~The following table summarized commitments as of the dates presented.~~

comparison purpose.

(Dollars in thousands)

March 31, 2018

December 31, 2017

Commitments to extend credit

$
54,539

$
62,356

Standby letters of credit

1,937

1,627

Total

$
56,476

$
63,983

Item 3. Quantitative and Qualitative Disclosures About Market ~~Risk~~

Risk.

Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. We have identified interest rate risk as our primary source of market risk.

Interest Rate Risk

Interest rate risk is the risk to earnings and value arising from changes in market interest rates. Interest rate risk arises from timing differences in the ~~repricings~~repricing and maturities of interest-earning assets and interest-bearing liabilities (repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay home mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries and ~~LIBOR~~SOFR (basis risk).

Our board’s asset liability committee, or ALM, establishes broad policy limits with respect to interest rate risk. Our management’s asset liability committee, or ALCO, establishes specific operating guidelines within the parameters of the policies set by the ALM. In general, we seek to minimize the impact of changing interest rates on net interest income and the economic values of assets and liabilities. Our ALCO monitors the level of interest rate risk sensitivity on a quarterly basis to ensure compliance with the ALM-approved risk limits. The policy requires a periodic review of all key assumptions used, such as identifying appropriate interest rate scenarios, setting loan prepayment rates based on historical analysis, and noninterest-bearing and interest-bearing deposit durations based on historical analysis.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.

An asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on our interest-earning assets would reprice upward more quickly than rates paid on our interest-bearing liabilities, thus expanding our net interest margin. Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on our interest-bearing liabilities would reprice upward more quickly than rates earned on our interest-earning assets, thus compressing our net interest margin.

Interest rate risk measurement is calculated and reported to the ALCO and ALM at least quarterly. The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.

Evaluation of Interest Rate Risk

We use a net interest income simulation model to measure and evaluate potential changes in our net interest income. We run various hypothetical interest rate scenarios at least quarterly and compare these results against a scenario with no changes in interest rates. We use two approaches to model interest rate risk: Earnings at Risk, or EAR, and Economic Value of Equity, or EVE. Under EAR, net interest income is modeled utilizing various assumptions for assets and liabilities. EVE measures the period end market value of assets minus the market value of liabilities and the change in this value as rates change. EVE is a period end measurement.

Our simulation model incorporates various assumptions, which we believe are reasonable but which may have a significant impact on results such as: (i) the timing of changes in interest rates; (ii) shifts or rotations in the yield curve; (iii) re-pricing characteristics for market-rate-sensitive instruments; (iv) varying loan prepayment speeds for different interest rate scenarios; and (v) the overall growth and mix of assets and liabilities. Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results but rather as a means to better plan and execute appropriate asset-liability management strategies and manage our interest rate risk.

Potential changes to our net interest income in hypothetical rising and declining rate scenarios calculated as of ~~March 31, 2018~~June 30, 2022 and December 31, ~~2017~~2021 are presented in the following table. The projections assume ~~(i)~~(1) immediate, parallel shifts downward of the yield curve of 100 basis points and ~~(ii)~~(2) immediate, parallel shifts upward of the yield curve of 100, 200, 300 and 400 basis points over 12 months. In the current interest rate environment, a downward shift of the yield curve of 200, 300 and 400 basis points does not provide

us with meaningful results. In a downward parallel shift of the yield curve, interest rate at the short-end of the yield curve are not modeled to decline any further than 0%.


	Net Interest Income Sensitivity						Economic Value of Equity Sensitivity							Net Interest Sensitivity				Economic Value of Equity Sensitivity
	03/31/2018			12/31/2017			03/31/2018			12/31/2017				June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
+400 basis points		16.58	%		14.74	%		(1.63	) %		2.71	%	+400 basis points	7.77	%	26.96	%	(37.38)	%	(8.18)	%
+300 basis points		13.42	%		12.11	%		0.35	%		4.45	%	+300 basis points	6.86	%	21.44	%	(23.37)	%	0.62	%
+200 basis points		9.54	%		8.73	%		1.33	%		5.00	%	+200 basis points	5.46	%	15.15	%	(11.83)	%	6.11	%
+100 basis points		5.23	%		4.89	%		2.29	%		5.28	%	+100 basis points	3.04	%	8.07	%	(3.67)	%	6.92	%
-100 basis points		(3.25	) %		(2.95	) %		(4.85	) %		(9.23	) %	-100 basis points	(5.14)	%	(2)	%	(8.66)	%	(23.05)	%

We are within board-established policy limits for the all rate scenarios. The EAR reported at March 31, 2018 projects that our earnings are expected to be sensitive to changes in interest rates over the next year. In recent periods, the amount of fixed rate assets decreased resulting in a position shift to be slightly more asset sensitive.

