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What changed in OP Bancorp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of OP Bancorp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+427 added−391 removedSource: 10-K (2024-03-29) vs 10-K (2023-03-16)

Top changes in OP Bancorp's 2023 10-K

427 paragraphs added · 391 removed · 299 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

108 edited+20 added−11 removed259 unchanged
Biggest changeThe descriptions are qualified in their entirety by reference to the particular statutory or regulatory provision. Regulatory Capital Requirements The Company and the Bank are subject to a comprehensive capital framework (the “Capital Rules”) adopted by Federal banking regulators (including the Federal Reserve and the FDIC).
Biggest changeRegulatory Capital Requirements The Bank is subject to a comprehensive capital framework (the “Capital Rules”) adopted by Federal banking regulators (including the Federal Reserve and the FDIC), and similar rules will apply to the Company once its total assets exceed $3 billion or if it engages in certain types of activities.
We believe that the customers at these larger institutions will look for an alternative banking experience tailored towards their specific financial objectives. We strive to be the most prominent alternative to the larger Korean-American financial institutions. We differentiate ourselves from our competitors by developing meaningful and personal relationships with our customers, and providing superior service.
We believe that customers at these larger institutions will look for an alternative banking experience tailored towards their specific financial objectives. We strive to be the most prominent alternative to the larger Korean-American financial institutions. We differentiate ourselves from our competitors by developing meaningful and personal relationships with our customers, and providing superior service.
Open Bank’s board of directors delegates loan authority, up to the board-approved limits, to its Loan & Credit Policy Committee, which is comprised of members of its board of directors. Our board of directors also delegates limited lending authority to our internal management loan committee, which is 7 comprised of members of our executive management team.
Open Bank’s board of directors delegates loan authority, up to the board-approved limits, to its Loan & Credit Policy Committee, which is comprised of members of its board of directors. Our board of directors also delegates limited 7 lending authority to our internal management loan committee, which is comprised of members of our executive management team.
Interest rates for the first TD Bank loans are subject to normal bank commercial rates and terms and the second TD CDC loans are fixed for the life of the loans based on certain indices. We originate SBA loans through our branch staff, loan production officers, marketing officers and through SBA brokers.
Interest rates for the first TD Bank loans are subject to normal bank commercial rates and terms and the second TD CDC loans are fixed for the life of the loans based on certain indices. We originate SBA loans through our branch staff, loan production officers, marketing officers and SBA brokers.
Commercial and Industrial Loans . We have significant expertise in the small- to medium-sized commercial and industrial lending market, including trade finance loans. We believe our success is the result of our product and market expertise, and our focus on delivering high-quality, customized and quick turnaround service for our clients.
We have significant expertise in the small- to medium-sized commercial and industrial lending market, including trade finance loans. We believe our success is the result of our product and market expertise, and our focus on delivering high-quality, customized and quick turnaround service for our clients.
The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking as to be a proper incident thereto.” This authority would permit the Company to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software 17 development) and mortgage banking and brokerage.
The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking as to be a proper incident thereto.” This authority would permit the Company to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage.
Some specific goals of our investment portfolio are as follows: • provide a ready source of balance sheet liquidity, ensuring adequate availability of funds to meet fluctuations in loan demand, deposit balances and other changes in balance sheet volumes and composition; 11 • serve as a tool to manage asset-quality diversification of our assets; and • provide a vehicle to help manage our interest rate risk profile pursuant to our established policies and maximize our overall return.
Some specific goals of our investment portfolio are as follows: • provide a ready source of balance sheet liquidity, ensuring adequate availability of funds to meet fluctuations in loan demand, deposit balances and other changes in balance sheet volumes and composition; • serve as a tool to manage asset-quality diversification of our assets; and • provide a vehicle to help manage our interest rate risk profile pursuant to our established policies and maximize our overall return.
We believe our comprehensive risk management system is designed to make sure that we have sound policies, procedures, and practices for the management of key risks under 5 our risk framework (which includes market, operational, liquidity, interest rate sensitivity, credit, regulatory, legal and reputational risk) and that any exceptions to written policy are reported by senior management to our board of directors or audit committee.
We believe our comprehensive risk management system is designed to make sure that we have sound policies, procedures, and practices for the management of key risks under our risk framework (which includes market, operational, liquidity, interest rate sensitivity, credit, regulatory, legal and reputational risk) and that any exceptions to written policy are reported by senior management to our board of directors or audit committee.
The CRA further requires the agencies to take a financial institution’s record of meeting its community credit needs into account when evaluating applications for, among other things, domestic branches, consummating mergers or acquisitions or holding company formations. 21 The federal banking agencies have adopted regulations which measure a bank’s compliance with its CRA obligations on a performance based evaluation system.
The CRA further requires the agencies to take a financial institution’s record of meeting its community credit needs into account when evaluating applications for, among other things, domestic branches, consummating mergers or acquisitions or holding company formations. The federal banking agencies have adopted regulations which measure a bank’s compliance with its CRA obligations on a performance based evaluation system.
Although our growth has historically been organic, we are amenable to considering opportunistic strategic acquisitions to enhance our long-term growth strategy. 3 Our Strategies Our vision is to be the leading Korean-American community-based commercial bank in the Korean-American communities we serve, to meet the financial needs of underserved small- and medium-sized businesses and individuals, and to give back to these communities.
Although our growth has historically been organic, we are amenable to considering opportunistic strategic acquisitions to enhance our long-term growth strategy. Our Strategies Our vision is to be the leading Korean-American community-based commercial bank in the Korean-American communities we serve, to meet the financial needs of underserved small- and medium-sized businesses and individuals, and to give back to these communities.
We believe that we provide our customers with a high degree of service, convenience and the financial products they need to achieve their financial objectives, by offering a customer-oriented product mix, competitive pricing, and convenient locations. Our lending activities are diversified and include commercial real estate, commercial and industrial, SBA, home mortgage, and consumer loans.
We provide our customers with a high degree of service, convenience and the financial products we believe they need to achieve their financial objectives, by offering a customer-oriented product mix, competitive pricing, and convenient locations. Our lending activities are diversified and include commercial real estate, commercial and industrial, SBA, home mortgage, and consumer loans.
Specifically, subject to certain exemptions, the Bank may not extend credit, lease or sell property, or furnish any services, or fix or vary the consideration for any of the foregoing on the condition that the customer must (i) obtain or provide additional credit, property or services from or to the 18 Company or Bank, or (ii) refrain from obtaining other credit, property or services from competitors, except reasonable requirements to assure soundness of credit extended.
Specifically, subject to certain exemptions, the Bank may not extend credit, lease or sell property, or furnish any services, or fix or vary the consideration for any of the foregoing on the condition that the customer must (i) obtain or provide additional credit, property or services from or to the Company or Bank, or (ii) refrain from obtaining other credit, property or services from competitors, except reasonable requirements to assure soundness of credit extended.
We believe that our convenient branch network, personal relationship-driven culture, diversified product offering, and flexible pricing allow us to accelerate deposit growth. We plan to continue investing in our franchise brand, our community reputation, employees, and product capabilities to further improve customer loyalty with a view toward growing our high quality deposit portfolio. • Branch Expansion .
We believe that our convenient branch network, personal relationship-driven culture, diversified product offering, and flexible pricing allow us to accelerate deposit growth. We plan to continue investing in our brand, our community reputation, employees, and product capabilities to further improve customer loyalty with a view toward growing our high quality deposit portfolio. • Branch Expansion .
Commercial real estate lending typically involves higher loan principal amounts and the repayment is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. We believe that our management team has extensive knowledge of our borrowers and the markets where we operate.
Commercial real estate lending typically involves higher loan principal 8 amounts and the repayment is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. We believe that our management team has extensive knowledge of our borrowers and the markets where we operate.
Finally, we may also establish banking offices in other states by merging with banks or by purchasing banking offices of other banks in other states, subject to certain restrictions. Community Reinvestment Act . The CRA is intended to encourage insured depository institutions, while operating safely and soundly, to help meet the credit needs of their communities.
Finally, we may also establish banking offices in other states by merging with banks or by purchasing banking offices of other banks in other states, subject to certain restrictions. 21 Community Reinvestment Act . The CRA is intended to encourage insured depository institutions, while operating safely and soundly, to help meet the credit needs of their communities.
Affiliation with these local organizations provide our management team with knowledge of local markets and industries, as well as market developments that may impact the evolving business environment in which we operate. • Strong Risk Management Practices . We place significant emphasis on risk management as an integral component of our organizational culture.
Affiliation with these local organizations provide our management team with knowledge of local markets and industries, as well as market developments that may impact the evolving business environment in which we operate. 5 • Strong Risk Management Practices . We place significant emphasis on risk management as an integral component of our organizational culture.
We have not registered the trademark “Open Bank” under the trademark laws of the United States. Open Bank, S.A., a corporation organized and existing under the laws of Spain with its principal office located in Ciudad Grupo 13 Santander, Av. Catabria Boadilla del Monte Madrid Spain (“Open Bank S.A.”) originally registered the trademark “Open Bank” (U.S.
We have not registered the trademark “Open Bank” under the trademark laws of the United States. Open Bank, S.A., a corporation organized and existing under the laws of Spain with its principal office located in Ciudad Grupo Santander, Av. Catabria Boadilla del Monte Madrid Spain (“Open Bank S.A.”) originally registered the trademark “Open Bank” (U.S.
We consider our relationship with our employees to be good and have not experienced interruptions of operations due to labor disagreements. 14 Litigation From time to time, we are party to claims and legal proceedings arising in the ordinary course of business. There are currently no claims or legal proceedings filed against us.
We consider our relationship with our employees to be good and have not experienced interruptions of operations due to labor disagreements. Litigation From time to time, we are party to claims and legal proceedings arising in the ordinary course of business. There are currently no claims or legal proceedings filed against us.
We also purchase home mortgage loans from TPO based on the review of their underwriting and file quality as opportunities arise. Loans collateralized by single-family residential real estate generally are originated in amounts of no more than 70% of the appraised value.
We also purchase home mortgage loans from TPO based on the review of their underwriting and file quality as opportunities arise. 10 Loans collateralized by single-family residential real estate generally are originated in amounts of no more than 70% of the appraised value.
In certain geographic markets where we currently operate, there is overlap between Chinese-American, Korean-American and other Asian-American banks for loan and deposit business. We aim to grow both organically and potentially through acquisitions in these markets. 12 The banking and financial services industry is highly competitive.
In certain geographic markets where we currently operate, there is overlap between Chinese-American, Korean-American and other Asian-American banks for loan and deposit business. We aim to grow both organically and potentially through acquisitions in these markets. The banking and financial services industry is highly competitive.
We further believe that our management team takes a conservative approach to commercial 8 real estate lending, focusing on what we believe to be high quality credits with low loan-to-value ratios, income-producing properties with strong cash flow characteristics, and strong collateral profiles.
We further believe that our management team takes a conservative approach to commercial real estate lending, focusing on what we believe to be high quality credits with low loan-to-value ratios, income-producing properties with strong cash flow characteristics, and strong collateral profiles.
Our investment policy is reviewed and approved annually by ALM and ratified by our board of directors. ALM establishes risk limits and policy for conducting investment activities. ALM receives quarterly reports from management’s Asset Liability Management Committee (“ALCO”), which approves investment strategies and meets monthly to review investment reports and monitor investment activities.
Our investment policy is reviewed and approved annually by ALM and ratified by our board of directors. ALM establishes risk limits and policy for conducting investment activities. ALM receives quarterly reports from management’s Asset Liability Management Committee (“ALCO”), which approves investment strategies and meets 11 monthly to review investment reports and monitor investment activities.
Common equity Tier 1 capital generally consists of retained earnings 15 and common stock instruments (subject to certain adjustments), as well as accumulated other comprehensive income (“AOCI”) except to the extent that the institution exercises a one-time irrevocable option to exclude certain components of AOCI.
Common equity Tier 1 capital generally consists of retained earnings and common stock instruments (subject to certain adjustments), as well as accumulated other comprehensive income (“AOCI”) except to the extent that the institution exercises a one-time irrevocable option to exclude certain components of AOCI.
Concentration risk exists when a financial institution deploys too many assets to a specific industry or segment of the economy with the potential to produce losses large enough to threaten its financial health. Concentration stemming from commercial real estate is one area of regulatory concern.
Concentration risk exists when a financial institution deploys too many assets to a specific industry or segment of the economy with the potential to produce losses large enough to threaten its financial health. Concentration stemming from commercial real estate ("CRE") is one area of regulatory concern.
The risk retention requirement generally is 5%, but could be increased or decreased by regulation. The Bank does not currently expect the CFPB’s rules to have a significant impact on its operations, except for higher compliance costs. 23 Home Mortgage Servicing .
The risk retention requirement generally is 5%, but could be increased or decreased by regulation. The Bank does not currently expect the CFPB’s rules to have a significant impact on its operations, except for higher compliance costs. Home Mortgage Servicing .
Additionally, the Dodd-Frank Act increased the minimum designated reserve ratio of the DIF to 1.35% of the estimated amount of total insured deposits as of September 30, 2020, and eliminated the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds.
Additionally, the Dodd-Frank Act increased the minimum designated reserve ratio of the DIF to 1.35% of the estimated amount of total insured deposits as of September 30, 2020, and eliminated the requirement that the FDIC pay 19 dividends to depository institutions when the reserve ratio exceeds certain thresholds.
In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications.
In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from 24 applications.
The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including by expanding the definition of “covered transactions” and increasing the amount of time for which collateral requirements regarding covered transactions must be maintained. 20 Loans to Directors, Executive Officers and Principal Shareholders .
The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including by expanding the definition of “covered transactions” and increasing the amount of time for which collateral requirements regarding covered transactions must be maintained. Loans to Directors, Executive Officers and Principal Shareholders .
Well capitalized institutions are not subject to limitations on brokered deposits, while adequately capitalized institutions are able to accept, renew or roll over brokered deposits only with a waiver from the FDIC and subject to certain restrictions on the yield paid on such deposits. Undercapitalized institutions are generally 19 not permitted to accept, renew, or roll over brokered deposits.
Well capitalized institutions are not subject to limitations on brokered deposits, while adequately capitalized institutions are able to accept, renew or roll over brokered deposits only with a waiver from the FDIC and subject to certain restrictions on the yield paid on such deposits. Undercapitalized institutions are generally not permitted to accept, renew, or roll over brokered deposits.
TPO sells 10 mortgage notes on the secondary market to investors that may include banks, correspondents, aggregators or Government Sponsored Enterprise (“GSE”), with the proceeds of those secondary market sales flowing directly to Open Bank to repay that specific loan advance.
TPO sells mortgage notes on the secondary market to investors that may include banks, correspondents, aggregators or Government Sponsored Enterprise (“GSE”), with the proceeds of those secondary market sales flowing directly to Open Bank to repay that specific loan advance.
The BHCA generally requires the prior approval by the Federal Reserve for any merger involving a bank holding company, any bank holding company’s acquisition of more than 5% of a class of voting securities of an unaffiliated bank or bank holding company, or acquisition of all or substantially all of the assets of a bank or bank holding company.
The BHCA generally requires the prior approval by the Federal Reserve for any merger involving a bank holding company, any bank holding company’s acquisition of more than 5% of a class of voting securities of an unaffiliated bank or bank holding company, or acquisition of all or substantially all of the 16 assets of a bank or bank holding company.
By virtue of their greater total capitalization, such banks also have substantially higher lending limits (restricted to a percentage of our total shareholders’ equity, depending upon the nature of the loan transaction) than us.
By virtue of their greater total capitalization, such banks also have substantially 12 higher lending limits (restricted to a percentage of our total shareholders’ equity, depending upon the nature of the loan transaction) than us.
The Company makes these reports available through its website on the same day they appear on the SEC website. Supervision and Regulation General We are extensively regulated under U.S. federal and state law.
The Company makes these reports available through its website on the same day they appear on the SEC website. 14 Supervision and Regulation General We are extensively regulated under U.S. federal and state law.
If a financial institution fails to comply with any of the standards set forth in the guidelines, its primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance.
If a financial 20 institution fails to comply with any of the standards set forth in the guidelines, its primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance.
The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by 1-4 family residential real property and augmented federal law combating predatory lending practices.
The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by 1-4 family residential real property and 23 augmented federal law combating predatory lending practices.
The Capital Rules generally measure an institution’s capital using four capital measures or ratios. The common equity Tier 1 capital ratio is the ratio of the institution’s common equity Tier 1 capital to its total risk-weighted assets. The Tier 1 risk-based capital ratio is the ratio of the institution’s Tier 1 capital to its total risk-weighted assets.
The Capital Rules generally measure an institution’s capital using four capital measures or ratios. The common equity Tier 1 capital ratio is the ratio of the institution’s common equity Tier 1 capital to its total risk-weighted assets. The 15 Tier 1 risk-based capital ratio is the ratio of the institution’s Tier 1 capital to its total risk-weighted assets.
We also believe that our overall capabilities, culture and opportunities for career growth will allow us to continue to attract talented and entrepreneurial commercial and retail bankers from larger Korean-American financial institutions. We are dedicated to building and fostering an excellent relationship with our employees by promoting a healthy work environment, comprehensive total rewards package, open communications, and employee involvement.
We also believe that our overall capabilities, culture and opportunities for career growth will allow us to continue to attract talented and entrepreneurial commercial and retail bankers from larger financial institutions. We are dedicated to building and fostering an excellent relationship with our employees by promoting a healthy work environment, comprehensive total rewards package, open communications, and employee involvement.
The DFPI also has broad enforcement powers over us, including the power to impose orders, remove officers and directors, impose fines and appoint supervisors and conservators. 16 The Company General .
The DFPI also has broad enforcement powers over us, including the power to impose orders, remove officers and directors, impose fines and appoint supervisors and conservators. The Company General .
In addition, in order to pay a dividend, the Capital Rules generally require that an institution maintains 2.5% in common equity Tier 1 capital. See “—Regulatory Capital Requirements” above. As described above, the Bank exceeded its minimum capital requirements under applicable regulatory guidelines as of December 31, 2022. Transactions with Affiliates .
In addition, in order to pay a dividend, the Capital Rules generally require that an institution maintains 2.5% in common equity Tier 1 capital. See “—Regulatory Capital Requirements” above. As described above, the Bank exceeded its minimum capital requirements under applicable regulatory guidelines as of December 31, 2023. Transactions with Affiliates .
Our experienced executive management team and senior leaders have exhibited the ability to strengthen shareholder value by consistently growing profitably. The members of our executive management team have, on average, more than 28 years’ experience working for large, billion-dollar-plus financial institutions in our markets during various economic cycles.
Our experienced executive management team and senior leaders have exhibited the ability to strengthen shareholder value by consistently growing profitably. The members of our executive management team have, on average, more than 30 years’ experience working for large, billion-dollar-plus financial institutions in our markets during various economic cycles.
New products and services, third-party risk management and cybersecurity are critical sources of operational risk that financial institutions are expected to address in the current environment. The Bank is expected to have active board and senior management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and management information systems; and comprehensive internal controls. Branching Authority .