Item 4. Controls and ~~Procedures~~

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 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.

Changes in internal control over financial reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the ~~fiscal quarter~~period covered to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART ~~II—OTHE~~RII - OTHER INFORMATION

Item 1. Legal ~~Proceedings~~

Proceedings.

In the ~~ordinary~~normal course of business, we are subject to legal proceedings or ~~may~~claims. Management has reviewed all legal claims against us and possible loss contingencies, and does not expect the amounts to be ~~involved in various legal or regulatory proceedings, claims, including claims related~~material to employment, wage-hour and labor law claims, lender liability claims, and consumer and privacy claims, some which may be styled as “class action” or representative cases. We evaluate all claims and lawsuits with respect to their potential merits, our potential defenses and counterclaims, settlement or litigation potential and the expected effect on us. The outcome of any ~~claims or litigation, regardless~~ of the merits, is inherently uncertain. We make a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The outcomes of our legal proceedings and other contingencies are, however, inherently unpredictable and subject to significant uncertainties. The Company presently does not have any adverse pending legal actions.

consolidated financial statements.

Item 1A. Risk Factors.

A discussion of the risk factors affecting us is set forth in Part I, Item 1A. Risk Factors

~~In addition~~ in our 2021 Annual Report on Form 10-K. The discussion of risk factors provides a description of some of the important risk factors that could affect our actual results and could cause our results to vary materially from those expressed in public statements or documents. However, other factors besides those included in the discussion of risk factors or discussed elsewhere in other of our reports filed with or furnished to the ~~other information set forth in this Report, you should carefully consider the other factors discussed in the “Risk Factors” section of our registration statement on Form S-1 filed with the~~ SEC ~~on March 5, 2018 (333-223444) and declared effective by the SEC on March 27, 2018, which~~ could ~~materially~~ affect our business ~~financial condition and/~~or ~~operating~~ results. ~~There were no material changes from risk~~The readers should not consider any description of such factors ~~previously disclosed in our registration statement on Form S-1. The risk factors identified are in addition~~ to ~~those contained in any other cautionary statements, written or oral, which~~be a complete set of all potential risks that we may ~~be or otherwise addressed in connection with a forward~~‑~~looking statement or contained in any of our subsequent filings with the SEC.~~

face.

Item 2. Unregistered Sales of Equity Securities and Use of ~~Proceeds~~

~~Unregistered Sales of Equity Securities~~

On January 18, 2018 and February 21, 2018, two of our directors exercised 40,000 stock options issued under our 2010 Plan at an exercise price of $2.85. The issuance of the shares of common stock was exempt from registration under the Securities Act, in reliance upon Rule 701 promulgated under Section 3(b) of the Securities Act as a transactions by an issuer pursuant to benefit plans and contracts relating to compensation as provided under Rule 701.

~~Use of Proceeds for Initial Public Offering of Common Stock~~

On March 27, 2018, our Registration Statement on Form S-1 (File No. 333-223444) was declared effective by the SEC for our initial public offering of common stock, pursuant to which we sold an aggregate of 2,300,000 shares of our common stock at a public offering price of $11.00 per share, for aggregate net proceeds of approximately $22.6 million, after deducting underwriter discounts and commissions paid by us of approximately $1.7 million and other offering expenses of approximately $925,000. The offering commenced on March 27, 2018 and did not terminate before all of the shares in the initial public offering were registered in the registration statement were sold. There has been no material change in the planned use of proceeds from our initial public offering as described in our Prospectus. Keefe, Bruyette & Woods, Inc., A Stifel Company, was the book-running manager and D.A. Davidson & Co. was the co-manager for the initial public offering.

Proceeds.

None.

Item 3. Defaults Upon Senior ~~Securities~~

~~Not Applicable~~

Securities.

None.

Item 4. Mine Safety ~~Disclosures~~

Disclosures.

Not ~~Applicable~~

applicable.

Item 5. Other ~~Information~~

~~None~~

Information.

None.

Item 6. ~~Exhibits~~

Exhibits.

~~Exhibit~~ ~~Number~~	~~Description~~
~~3.1~~ Exhibit Number		Description
3.1		Articles of Incorporation of OP Bancorp ~~included as~~(incorporated herein by reference to Exhibit 3.1 to the Registrant’s Form S-1 Registration Statement (Registration No. 333-223444) filed on ~~Form S-1 filed~~ March 5, ~~2018 and incorporated herein by reference.~~2018)
~~3.2~~
3.2		Amended and Restated Bylaws of OP Bancorp ~~included as~~(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 ~~S-1~~10-K (File No. 001-38437) filed on March ~~5, 2018 and incorporated herein by reference.~~15, 2021)
31.1*
31.1		Certification of ~~Chief~~Principal Executive Officer ~~pursuant~~Pursuant to Rules 13a-14(a) ~~and~~or 15d-14(a) under the Securities Exchange Act of 1934, as ~~adopted pursuant~~Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
31.2		Certification of ~~Chief~~Principal Financial Officer Pursuant to Rules 13a-14(a) ~~and~~or 15d-14(a) under the Securities Exchange Act of 1934, as ~~adopted pursuant~~Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
32.1		Certification of ~~Chief~~Principal Executive Officer ~~pursuant~~Pursuant to 18 U.S.C. Section 1350, as ~~adopted pursuant~~Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
32.2		Certification of ~~Chief~~Principal Financial Officer ~~pursuant~~Pursuant to 18 U.S.C. Section 1350, as ~~adopted pursuant~~Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~101.INS~~
101.INS		XBRL Instance Document
~~101.SCH~~
101.SCH		XBRL Taxonomy Extension Schema Document
~~101.CAL~~
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
~~101.DEF~~
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
~~101.LAB~~
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
~~101.PRE~~
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

*	~~Filed herewith.~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this ~~report~~Report to be signed on its behalf by the undersigned, thereunto duly ~~authorized.~~

authorized.

	~~Company Name~~
					OP Bancorp

Date: ~~May 15, 2018~~ August 12, 2022		By:	~~By:~~	/s/ MIN J. KIM
			Min J. Kim
		~~Min J. Kim~~
		President and Chief Executive Officer

Date: ~~May 15, 2018~~ August 12, 2022		By:	~~By:~~	/s/ ~~Christine Oh~~ CHRISTINE Y. OH
				Christine Y. Oh
		Chief Financial Officer

	Common Stock				Additional				Accumulated Other			Total
	Shares Outstanding		Amount		Paid-in Capital		Retained Earnings		Comprehensive Income (Loss)			Shareholders’ Equity
Balance at January 1, 2017		12,896,548	$	67,499,310	$	4,611,973	$	9,387,470	$	(214,966	)	$	81,283,787
Net income		—		—		—		2,145,687		—			2,145,687
Stock issued under stock-based compensation plans		92,680		190,250		—		—		—			190,250
Stock-based compensation		—		—		179,289		—		—			179,289
Change in unrealized loss on securities available for sale net of reclassifications and tax effects		—		—		—		—		(18,304	)		(18,304	)
Balance at March 31, 2017		12,989,228	$	67,689,560	$	4,791,262	$	11,533,157	$	(233,270	)	$	83,780,709

Balance at January 1, 2018		13,190,527	$	67,925,860	$	5,279,991	$	18,623,952	$	(349,853	)	$	91,479,950
Net income		—		—		—		3,215,935		—			3,215,935
Stock issued under stock offering, net of expenses		2,300,000		22,637,000		—		—		—			22,637,000
Stock issued under stock-based compensation plans		40,000		114,000		—		—		—			114,000
Stock-based compensation		—		—		245,968		—		—			245,968
Change in unrealized loss on securities available for sale net of reclassifications and tax effects		—		—		—		—		(432,930	)		(432,930	)
Balance at March 31, 2018		15,530,527	$	90,676,860	$	5,525,959	$	21,839,887	$	(782,783	)	$	117,259,923