New products and services, third-party risk management and cybersecurity are critical sources of operational risk that financial institutions are expected to address in the current environment. The Bank is expected to have active board and senior management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and management information systems; and comprehensive internal controls.
With certain limited exceptions, the maximum amount that a California bank may lend to any borrower at any one time (including the obligations to the bank of certain related entities of the borrower) may not exceed 25% (and unsecured loans may not exceed 15%) of the bank’s shareholders’ equity, allowance for loan losses, and any capital notes and debentures of the bank.
With certain limited exceptions, the maximum amount that a California bank may lend to any borrower at any one time (including the obligations to the bank of certain related entities of the borrower) may not exceed 25% (and unsecured loans may not exceed 15%) of the bank’s shareholders’ equity, allowance for credit losses, and any capital notes and debentures of the bank.
Our values are fostered by stewardship, integrity, teamwork, and excellence. We believe our commitment to our communities, culture and quality of our people have been catalysts of our success and will continue to propel our future. We aim to recruit and retain a workforce that will embrace our culture and values through our hiring process.
Our values are fostered by stewardship, integrity, teamwork, and excellence. We believe our commitment to our communities, culture and quality of our people have been catalysts of our success and will continue to propel our future. We aim to recruit and retain a workforce that embraces our culture and values through our hiring process.
Loan fees on these products, interest rates and other provisions of mortgage loans are determined by us on the basis of our own pricing criteria and competitive market conditions. The interest rates charged on our adjustable-rate loans are set at specified spreads based on LIBOR or SOFR rates.
Loan fees on these products, interest rates and other provisions of mortgage loans are determined by us on the basis of our own pricing criteria and competitive market conditions. The interest rates charged on our adjustable-rate loans are set at specified spreads based on SOFR rates.
The members of our executive team have been with Open Bank for an average of seven years. Our executive management team has instilled a transparent and entrepreneurial culture that rewards leadership, innovation, and problem solving. • Personal Relationship-Based Customer Service .
The members of our executive team have been with Open Bank for an average of 8 years. Our executive management team has instilled a transparent and entrepreneurial culture that rewards leadership, innovation, and problem solving. • Personal Relationship-Based Customer Service .
Our more specific strategic initiatives are discussed below. • Leverage our Franchise in the Korean-American Communities We Serve . The Korean-American banking landscape has seen increased consolidation of the larger Korean-American financial institutions that do business in our market areas.
Our more specific strategic initiatives are discussed below. • Leverage our Franchise in the Korean-American Communities We Serve . The Korean-American banking landscape has seen increased consolidation among the larger Korean-American financial institutions that do business in our market areas.
We had no nonperforming commercial real estate loans as of December 31, 2022. Payments on loans secured by such properties are often dependent on the successful operation (in the case of owner occupied real estate) or management (in the case of non-owner occupied real estate) of the properties.
We had no nonperforming commercial real estate loans as of December 31, 2023. Payments on loans secured by such properties are often dependent on the successful operation (in the case of owner occupied real estate) or management (in the case of non-owner occupied real estate) of the properties.
Lending Activities Our lending strategy is to maintain a broadly diversified loan portfolio based on the type of customer (i.e., businesses versus individuals), type of loan product (e.g., commercial real estate, commercial and industrial loans, etc.), geographic location and industries in which our business customers are engaged (e.g., manufacturing, retail, hospitality, 6 etc.).
Lending Activities Our lending strategy is to maintain a broadly diversified loan portfolio based on the type of customer (i.e., businesses versus individuals and across various business segments), type of loan product (e.g., commercial real estate, commercial and industrial loans, etc.), geographic location and industries in which our business customers are engaged 6 (e.g., manufacturing, retail, hospitality, etc.).
The CRE Concentration Guidance provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny: (i) commercial real estate loans exceeding 300% of capital and increasing 50% or more in the preceding three years; or (ii) construction and land development loans exceeding 100% of capital.
The CRE Concentration Guidance provides supervisory criteria, including the following numerical indicators, to assist bank 22 examiners in identifying banks with potentially significant CRE loan concentrations that may warrant greater supervisory scrutiny: (i) CRE loans exceeding 300% of capital and increasing 50% or more in the preceding three years; or (ii) construction and land development loans exceeding 100% of capital.
Bank holding companies are required to maintain capital in accordance with Federal Reserve capital adequacy requirements, as affected by the Dodd-Frank Act and Basel III. For a discussion of capital requirements, see “—Regulatory Capital Requirements” above. Source of Strength Doctrine .
Bank holding companies are required to maintain capital in accordance with Federal Reserve capital adequacy requirements, as affected by the Dodd-Frank Act and Basel III. For a discussion of capital requirements, see “Regulatory Capital Requirements” above. Source of Strength Doctrine .
The CRE Concentration Guidance does not limit banks’ levels of commercial real estate lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their commercial real estate concentrations.
The CRE Concentration Guidance does not limit banks’ levels of CRE lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their CRE concentrations.
As of December 31, 2022, the Bank was eligible to accept brokered deposits without a waiver from FDIC. Loans to One Borrower .
As of December 31, 2023, the Bank was eligible to accept brokered deposits without a waiver from FDIC. Loans to One Borrower .
In October 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023. During the year ended December 31, 2022, the Bank paid $563 thousand in aggregate FDIC deposit insurance premiums. Supervisory Assessments .
In October 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023. During the year ended December 31, 2023, the Bank paid $1.1 million in aggregate FDIC deposit insurance premiums. Supervisory Assessments .
Human Capital Resources We are an organization with a vision to be known as a faith-based community bank focused on relationship banking. We have invested in developing a distinct corporate culture guided by a core set of values. These values underlie everything we do, including the way we engage with customers, collaborate with colleagues, do business and manage our resources.
Human Capital Resources Our vision is to be known as a faith-based community bank focused on relationship banking. We have invested in developing a distinct corporate culture guided by a core set of values. These values underlie everything we do, including the way we engage with customers and vendors, collaborate with colleagues, do business and manage our resources.
During the year ended December 31, 2022, the Bank paid supervisory assessments to the DFPI totaling $145 thousand. Capital Requirements . Banks are generally required to maintain capital levels in excess of other businesses. For a discussion of capital requirements, see “—Regulatory Capital Requirements” above. Dividend Payments .
During the year ended December 31, 2023, the Bank paid supervisory assessments to the DFPI totaling $208 thousand. Capital Requirements . Banks are generally required to maintain capital levels in excess of other businesses. For a discussion of capital requirements, see “—Regulatory Capital Requirements” above. Dividend Payments .
Depending on the loan amount, each loan is typically guaranteed 75% to 85% by the SBA, with a maximum gross loan amount to any one small business borrower of $5 million and a maximum SBA guaranteed amount of $3.75 million.
Depending on the loan amount, each loan is typically guaranteed 75% to 90% by the SBA, with a maximum gross loan amount to any one small business borrower of $5.0 million and a maximum SBA guaranteed amount of $3.75 million.
We typically require, depending on the circumstances and the type of relationship, our borrowers to maintain deposit accounts. Approximately 57.9% of our borrowers have a deposit relationship with us. Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis.
We typically require, depending on the circumstances and the type of relationship, our borrowers to maintain deposit accounts. Approximately 58.5% of our borrowers have a deposit relationship with us. Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis.
Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans. The total consumer loan portfolio totaled $1.5 million as of December 31, 2022. We had no nonperforming consumer loans as of December 31, 2022.
Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans. The total consumer loan portfolio totaled $1.6 million as of December 31, 2023. We had no nonperforming consumer loans as of December 31, 2023.
Our nonperforming single-family residential real estate loans, as of December 31, 2022, were $1.3 million. Consumer Loans . We offer unsecured lines of credit and term loans to high net worth individuals. Consumer loans are underwritten based on the individual borrower’s income, current debt level, and past credit history. The terms of consumer loans are up to seven years.
Our nonperforming single-family residential real estate loans, as of December 31, 2023, were $2.5 million. Consumer Loans . We offer unsecured lines of credit and term loans to high net worth individuals. Consumer loans are underwritten based on the individual borrower’s income, current debt level, and past credit history. The terms of consumer loans are up to seven years.
The CCPA was expanded by the California Privacy Rights Act of 2020 (the “CPRA”), which 24 provides further privacy rights to California residents and creates a new agency tasked with implementing regulations and conducting investigations and enforcement actions. The CPRA goes into effect on January 1, 2023. Cybersecurity .
The CCPA was expanded by the California Privacy Rights Act of 2020 (the “CPRA”), which took effect on January 1, 2023, and which provides further privacy rights to California residents and creates a new agency tasked with implementing regulations and conducting investigations and enforcement actions. Cybersecurity .
Bank holding companies must consult with the Federal Reserve before redeeming any equity or other capital instrument included in Tier 1 or Tier 2 capital prior to its stated maturity, if applicable, if such redemption could have a material effect on the level or composition of the organization’s capital base.
See “—Regulatory Capital Requirements” above. 18 Bank holding companies must consult with the Federal Reserve before redeeming any equity or other capital instrument included in Tier 1 or Tier 2 capital prior to its stated maturity, if applicable, if such redemption could have a material effect on the level or composition of the organization’s capital base.
We strive to retain an attractive deposit mix from both large and small customers and a broad market reach, which has resulted in our top 10 customers accounting for only 8.9% of all deposits as of December 31, 2022.
We strive to retain an attractive deposit mix from both large and small customers and a broad market reach, which has resulted in our top 10 customers accounting for only 6.6% of all deposits as of December 31, 2023.
Approximately 57.9% of our borrowers also have a deposit relationship with us, providing us with visibility into their liquidity profile and contributing to our ability to manage our asset quality. • Strong Community Relationships .
Approximately 58.5% of our borrowers also have a deposit relationship with us, providing us with visibility into their liquidity profile and contributing to our ability to manage our asset quality. • Strong Community Relationships .
Our trade finance unit has a correspondent relationship with many of the largest banks in South Korea. All of our international letters of credit, SWIFT, and export advice are denominated in U.S. dollars. The total commercial and industrial loan portfolio totaled $117.0 million at December 31, 2022.
Our trade finance unit has a correspondent relationship with many of the largest banks in South Korea. All of our international letters of credit, SWIFT, and export advice are denominated in U.S. dollars. The total commercial and industrial loan portfolio totaled $121.0 million as of December 31, 2023.
Item 1. Business. Unless we state otherwise or the context otherwise requires, references in this prospectus to “we”, “our”, “us,” “ourselves,” “the company” and “the Company” refer to OP Bancorp, a California corporation, and its consolidated wholly-owned subsidiary, Open Bank, a California corporation, which is referred to as “Open Bank” or “the Bank”.
Item 1. Business. Unless we state otherwise or the context otherwise requires, references in this Annual Report on Form 10-K (this "Report") to “we”, “our”, “us,” “ourselves,” “the company” and “the Company” refer to OP Bancorp, a California corporation, and its consolidated wholly-owned subsidiary, Open Bank, a California corporation, which is referred to as “Open Bank” or “the Bank”.
We consider our core deposits, defined as all deposits except for time deposits exceeding $250,000, to be our primary and most valuable low-cost funding source for our lending business, and as of December 31, 2022, core deposits represented 81.1% of our total deposits.
We consider our core deposits, defined as all deposits except for time deposits exceeding $250,000, to be our primary and most valuable low-cost funding source for our lending business, and as of December 31, 2023, core deposits represented 76.0% of our total deposits.
Under the Coexistence Agreement, Open Bank S.A. retains the right to use and market its services in relation to its registered trademark in any state or territory in the United States. We further agreed not to challenge Open Bank, S.A.’s trademark registration or any future applications by Open Bank S.A. The Coexistence Agreement has no termination date and is perpetual.
Under the Coexistence Agreement, Open Bank S.A. retains the right to use and market its services in relation to its registered 13 trademark in any state or territory in the United States. We further agreed not to challenge Open Bank, S.A.’s trademark registration or any future applications by Open Bank S.A.
Deposit rates and terms are based primarily on current operating strategies and market interest rates, liquidity requirements and our deposit growth goals. We utilize wholesale deposits to supplement our core retail deposits for funding purposes, including brokered accounts. As of December 31, 2022, wholesale deposits totaled $401.6 million, or 21.3% of total deposits.
Deposit rates and terms are based primarily on current operating strategies and market interest rates, liquidity requirements and our deposit growth goals. We utilize wholesale deposits to supplement our core retail deposits for funding purposes, including brokered accounts. As of December 31, 2023, wholesale deposits totaled $335.5 million, or 18.6% of total deposits.
Since inception, we have donated over $13.4 million to the Foundation, aiding over 211 local non-profits. Our board and management team has strong ties and relationships within the Korean-American communities where we operate.
Since inception, we have donated over $15.6 million to the Foundation, aiding over 228 local non-profits. Our board and management team has strong ties and relationships within the Korean-American communities where we operate.
In addition, under the Capital Rules, institutions that seek to pay dividends must maintain a capital conservation buffer of 2.5% in common equity Tier 1 capital. See “—Regulatory Capital Requirements” above.
In addition, under the Capital Rules, institutions that seek to pay dividends must maintain a capital conservation buffer of 2.5% in common equity Tier 1 capital.
We offer a variety of loans, including commercial real estate loans (including loans secured by owner occupied commercial properties), SBA loans, mortgage warehouse lines of credit and commercial and industrial loans to local manufacturing and industrial companies and other businesses. We also offer various consumer loans to individuals and professionals including residential mortgage loans, and unsecured personal lines of credit.
We offer a variety of loans, including commercial real estate loans (including loans secured by owner occupied commercial properties), SBA loans, mortgage warehouse lines of credit and commercial and industrial loans to local manufacturing and industrial companies and other businesses. We also offer consumers residential mortgage loans, unsecured term loans, and unsecured lines of credit.
Having grown our branch and loan production office network over the past ten years, we now operate through ten full service branches located in the greater metropolitan area of Los Angeles, California, Orange County, California, Santa Clara County, California, and Carrollton, Texas, and four loan production offices in the Korean-American communities in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynnwood, Washington.
Having grown our branch and loan production office network, we now operate through eleven full service branches located in the greater metropolitan area of Los Angeles, Orange, and Santa Clara Counties in California, the Dallas metropolitan area in Texas, Clark County in Nevada, and four loan production offices in the Korean-American communities in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynnwood, Washington.
We have committed to contribute annually 10% of our consolidated net income after taxes to the Foundation. Since inception, we have donated over $13.4 million to the Foundation, aiding over 211 local non-profits.
We have committed to contribute annually 10% of our consolidated net income after taxes to the Foundation. Since inception, we have donated over $15.6 million to the Foundation, aiding over 228 local non-profits.
In addition, all of the mortgage loans in our loan portfolio contain due-on-sale clauses providing that the Bank may declare the unpaid amount due and payable upon the sale of the property securing the loan. The total home mortgage loan portfolio totaled $482.9 million at December 31, 2022.
In addition, all of the mortgage loans in our loan portfolio contain due-on-sale clauses providing that the Bank may declare the unpaid amount due and payable upon the sale of the property securing the loan. The total home mortgage loan portfolio totaled $518.0 million as of December 31, 2023.
Effective May 1, 2022, financial institutions are required to comply with the final rule issued by the federal bank regulatory agencies to improve sharing of information about cyber incidents that may affect the U.S. banking system.
Financial institutions also must comply with the final rule issued by the federal bank regulatory agencies to improve sharing of information about cyber incidents that may affect the U.S. banking system.
We believe that customers value a banking partner who is knowledgeable about their business needs with a willingness and commitment to reinvest back into the community. We convey to our customers that banking with us indirectly provides them an opportunity to contribute to the community.
We believe that our customers value a banking partner that is knowledgeable about their business needs with a willingness and commitment to reinvest in our communities. We assure our customers that banking with us indirectly provides them an opportunity to contribute to their community.
The economic base of these areas is heavily dependent on small- and medium-sized businesses. We also operate loan production offices in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynnwood, Washington to support our SBA lending efforts.
In addition, we operate one branch in Carrollton, Texas and one recently-opened branch in Las Vegas, Nevada. The economic base of these areas is heavily dependent on small- and medium-sized businesses. We also operate loan production offices in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynnwood, Washington to support our SBA lending efforts.
The risks created by such concentrations have been considered by management in the determination of the adequacy of the allowance for loan losses. Management believes the allowance for loan losses is adequate to cover probable incurred losses in our loan portfolio as of December 31, 2022.
The risks created by such concentrations have been considered by management in the determination of the adequacy of the allowance for credit losses. Management believes the allowance for credit losses is adequate to cover estimated lifetime expected losses in our loan portfolio as of December 31, 2023.
At December 31, 2022, approximately 78.9% of the commercial real estate loan portfolio consisted of fixed rate loans. Loan amounts generally do not exceed 70% of the lesser of the appraised value or the purchase price depending on the property audits we utilize. Our total commercial real estate loan portfolio totaled $842.2 million as of December 31, 2022.
As of December 31, 2023, approximately 76.1% of the commercial real estate loan portfolio consisted of fixed rate loans. Loan amounts generally do not exceed 70% of the lesser of the appraised value or the purchase price depending on the property audits we utilize. Our total commercial real estate loan portfolio totaled $885.6 million as of December 31, 2023.
We developed these components to recruit, retain, and reward top talent and remain an employer of choice by employees. As of December 31, 2022, we had approximately 221 full-time equivalent employees. Of our workforce, 37% are male and 63% are female. Our executive team is comprised of three females and four males.