						SBA
	Commercial		SBA Loans			Loans Non-			Commercial			Home
	Real Estate		Real Estate			Real Estate			and Industrial			Mortgage			Consumer			Total
Three months ended March 31, 2018:
Beginning balance	$	4,801,297	$	1,082,065		$	537,967		$	1,265,456		$	1,407,742		$	44,961		$	9,139,488
Provision for loan losses		410,996		(76,299	)		(39,340	)		315,765			(32,481	)		(3,461	)		575,180
Charge-offs		—		—			—			—			—			—			—
Recoveries		—		—			1,500			—			—			—			1,500
Ending balance	$	5,212,293	$	1,005,766		$	500,127		$	1,581,221		$	1,375,261		$	41,500		$	9,716,168
Three months ended March 31, 2017:
Beginning balance	$	4,217,089	$	892,605		$	59,032		$	1,322,294		$	1,363,628		$	55,034		$	7,909,682
Provision for loan losses		1,898		29,050			452,768			(28,270	)		88,140			(2,503	)		541,083
Charge-offs		—		—			(75,894	)		—			—			—			(75,894	)
Recoveries		—		—			5,225			—			—			—			5,225
Ending balance	$	4,218,987	$	921,655		$	441,131		$	1,294,024		$	1,451,768		$	52,531		$	8,380,096

	Loans Individually Evaluated for Impairment		Loans Collectively Evaluated for Impairment		Total
As of March 31, 2018:
Allowance for loan losses:
Commercial real estate	$	—	$	5,212,293	$	5,212,293
SBA loans—real estate		—		1,005,766		1,005,766
SBA loans—non-real estate		361,736		138,391		500,127
Commercial and industrial		553,453		1,027,768		1,581,221
Home mortgage		—		1,375,261		1,375,261
Consumer		—		41,500		41,500
Total	$	915,189	$	8,800,979	$	9,716,168
Loans:
Commercial real estate	$	—	$	456,753,192	$	456,753,192
SBA loans—real estate		—		103,902,484		103,902,484
SBA loans—non-real estate		361,736		9,756,228		10,117,964
Commercial and industrial		1,759,498		113,260,683		115,020,181
Home mortgage		241,163		106,369,554		106,610,717
Consumer		—		3,672,606		3,672,606
Total	$	2,362,397	$	793,714,747	$	796,077,144
As of December 31, 2017:
Allowance for loan losses:
Commercial real estate	$	—	$	4,801,297	$	4,801,297
SBA loans—real estate		—		1,082,065		1,082,065
SBA loans—non-real estate		—		537,967		537,967
Commercial and industrial		353,985		911,471		1,265,456
Home mortgage		—		1,407,742		1,407,742
Consumer		—		44,961		44,961
Total	$	353,985	$	8,785,503	$	9,139,488
Loans:
Commercial real estate	$	—	$	421,811,734	$	421,811,734
SBA loans—real estate		—		107,427,788		107,427,788
SBA loans—non-real estate		—		8,655,808		8,655,808
Commercial and industrial		353,985		103,601,098		103,955,083
Home mortgage		241,164		104,239,551		104,480,715
Consumer		20,763		3,946,491		3,967,254
Total	$	615,912	$	749,682,470	$	750,298,382

					Average		Interest
	Recorded		Allowance		Recorded		Income
	Investment		Allocated		Investment		Recognized
As of and for the three months ended March 31, 2018:
With no related allowance recorded:
Commercial and industrial	$	749,368	$	—	$	749,368	$	10,356
Home mortgage		241,163		—		241,163		—
With an allowance recorded:
SBA loans—non-real estate		361,736		361,736		361,736		—
Commercial and industrial		1,010,130		553,453		1,023,052		13,740
	$	2,362,397	$	915,189	$	2,375,319	$	24,096
As of and for the three months ended March 31, 2017:
With no related allowance recorded:
Home mortgage	$	811,490	$	—	$	813,020	$	11,265
With an allowance recorded:
SBA loans—non-real estate		388,736		388,736		388,736		—
Commercial and industrial		363,700		363,700		365,510		3,926
	$	1,563,926	$	752,436	$	1,567,266	$	15,191