We developed these components to recruit, retain, and reward top talent and remain an employer of choice by employees. As of December 31, 2023, we had 222 full-time equivalent employees, compared with 221 full-time equivalent employees as of December 31, 2022. Our executive team is comprised of three females and four males.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks Related to Our Business – Decline in general business and economic conditions – Ongoing impact of Covid-19 – Adverse economic conditions in Asia, particularly South Korea 25 – Fluctuations in interest rates – Monetary Policy and the Federal Reserve – Losses on our securities portfolio, particularly from increases in interest rates – Liquidity risks – Failure to successfully manage credit risks – Uncertainty relating to replacement of LIBOR Risks Related to Our Loans – Negative changes in the economy affecting real estate values and liquidity – Commercial borrowers present risks – Small and medium business loans subject to greater risks from adverse business developments – Risks from non-qualified single family home mortgage lending business – Unreliability of loan appraisals used in real property loan decisions – Increased regulatory scrutiny of commercial real estate concentrations – Underwriting practices may not forecast poor loan performance – Lack of seasoning of our loan portfolio due to recent growth over the last five years Risks Related to our SBA Loan Program – Dependence on U.S. federal government SBA loan program – Recognition of gains on sale of loans and servicing asset valuations subject to our assumptions we use – Credit risks from non-guaranteed portion of SBA loans we retain and do not sell – Credit risks from SBA loans we sell as a result of repurchase obligations Risks Related to Our Deposits – Concentrations of deposit relationships – Competition for deposits may increase cost of deposits negatively affecting our deposit growth Risks Related to Management – Success depends on the skills of our management and their retention – Competition for skilled and experienced senior level management employees Risks Related to Credit Quality – Our business ability to manage credit risk – Nonperforming assets demand management time to resolve and can affect our financial results – Allowance for loans losses may be insufficient to absorb potential losses in our loan portfolio – Environmental liabilities on foreclosed real estate collateral – Adverse effect of new accounting standards for loan losses which may increase our allowance Risks Related to our Growth Strategy – Inability to continue the growth of loans and deposits – Risks related to acquisitions, including finding suitable targets and integration risks following completion – Limited ability to expand because of an existing license agreement for the use of “Open Bank” – Risks of entering into new markets 26 – Managing risks of opening new branches – Managing risks of adding new lines of business Risks Related to Our Capital – Increased regulatory requirements – Raising new capital – Commitment to contribute 10% of our after tax income to the Open Stewardship Foundation Competition Risks – Competition among financial institutions, many of whom are much larger, have greater capital, more advanced technology – Modest size makes it more difficult to compete with larger financial institutions – Focus on marketing to the Korean-American geographic areas we serve Other Business Risks – Costs and effects of litigation, investigations or similar matters – Soundness of other financial institutions – Severe weather, natural disasters (including fire and earthquakes), wide spread disease or pandemics (including the COVID-19 pandemic), acts of war, and terrorism – Climate change could have material negative impact Risks Related to Our Reputation – Failure to maintain a favorable reputation with our customers and communities – Failure of our risk management framework – System failures or breaches of our network security – Difficulties of our third-party providers, termination of their services, or their failure to comply with regulatory requirements – Inaccurate information provided to us by customers or counterparts – Employee misconduct Finance and Accounting Risks – Reliance on risk management processes and analytical and forecasting models – Realization of our deferred tax assets – Changes in accounting standards – Failure maintain effective controls Legislative and Regulatory Risks – Extensive government regulation that could limit or restrict our activities – Legislative and regulatory actions now or in the future increase our costs, impact our business and financial results – Federal and state regulatory exams – Consumer protection laws and regulations – Complaints and allegations of discriminatory lending practices – Noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations 27 – Failure to comply with privacy, information security and data protection requirements Risks Related to Our Common Stock – Small trading volume – Volatile trading price of our common stock – Investment in common stock is not an insured deposit – Equity research analysts interest in our common stock, unfavorable commentary or downgrade of our common stock – Changes in dividend policy – Limitations on director liability for monetary damages for failure to exercise their fiduciary duty – Potential dilution from issuance of additional equity securities – Issuance of preferred stock without further shareholder approval which may have rights and preferences over our common stock – Charter documents and California law may have an anti-takeover effect limiting changes of control – Reduced regulatory and reporting requirements as an “emerging growth company” Risks Related to Our Business A decline in general business and economic conditions and any regulatory responses to such conditions could have a material adverse effect on our business, financial position and results of operations.
Biggest changeRisks Related to Our Business • Decline in general business and economic conditions • Adverse economic conditions in Asia, particularly South Korea • Fluctuations in interest rates • Monetary Policy and the Federal Reserve • Losses on our securities portfolio, particularly from increases in interest rates • Liquidity risks Risks Related to Our Loans • Negative changes in the economy affecting real estate values and liquidity • Commercial borrowers present risks • Small and medium business loans subject to greater risks from adverse business developments • Risks from non-qualified single family home mortgage lending business • Unreliability of loan appraisals used in real property loan decisions • Increased regulatory scrutiny of commercial real estate concentrations • Lack of seasoning of our loan portfolio due to recent growth over the last five years Risks Related to our SBA Loan Program • Dependence on U.S. federal government SBA loan program • Recognition of gains on sale of loans and servicing asset valuations subject to our assumptions we use • Credit risks from non-guaranteed portion of SBA loans we retain and do not sell • Credit risks from SBA loans we sell as a result of repurchase obligations Risks Related to Our Deposits • Concentrations of deposit relationships • Competition for deposits may increase cost of deposits negatively affecting our deposit growth Risks Related to Management • Success depends on the skills of our management and their retention • Competition for skilled and experienced senior level management employees Risks Related to Credit Quality • Our business ability to manage credit risk • Nonperforming assets demand management time to resolve and can affect our financial results • Allowance for credit losses may be insufficient to absorb potential losses in our loan portfolio Risks Related to our Growth Strategy • Inability to continue the growth of loans and deposits • Limited ability to expand because of an existing license agreement for the use of “Open Bank” • Managing risks of opening new branches • Managing risks of adding new lines of business Risks Related to Our Capital • Increased regulatory requirements • Raising new capital • Commitment to contribute 10% of our after tax income to the Open Stewardship Foundation 26 Competition Risks • Competition among financial institutions, many of whom are much larger, have greater capital, more advanced technology • Focus on marketing to the Korean-American geographic areas we serve Other Business Risks • Soundness of other financial institutions • Severe weather, natural disasters (including fire and earthquakes), wide spread disease or pandemics (including the COVID-19 pandemic), acts of war, and terrorism • Climate change could have material negative impact Risks Related to Our Reputation • Failure to maintain a favorable reputation with our customers and communities • Risks associated with cyberattacks, cybersecurity incidents, and loss or compromise of customer information • Failure of our risk management framework • Difficulties of our third-party providers, termination of their services, or their failure to comply with regulatory requirements • Employee misconduct Finance and Accounting Risks • Reliance on risk management processes and analytical and forecasting models • Realization of our deferred tax assets • Changes in accounting standards • Failure to maintain effective controls Legislative and Regulatory Risks • Legislative and regulatory actions now or in the future increase our costs, impact our business and financial results • Federal and state regulatory exams • Complaints and allegations of discriminatory lending practices • Noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations Risks Related to Our Common Stock • Small trading volume • Volatile trading price of our common stock • Equity research analysts interest in our common stock, unfavorable commentary or downgrade of our common stock • Changes in dividend policy • Potential dilution from issuance of additional equity securities • Charter documents and California law may have an anti-takeover effect limiting changes of control • Reduced regulatory and reporting requirements as a smaller reporting company Risks Related to Our Business Interruptions, cyber-attacks, fraudulent activity or other security breaches could have a material adverse effect on our business.
Any of the above could cause investors to lose confidence in our reported financial information or our common stock listing on NASDAQ Global Market to be suspended or terminated, which could have a negative effect on the trading price of our common stock.
Any of the above could cause investors to lose confidence in our reported financial information or our common stock listing on The Nasdaq Global Market to be suspended or terminated, which could have a negative effect on the trading price of our common stock.
The weakening of these standards for any reason, such as an attempt to attract higher yielding loans, a lack of discipline or diligence by our employees in underwriting and monitoring loans, the inability of our employees to adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers and the quality of our loan portfolio, may result in loan defaults, foreclosures and additional charge-offs and may necessitate that we significantly increase our allowance for loan losses, each of which could adversely affect our net income.
The weakening of these standards for any reason, such as an attempt to attract higher yielding loans, a lack of discipline or diligence by our employees in underwriting and monitoring loans, the inability of our employees to adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers and the quality of our loan portfolio, may result in loan defaults, foreclosures and additional charge-offs and may necessitate that we significantly increase our allowance for credit losses, each of which could adversely affect our net income.
These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need significant additional capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower’s ability to repay a loan.
These businesses generally have fewer financial resources in terms of capital 31 or borrowing capacity than larger entities, frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need significant additional capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower’s ability to repay a loan.
When we take collateral in foreclosure and similar proceedings, we are required to mark the collateral to its then-fair market value, which may result in a loss. These nonperforming loans and other real estate owned also increase our risk profile and the level of capital our regulators believe is appropriate for us to maintain in light of such risks.
When we take collateral in foreclosure and similar proceedings, we are required to mark the collateral to its then-fair market value, which may result in a loss. These nonperforming loans and other real estate owned also 35 increase our risk profile and the level of capital our regulators believe is appropriate for us to maintain in light of such risks.
Federal and state regulatory agencies also frequently adopt changes 45 to their regulations or change the manner in which existing regulations are applied. Presently, in addition to refining existing regulations implemented after the 2007-2008 financial crisis, the banking regulators are also focusing their attention on certain policy areas, such as climate risk, digital currencies, and technological innovation.
Federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied. Presently, in addition to refining existing regulations implemented after the 2007-2008 financial crisis, the banking regulators are also focusing their attention on certain policy areas, such as climate risk, digital currencies, and technological innovation.
If, as a result of an examination, a banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate.
If, as a result of an examination, a banking agency were to determine that our financial condition, 45 capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate.
Any such misrepresented information could have a material adverse effect on our business, financial condition and results of operations. 43 Employee misconduct could expose us to significant legal liability and reputational harm. We are vulnerable to reputational harm because we operate in an industry in which integrity and the confidence of our customers are of critical importance.
Any such misrepresented information could have a material adverse effect on our business, financial condition and results of operations. Employee misconduct could expose us to significant legal liability and reputational harm. We are vulnerable to reputational harm because we operate in an industry in which integrity and the confidence of our customers are of critical importance.
In addition, we could become subject to investigations by the SEC, the Board of Governors of the Federal Reserve System, the FDIC, the DFPI or other regulatory authorities, which could require additional financial and management resources. These events could have a material adverse effect on our business, financial condition and results of operations.
In addition, we could become subject to investigations by the 44 SEC, the Board of Governors of the Federal Reserve System, the FDIC, the DFPI or other regulatory authorities, which could require additional financial and management resources. These events could have a material adverse effect on our business, financial condition and results of operations.
Competition Risks We face strong competition from financial services companies and other companies that offer commercial banking services, which could harm our business. Our operations consist of offering commercial banking services to generate both interest and noninterest income. Many of our competitors offer the same, or a wider variety of, banking and related financial services within our market areas.
Competitive Risks We face strong competition from financial services companies and other companies that offer commercial banking services, which could harm our business. Our operations consist of offering commercial banking services to generate both interest and noninterest income. Many of our competitors offer the same, or a wider variety of, banking and related financial services within our market areas.
Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance. Our framework also includes financial or other modeling methodologies that involve management assumptions and judgment.
Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance. Our framework also includes financial or other modeling methodologies that involve management 41 assumptions and judgment.
A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace at any given time of willing buyers and sellers of our common 47 stock. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control.
A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace at any given time of willing buyers and sellers of our common stock. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control.
We employ detection and response mechanisms designed to contain and mitigate security incidents, but early detection may be thwarted by 42 sophisticated attacks and malware designed to avoid detection. Further, our cardholders use their debit and credit cards to make purchases from third parties or through third party processing services.
We employ detection and response mechanisms designed to contain and mitigate security incidents, but early detection may be thwarted by sophisticated attacks and malware designed to avoid detection. Further, our cardholders use their debit and credit cards to make purchases from third parties or through third party processing services.
These requirements, and any other new regulations or capital distribution constraints, could adversely affect the ability of the Bank to pay dividends to the Company and, in turn, affect our ability to pay dividends on our common stock. We have limited the circumstances in which our directors will be liable for monetary damages.
These requirements, and any other new 48 regulations or capital distribution constraints, could adversely affect the ability of the Bank to pay dividends to the Company and, in turn, affect our ability to pay dividends on our common stock. We have limited the circumstances in which our directors will be liable for monetary damages.
In general, loans do not begin to show signs of credit deterioration 32 or default until they have been outstanding for some period of time, a process referred to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a newer portfolio.
In general, loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process referred to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a newer portfolio.
Through established credit practices, we attempt to identify deteriorating loans and adjust the allowance for loan losses accordingly. However, because future events are uncertain and because we may not successfully identify all deteriorating loans in a timely manner, there may be loans that deteriorate in an accelerated time frame.
Through established credit practices, we attempt to identify deteriorating loans and adjust the allowance for credit losses accordingly. However, because future events are uncertain and because we may not successfully identify all deteriorating loans in a timely manner, there may be loans that deteriorate in an accelerated time frame.
These regulatory agencies, as well as consumer advocacy groups and plaintiffs’ attorneys, are focusing greater attention on “disparate impact” claims. Regulatory agencies and private plaintiffs are expected to apply the “disparate impact” theory to both the Fair Housing Act and ECOA in the context of mortgage lending and servicing, 46 among others.
These regulatory agencies, as well as consumer advocacy groups and plaintiffs’ attorneys, are focusing greater attention on “disparate impact” claims. Regulatory agencies and private plaintiffs are expected to apply the “disparate impact” theory to both the Fair Housing Act and ECOA in the context of mortgage lending and servicing, among others.
An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reduction of income recognized, which could have a material adverse effect on our results of operations and cash flows.
An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reduction of income recognized, which could have a material 29 adverse effect on our results of operations and cash flows.
Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, financial condition and results of operations. 38 Risks Related to Our Capital We are subject to more stringent capital requirements.
Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, financial condition and results of operations. Risks Related to Our Capital We are subject to more stringent capital requirements.
In the event that we issue preferred stock in the future that has preference over our common stock with respect to payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our 49 common stock, the rights of the holders of our common stock or the market price of our common stock could be adversely affected.
In the event that we issue preferred stock in the future that has preference over our common stock with respect to payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of the holders of our common stock or the market price of our common stock could be adversely affected.
In addition, the success of a small- and medium-sized business often depends on the management talents and efforts of one or two people 31 or a small group of people, and the death, disability or resignation of one or more of these people could have a material adverse impact on the business and its ability to repay its loan.
In addition, the success of a small- and medium-sized business often depends on the management talents and efforts of one or two people or a small group of people, and the death, disability or resignation of one or more of these people could have a material adverse impact on the business and its ability to repay its loan.
Under the Coexistence Agreement, Open Bank S.A. retains the right to use and market its services in relation to its registered trademark in any state or territory in 37 the United States. The Bank further agreed not to challenge Open Bank, S.A.’s trademark registration or any future applications by Open Bank S.A.
Under the Coexistence Agreement, Open Bank S.A. retains the right to use and market its services in relation to its registered trademark in any state or territory in the United States. The Bank further agreed not to challenge Open Bank, S.A.’s trademark registration or any future applications by Open Bank S.A.
Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. Subsequently, we continue to have a cost to 29 fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense.
Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. Subsequently, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense.
Significant errors in 33 assumptions used to compute gains on sale of loans or servicing asset valuations could result in material revenue misstatements, which may have a material adverse effect on our business, results of operations and profitability.
Significant errors in assumptions used to compute gains on sale of loans or servicing asset valuations could result in material revenue misstatements, which may have a material adverse effect on our business, results of operations and profitability.
If some investors find our common stock less attractive as a result, then there may be a less active trading market for our common stock, our stock price may be more volatile and the price of our common stock may decline. Item 1B. Unresolved Staff Comments. None. 50
If some investors find our common stock less attractive as a result, then there may be a less active trading market for our common stock, our stock price may be more volatile and the price of our common stock may decline. Item 1B. Unresolved Staff Comments. None.
These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are accurate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation.
These models 43 reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are accurate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation.
Our ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, and on our financial condition and performance.
Our ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, and on our financial condition 38 and performance.
The determination of these gains is based on assumptions regarding the value of unguaranteed loans retained, servicing rights retained and deferred fees and costs, and net premiums paid by purchasers of the guaranteed portions of U.S. government guaranteed loans.
The determination of these gains is based on assumptions regarding the value of unguaranteed 33 loans retained, servicing rights retained and deferred fees and costs, and net premiums paid by purchasers of the guaranteed portions of U.S. government guaranteed loans.
For purposes of this law, a person who directly or indirectly owns or controls 10% or more of our outstanding common stock would be presumed to control the Company.
For purposes 49 of this law, a person who directly or indirectly owns or controls 10% or more of our outstanding common stock would be presumed to control the Company.
We have exposure to different industries and counterparties, and through transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, and other institutional clients.
We have exposure to different industries and counterparties, and through transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, 40 and other institutional clients.
The process of eliminating banks as intermediaries, known as 39 “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.
The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.
If the models that management uses for determining our probable credit losses are inadequate, the allowance for loan losses may not be sufficient to support future charge offs.
If the models that management uses for determining our probable credit losses are inadequate, the allowance for credit losses may not be sufficient to support future charge offs.
Although management believes that the allowance for loan losses is adequate to absorb probable incurred losses on any existing loans that may become uncollectible, we may be required to take additional provisions for loan losses in the future to further supplement the allowance for loan losses, either due to management’s decision to do so or because our banking regulators require us to do so.
Although management believes that the allowance for credit losses is adequate to absorb probable incurred losses on any existing loans that may become uncollectible, we may be required to take additional provisions for credit losses in the future to further supplement the allowance for credit losses, either due to management’s decision to do so or because our banking regulators require us to do so.
Our bank regulatory agencies will periodically review our allowance for loan losses and the value attributed to nonaccrual loans or to real estate acquired through foreclosure and may require us to adjust our determination of the value for these items. These adjustments could have a material adverse effect on our business, financial condition and results of operations.
Our bank regulatory agencies will periodically review our allowance for credit losses and the value attributed to nonaccrual loans or to real estate acquired through foreclosure and may require us to adjust our determination of the value for these items. These adjustments could have a material adverse effect on our business, financial condition and results of operations.
If delinquencies and defaults increase, we may be required to increase our provision for loan losses, which could materially and adversely affect our business, financial condition and results of operations.
If delinquencies and defaults increase, we may be required to increase our provision for credit losses, which could materially and adversely affect our business, financial condition and results of operations.
There is risk related to acquisitions. We plan to continue to grow our business organically. However, from time to time, we may consider opportunistic strategic acquisitions that we believe support our long-term business strategy. When considering acquisition opportunities we face significant competition from numerous other financial services institutions, many of which will have greater financial resources than we do.
We plan to continue to grow our business organically. However, from time to time, we may consider opportunistic strategic acquisitions that we believe support our long-term business strategy. When considering acquisition opportunities we face significant competition from numerous other financial services institutions, many of which will have greater financial resources than we do.
Our dividend policy and/or share repurchase program may change without notice, and our future ability to pay dividends or repurchase or redeem shares is subject to restrictions. Since 2019, our board of directors have declared quarterly cash dividends on our common stock and have approved stock repurchase programs that authorized the repurchase of up to 1,870,000 shares of common stock.
Our dividend policy and/or share repurchase program may change without notice, and our future ability to pay dividends or repurchase or redeem shares is subject to restrictions. Since 2019, our board of directors have declared quarterly cash dividends on our common stock and have approved stock repurchase programs that authorized the repurchase of up to 2,620,000 shares of common stock.
At December 31, 2022, approximately 92.1% of our loan portfolio was comprised of loans with real estate as a primary or secondary component of collateral. As a result, adverse developments affecting real estate values in our market areas could increase the credit risk associated with our real estate loan portfolio.
At December 31, 2023, approximately 92.2% of our loan portfolio was comprised of loans with real estate as a primary or secondary component of collateral. As a result, adverse developments affecting real estate values in our market areas could increase the credit risk associated with our real estate loan portfolio.
The recognition of gains on the sale of SBA loans and servicing asset valuations reflect certain assumptions. We expect that gains on the sale of U.S. government guaranteed loans will comprise a significant component of our revenue. The gain on such sales recognized for the years ended December 31, 2022 and 2021 was $11.9 million and $11.0 million, respectively.
The recognition of gains on the sale of SBA loans and servicing asset valuations reflect certain assumptions. We expect that gains on the sale of U.S. government guaranteed loans will comprise a significant component of our revenue. The gain on such sales recognized for the years ended December 31, 2023 and 2022 was $7.8 million and $11.9 million, respectively.
Realization of a deferred tax asset requires us to apply significant judgment and is inherently speculative because it requires estimates that cannot be made with certainty. As of December 31, 2022, we had net deferred tax assets of $14.3 million.
Realization of a deferred tax asset requires us to apply significant judgment and is inherently speculative because it requires estimates that cannot be made with certainty. As of December 31, 2023 we had net deferred tax assets of $ $13.3 million .
It also will depend, in part, upon our ability to attract deposits and grow our loan portfolio and investment opportunities and on whether we can continue to fund growth while maintaining cost controls and asset quality, as well on other factors beyond our control, such as national, regional and local economic conditions and interest rate trends.
It also will depend, in part, upon our ability to attract deposits and grow our loan portfolio and investment opportunities and on whether we can continue to fund growth while maintaining cost controls and asset quality, as well on other factors beyond our control, such as national, regional and local economic conditions and interest rate trends. 36 There is risk related to acquisitions.
As a commercial bank, we provide services to a number of clients whose deposit levels vary considerably and have some seasonality. Our 10 largest retail depositor relationships accounted for approximately 8.9% of our deposits as of December 31, 2022. Our largest retail depositor relationship accounted for approximately 1.3% of our deposits as of December 31, 2022.
As a commercial bank, we provide services to a number of clients whose deposit levels vary considerably and have some seasonality. Our 10 largest retail depositor relationships accounted for approximately 6.6% of our deposits as of December 31, 2023. Our largest retail depositor relationship accounted for approximately 1.3% of our deposits as of December 31, 2023.
The allowance is based upon a number of factors, including the size of the loan portfolio, asset classifications, economic trends, industry experience and trends, industry and geographic concentrations, estimated collateral values, management’s assessment of the credit risk inherent in the portfolio, historical loan loss experience and loan underwriting policies.
The allowance is also appropriately increased for new loan growth. The allowance is based upon a number of factors, including the size of the loan portfolio, asset classifications, economic trends, industry experience and trends, industry and geographic concentrations, estimated collateral values, management’s assessment of the credit risk inherent in the portfolio, historical loan loss experience and loan underwriting policies.
As of December 31, 2022, our nonperforming loans (which consist of nonaccrual loans, loans past due 90 days or more and still accruing interest and loans modified under troubled debt restructurings) totaled $3.1 million, or 0.18% of our gross loans, and 0.15% of total assets. We did not have other real estate owned (“OREO”) as of December 31, 2022.
As of December 31, 2023, our nonperforming loans (which consist of nonaccrual loans, loans past due 90 days or more and still accruing interest and loans modified under troubled debt restructurings) totaled $6.1 million , or 0.34% of our gross loans, and 0.28% of total assets. We did not have other real estate owned (“OREO”) as of December 31, 2023.
These deposits can and do fluctuate substantially. The depositors are not concentrated in any industry or business. Our largest wholesale depositor relationship accounted for approximately 7.5% of our deposits as of December 31, 2022.
These deposits can and do fluctuate substantially. The depositors are not concentrated in any industry or business. Our largest wholesale depositor relationship accounted for approximately 8.9% of our deposits as of December 31, 2023.
We sold $181.9 million of SBA loans for the year ended December 31, 2022, compared to $110.3 million for the year ended December 31, 2021, of the guaranteed portion of our SBA loans. We generally retain the non-guaranteed portions of the SBA loans that we originate.
We sold $145.0 million of SBA loans for the year ended December 31, 2023, compared to $181.9 million for the year ended December 31, 2022, of the guaranteed portion of our SBA loans. We generally retain the non-guaranteed portions of the SBA loans that we originate.
These factors include, among other things: • actual or anticipated variations in our quarterly results of operations; • recommendations by securities analysts; • operating and stock price performance of other companies that investors deem comparable to us; • news reports relating to trends, concerns and other issues in the financial services industry generally; • perceptions in the marketplace regarding us and/or our competitors; • fluctuations in the stock price and operating results of our competitors; • domestic and international economic factors unrelated to our performance; • general market conditions and, in particular, developments related to market conditions for the financial services industry; • new technology used, or services offered, by competitors; and • changes in government regulations.
These factors include, among other things: • actual or anticipated variations in our quarterly results of operations; • recommendations by securities analysts; • operating and stock price performance of other companies that investors deem comparable to us; • news reports relating to trends, concerns and other issues in the financial services industry generally; • perceptions in the marketplace regarding us and/or our competitors; • fluctuations in the stock price and operating results of our competitors; • domestic and international economic factors unrelated to our performance; • general market conditions and, in particular, developments related to market conditions for the financial services industry; • new technology used, or services offered, by competitors; and • changes in government regulations. 47 In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations.
If we experience increases in nonperforming loans and nonperforming assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which would have an adverse effect on our net income and related ratios, such as return on assets and equity. 35 Our allowance for loan losses may prove to be insufficient to absorb potential losses in our loan portfolio.
If we experience increases in nonperforming loans and nonperforming assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which would have an adverse effect on our net income and related ratios, such as return on assets and equity.
As of December 31, 2022, we repurchased an aggregate of 1.6 million shares at an average price of $8.58 per share. However, we have no obligation to continue doing so and may change our dividend policy and/or share repurchase program at any time 48 without notice to holders of our common stock.
As of December 31, 2023, we repurchased an aggregate of 2,020,000 shares at an average price of 8.60% per share. However, we have no obligation to continue doing so and may change our dividend policy and/or share repurchase program at any time without notice to holders of our common stock.
Specifically, we utilize third party core banking services and receive credit card and debit card services, branch capture services, Internet banking services and services complementary to our banking products from various third party service providers.
We depend to a significant extent on relationships with third party service providers. Specifically, we utilize third party core banking services and receive credit card and debit card services, branch capture services, Internet banking services and services complementary to our banking products from various third party service providers.
Although we believe that our underwriting criteria is appropriate for the various kinds of loans we make, we may incur losses on loans that meet our underwriting criteria, and these losses may exceed the amounts set aside as reserves in our allowance for loan losses.
Although we believe that our underwriting criteria is appropriate for the various kinds of loans we make, we may incur losses on loans that meet our underwriting criteria, and these losses may exceed the amounts set aside as reserves in our allowance for credit losses. 32 Lack of seasoning of our loan portfolio could increase risk of credit defaults in the future.
We are a community bank, and our reputation is one of the most valuable components of our business. Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, and questionable or fraudulent activities of our customers.
Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, and questionable or fraudulent activities of our customers.
We originated $150.2 million and $57.6 million of single family home mortgage loans for the years ended December 31, 2022 and 2021, respectively. We also purchased $185.8 million and $48.9 million of single family home mortgage loans from TPO for the years ended December 31, 2022 and 2021, respectively.
We originated $65.0 million and $150.2 million of single family home mortgage loans for the years ended December 31, 2023 and 2022, respectively. We also purchased $11.2 million $185.8 million of single family home mortgage loans from TPO for the years ended December 31, 2023 and 2022, respectively.
Lack of seasoning of our loan portfolio could increase risk of credit defaults in the future. As a result of the organic growth of our loan portfolio over the past five years, a large portion of our loans and of our lending relationships are of relatively recent origin.
As a result of the organic growth of our loan portfolio over the past five years, a large portion of our loans and of our lending relationships are of relatively recent origin.
This demographic concentration makes us more prone to circumstances that particularly affect this segment of the population. As a result, our financial condition and results of operations are subject to changes in the economic conditions affecting these communities. Our success depends upon the business activity, population, income levels, deposits and real estate activity in these communities.
As a result, our financial condition and results of operations are subject to changes in the economic conditions affecting these communities. Our success depends upon the business activity, population, income levels, deposits and real estate activity in these communities.
We primarily operate in California markets with a concentration of Korean-American individuals and businesses. However, one of our strategies is to expand beyond California into other domestic markets that have concentrations of Korean-American individuals and businesses.
As we expand our business outside of California markets, we will encounter risks that could adversely affect us. 37 We primarily operate in California markets with a concentration of Korean-American individuals and businesses. However, one of our strategies is to expand beyond California into other domestic markets that have concentrations of Korean-American individuals and businesses.
Commercial loans represented 71.1% of our total loan portfolio at December 31, 2022. Commercial loans are often larger and involve greater risks than other types of lending.
Commercial loans represented 70.6% of our total loan portfolio as of December 31, 2023. Commercial loans are often larger and involve greater risks than other types of lending.
Our deposits have grown to $1.89 billion as of December 31, 2022 from $1.53 billion as of December 31, 2021. Our ability to continue to grow successfully will depend to a significant extent on our capital resources.
We have grown our consolidated assets to $2.15 billion as of December 31, 2023 from $2.09 billion as of December 31, 2022. Our deposits have grown to $1.81 billion as of December 31, 2023 from $1.89 billion as of December 31, 2022. Our ability to continue to grow successfully will depend to a significant extent on our capital resources.
In some cases, we could be required to apply a new or revised standard retrospectively, or apply an existing standard differently, also retrospectively, in each case resulting in our needing to revise or restate prior period financial statements.
In some cases, we could be required to apply a new or revised standard retrospectively, or apply an existing standard differently, also retrospectively, in each case resulting in our needing to revise or restate prior period financial statements. Restating or revising our financial statements may result in reputational harm or may have other adverse effects on us.
Additional risks and uncertainties not presently known to us, or that we may currently view as not material, may also adversely impact our business, financial condition, and results of operations. Summary of Risk Factors The following is a summary of the most significant risks and uncertainties that we believe could adversely affect our business, financial condition and results of operations.