	March 31, 2018
2018 remaining	$	184,486,181
2019		78,181,973
2020		884,212
Thereafter		295,679
Total	$	263,848,045

	March 31, 2018
Federal Home Loan Bank—San Francisco	$	166,242,000
Federal Reserve Bank		96,607,000
Pacific Coast Bankers Bank		4,000,000
Zions Bank		5,500,000
Total	$	272,349,000

2018 remaining	$	1,231,143
2019		1,737,769
2020		1,779,970
2021		1,830,979
2022		1,825,952
Thereafter		3,797,971
Total	$	12,203,784

			Fair Value Measuring Using
			Quoted		Significant Other		Significant
			Prices in		Observable		Unobservable
	Total		Active Markets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
As of March 31, 2018:
U.S. Government sponsored agency securities	$	6,868,080	$	—	$	6,868,080	$	—
Mortgage-backed securities - residential		12,987,463		—		12,987,463		—
Collateralized mortgage obligations		17,008,968		—		17,008,968		—
Other investments:
Mutual fund - CRA qualified		2,532,056		2,532,056		—		—

As of December 31, 2017:
U.S. Government sponsored agency securities	$	6,932,008	$	—	$	6,932,008	$	—
Mortgage-backed securities - residential		13,940,525		—		13,940,525		—
Collateralized mortgage obligations		18,113,498		—		18,113,498		—
Other securities		2,485,680		2,485,680		—		—

��						Required for					Minimum
						Capital Adequacy					To be Considered
	Actual					Purposes					"Well Capitalized"
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2018:
Total capital (to risk-weighted assets)
Consolidated	$	127,461		16.17	%	$	63,057		8.00	%	N/A		N/A
Bank		127,394		16.16	%		63,051		8.00	%		78,814		10.00	%
Tier 1 capital (to risk-weighted assets)
Consolidated		117,681		14.93	%		47,292		6.00	%	N/A		N/A
Bank		117,614		14.92	%		47,288		6.00	%		63,051		8.00	%
Common equity Tier 1 capital
(to risk-weighted assets)
Consolidated		117,681		14.93	%		35,469		4.50	%	N/A		N/A
Bank		117,614		14.92	%		35,466		4.50	%		51,229		6.50	%
Tier 1 capital (to average assets)
Consolidated		117,681		13.09	%		35,962		4.00	%	N/A		N/A
Bank		117,614		13.09	%		35,950		4.00	%		44,938		5.00	%

Financial Highlights (unaudited)
(Dollars in thousands, except per share data)	As of or for the Three Months Ended
	March 31,			March 31,
	2018			2017
Income Statement Data:
Interest income	$	11,180		$	9,185
Interest expense		1,621			978
Net interest income		9,559			8,207
Provision for loan losses		575			541
Noninterest income		2,212			2,244
Noninterest expense		6,811			6,389
Income before taxes		4,385			3,521
Provision for income taxes		1,169			1,375
Net Income	$	3,216		$	2,146
Diluted earnings per share	$	0.22		$	0.15
Balance Sheet Data:
Loans held for sale	$	18,571		$	925
Gross loans, net of unearned income		793,751			681,937
Allowance for loan losses		9,716			8,380
Total assets		956,842			800,188
Deposits		818,280			711,047
Shareholders’ equity		117,260			83,781
Performance Ratios:
Return on average assets (annualized)		1.43	%		1.10	%
Return on average equity (annualized)		13.64	%		10.39	%
Net interest margin (annualized)		4.56	%		4.47	%
Efficiency ratio ⁽¹⁾		57.86	%		61.13	%
Credit Quality:
Nonperforming loans	$	592		$	364
Nonperforming assets		592			364
Net charge-offs to average gross loans (annualized)		0.00	%		0.04	%
Nonperforming assets to gross loans plus OREO		0.07	%		0.05	%
ALL to nonperforming loans		1641	%		2302	%
ALL to gross loans		1.22	%		1.23	%
Capital Ratios:
Leverage ratio		13.09	%		10.74	%
Common equity tier 1 ratio		14.93	%		12.41	%
Tier 1 risk-based capital ratio		14.93	%		12.41	%
Total risk-based capital ratio		16.17	%		13.66	%

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

	Three Months Ended March 31,
	2018 over 2017
	Change due to:
(Dollars in thousands)	Volume			Rate			Interest Variance
Earning assets:
Federal funds sold and other investments	$	(1	)	$	33		$	32
Securities available for sale		15			29			44
Total investments		14			62			76
Real estate		1,009			281			1,290
SBA		373			154			527
C & I		22			114			136
Home Mortgage		(10	)		(12	)		(22	)
Consumer		(15	)		3			(12	)
Loans		1,379			540			1,919
Total earning assets		1,393			602			1,995

NOW and savings deposits		1			-			1
Money market deposits		5			159			164
Time deposits		151			247			398
Total interest-bearing deposits		157			406			563
Borrowings		64			16			80
Total interest-bearing liabilities		221			422			643

Net interest income	$	1,172		$	180		$	1,352

	March 31, 2018							December 31, 2017
	Amortized		Fair		Unrealized			Amortized		Fair		Unrealized
(Dollars in thousands)	Cost		Value		Gain/(Loss)			Cost		Value		Gain/(Loss)
Available for sale
U.S. Government agencies	$	6,990	$	6,868	$	(122	)	$	6,989	$	6,932	$	(57	)
Mortgage-backed securities: residential		13,379		12,988		(391	)		14,109		13,941		(168	)
Collateralized mortgage obligations		17,607		17,009		(598	)		18,459		18,113		(346	)
Other securities		—		—		—			2,518		2,486		(32	)
Total available for sale	$	37,976	$	36,865	$	(1,111	)	$	42,075	$	41,472	$	(603	)

																Regulatory
																Capital Ratio
																Requirements,
						Regulatory					Minimum					including fully
						Capital Ratio					To be Considered					phased in Capital
	Actual					Requirements					"Well Capitalized"					Conservation Buffer
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2018:
Total capital (to risk-weighted assets)
Consolidated	$	127,461		16.17	%	$	63,057		8.00	%	N/A		N/A			$	82,762		10.50	%
Bank		127,394		16.16	%		63,051		8.00	%		78,814		10.00	%		82,755		10.50	%
Tier 1 capital (to risk-weighted assets)
Consolidated		117,681		14.93	%		47,292		6.00	%	N/A		N/A				66,998		8.50	%
Bank		117,614		14.92	%		47,288		6.00	%		63,051		8.00	%		66,992		8.50	%
CET1 capital (to risk-weighted assets)
Consolidated		117,681		14.93	%		35,469		4.50	%	N/A		N/A				55,174		7.00	%
Bank		117,614		14.92	%		35,466		4.50	%		51,229		6.50	%		55,170		7.00	%
Tier 1 capital (to average assets)
Consolidated		117,681		13.09	%		35,962		4.00	%	N/A		N/A				35,962		4.00	%
Bank		117,614		13.09	%		35,950		4.00	%		44,938		5.00	%		35,950		4.00	%

	Payments Due at March 31, 2018
	Within		One to		Three to		After Five
(Dollars in thousands)	One Year		Three Years		Five Years		Years		Total
Deposits without a stated maturity	$	554,432	$	—	$	—	$	—	$	554,432
Time deposits		251,190		12,400		258		—		263,848
Operating lease commitments		1,662		3,542		3,646		3,354		12,204
Advanced from FHLB		10,000		—		—		—		10,000
Total contractual obligations	$	817,284	$	15,942	$	3,904	$	3,354	$	840,484

	Payments Due at December 31, 2017
	Within		One to		Three to		After Five
(Dollars in thousands)	One Year		Three Years		Five Years		Years		Total
Deposits without a stated maturity	$	540,573	$	—	$	—	$	—	$	540,573
Time deposits		217,783		14,768		182		—		232,733
Operating lease commitments		1,630		3,251		3,378		3,763		12,022
Advanced from FHLB		25,000		—		—		—		25,000
Total contractual obligations	$	784,986	$	18,019	$	3,560	$	3,763	$	810,328