Additional risks and uncertainties not presently known to us, or that we may currently view as not material, may also adversely impact our business, financial condition, and results of operations.
As of December 31, 2022, our single family home mortgage loan portfolio amounted to $482.9 million or 28.8% of our total loan portfolio. As of December 31, 2022, most of our single family home mortgage loans were non-qualified mortgage loans, and our non-qualified single family home mortgage loans had an average loan-to-value of 58%.
As of December 31, 2023, our single family home mortgage loan portfolio amounted to $518.0 million or 29.3% of our total loan portfolio. As of December 31, 2023, most of our single family home mortgage loans were non-qualified mortgage loans, and our non-qualified single family home mortgage loans had an average loan-to-value of 57% .
We maintain an allowance for loan losses for probable incurred losses in our loan portfolio. The allowance is established through a provision for loan losses based on management’s evaluation of the risks inherent in the loan portfolio and the general economy. The allowance is also appropriately increased for new loan growth.
Our allowance for credit losses may prove to be insufficient to absorb potential losses in our loan portfolio. We maintain an allowance for credit losses for probable incurred losses in our loan portfolio. The allowance is established through a provision for credit losses based on management’s evaluation of the risks inherent in the loan portfolio and the general economy.
At December 31, 2022, we had $1.19 billion of commercial loans, consisting of $842.2 million of commercial real estate loans, $234.7 million of SBA loans, and $117.0 million of commercial and industrial loans, including trade finance loans, for which real estate is not the primary source of collateral.
As of December 31, 2023, we had $1.25 billion of commercial loans, consisting of $885.6 million of commercial real estate loans, $239.7 million of SBA loans, and $121.0 million of commercial and industrial loans, including trade finance loans, for which real estate is not the primary source of collateral.
To our knowledge, Open Bank S.A. had not undertaken any actions to engage in any business or marketing activities in the United States other than have a presence on the internet through their website. As we expand our business outside of California markets, we will encounter risks that could adversely affect us.
To our knowledge, Open Bank S.A. had not undertaken any actions to engage in any business or marketing activities in the United States other than have a presence on the internet through their website.
Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information. We are subject to various privacy, information security and data protection laws, including requirements concerning security breach notification, and we could be negatively impacted by these laws.
We are subject to various privacy, information security and data protection laws, including requirements concerning security breach notification, and we could be negatively impacted by these laws.
We originated $192.1 million of SBA loans for the year ended December 31, 2022, compared to $304.9 million of SBA loans, including SBA PPP loans of $88.1 million, for the year ended December 31, 2021.
We originated $141.5 million of SBA loans for the year ended December 31, 2023, compared to $192.1 million of SBA loans for the year ended December 31, 2022.
A failure to maintain current technology and business processes could cause disruptions in our operations or cause our products and services to be less competitive, all of which could have a material adverse effect on our business, financial condition and results of operations. 40 Other Risks Related to Our Business The costs and effects of litigation, investigations or similar matters, or adverse facts and developments related thereto, could materially affect our business, operating results and financial condition.
A failure to maintain current technology and business processes could cause disruptions in our operations or cause our products and services to be less competitive, all of which could have a material adverse effect on our business, financial condition and results of operations.
We may from time to time become involved in a variety of litigation, investigations or similar matters arising out of our business. It is inherently difficult to assess the outcome of these matters, and we may not prevail in any proceedings or litigation.
It is inherently difficult to assess the outcome of these matters, and we may not prevail in any proceedings or litigation.
Restating or revising our financial statements may result in reputational harm or may have other adverse effects on us. 44 Failure to maintain effective internal controls over financial reporting could have a material adverse effect on our business and stock price.
Failure to maintain effective internal controls over financial reporting could have a material adverse effect on our business and stock price.
As of December 31, 2022, we held $279.1 million of SBA loans on our balance sheet, of which $234.3 million, or 84%, consisted of the non-guaranteed portion of SBA loans, of which $442 thousand consisted of the 100% guaranteed SBA PPP loans of SBA loans, and of which $44.3 million, or 16%, consisted of the guaranteed portion of SBA loans which we intend to sell in 2023.
As of December 31, 2023, we held $241.5 million of SBA loans on our balance sheet, of which $239.7 million , or 99% , consisted of the non-guaranteed portion of SBA loans and, of which $1.8 million , or 1% , consisted of the guaranteed portion of SBA loans which we intend to sell in 2023.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial condition and results of operations.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us.
Unfavorable or uncertain economic and market conditions could lead to credit quality concerns related to borrower repayment ability and collateral protection as well as reduced demand for the products and services we offer.
Unfavorable or uncertain economic and market conditions could lead to credit quality concerns related to borrower repayment ability and collateral protection as well as reduced demand for the products and services we offer. 30 Geopolitical developments, such as existing and potential trade wars and other events beyond our control, can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets.
We focus on marketing our services to a limited segment of the population and any adverse change impacting such segment is likely to have an adverse impact on us. Our marketing focuses primarily on the banking needs of small- and medium-sized businesses, professionals and residents in the Korean-American communities that we serve.
Our marketing focuses primarily on the banking needs of small- and medium-sized businesses, professionals and residents in the Korean-American communities that we serve. This demographic concentration makes us more prone to circumstances that particularly affect this segment of the population.
The demand for the deposit products we offer may also be reduced due to a variety of factors, such as demographic patterns, changes in customer preferences, reductions in consumers’ disposable income, regulatory actions that decrease customer access to particular products, or the availability of competing products. 34 Risks Related to our Management We are highly dependent on our management team, and the loss of our senior executive officers or other key employees could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects.
The demand for the deposit products we offer may also be reduced due to a variety of factors, such as demographic patterns, changes in customer preferences, reductions in consumers’ 34 disposable income, regulatory actions that decrease customer access to particular products, or the availability of competing products.
The summary should be read in conjunction with the more detailed risk factors set forth in this “Risk Factors” section and the other information contained in this report.
Summary of Risk Factors 25 The following is a summary of the most significant risks and uncertainties that we believe could adversely affect our business, financial condition and results of operations. The summary should be read in conjunction with the more detailed risk factors set forth in this “Risk Factors” section and the other information contained in this Report.
Accordingly, we are not always able to offer new products and services as quickly as our competitors. As a smaller institution, we are also disproportionately affected by the continually increasing costs of compliance with new banking and other regulations.
As a smaller institution, we are also disproportionately affected by the continually increasing costs of compliance with new banking and other regulations. 39 We focus on marketing our services to a limited segment of the population and any adverse change impacting such segment is likely to have an adverse impact on us.
Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit, and reputational risks and costs. 41 Risks Related to Our Reputation and Operations Our ability to maintain our reputation is critical to the success of our business, and the failure to do so may materially adversely affect our business and the value of our common stock.
Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit, and reputational risks and costs.
Risks Related to our Growth Strategy We may not be able to continue growing our business, particularly if we cannot increase loans and deposits through organic growth. We have grown our consolidated assets to $2.09 billion as of December 31, 2022 from $1.73 billion as of December 31, 2021.
If we ever become subject to significant environmental liabilities, our business, financial condition and results of operations could be materially and adversely affected. Risks Related to our Growth Strategy We may not be able to continue growing our business, particularly if we cannot increase loans and deposits through organic growth.
We are an “emerging growth company,” and the reduced regulatory and reporting requirements applicable to emerging growth companies may make our common stock less attractive to investors. We are an “emerging growth company,” as described in the JOBS Act.
We are a smaller reporting company and the reduced regulatory and reporting requirements applicable to smaller reporting companies may make our common stock less attractive to investors. We are permitted to comply with, and we generally elect to comply with, certain reduced reporting requirements for “smaller reporting companies” within the meaning of the rules of the SEC.
Economic pressure on consumers and uncertainty regarding continuing economic improvement may result in changes in consumer and business spending, borrowing and saving habits. The ongoing global COVID-19 outbreak could harm our business and results of operations, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.
Economic pressure on consumers and uncertainty regarding continuing economic improvement may result in changes in consumer and business spending, borrowing and saving habits.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeBuena Park, CA 90621 Santa Clara Office 2998 East El Camino Real Santa Clara, CA 95051 Carrollton Office 2540 Old Denton Road Carrollton, TX 75006 Cerritos Office 11811 South Street Cerritos, CA 90703 Spring Mountain Office * 5599 Spring Mountain Road, Suite 100 Las Vegas, Nevada 89146 * We anticipate the Spring Mountain Office to initiate operations in the second quarter of 2023.
Biggest changeBranch Offices Office Location Wilshire Office 1000 Wilshire Blvd., Suite 100 Los Angeles, CA 90017 Fashion District Office 747 East 10th Street, Suite 310 Los Angeles, CA 90021 Aroma Office 3680 Wilshire Blvd., Suite 101 Los Angeles, CA 90010 Olympic Office 3030 West Olympic Blvd., Suite 110 Los Angeles, CA 90006 Western Office 550 South Western Avenue Los Angeles, CA 90020 Gardena Office 15435 South Western Avenue, Suite 100-D Gardena, CA 90249 Buena Park Office 5141 Beach Blvd., Building 2 Suite E Buena Park, CA 90621 Santa Clara Office 2998 East El Camino Real Santa Clara, CA 95051 Carrollton Office 2540 Old Denton Road, Suite 314 Carrollton, TX 75006 Cerritos Office 11811 South Street Cerritos, CA 90703 Spring Mountain Office 5599 Spring Mountain Road, Suite 100 Las Vegas, Nevada 89146 Wilshire Office .
The current monthly rent is $10,388 and is subject to annual increases of 3.0% until the lease expires in August 2027. We have reserved the right to extend the term of the lease for two additional periods of five years each. Carrollton Office . In September 2018, we leased approximately 5,532 square feet in a commercial shopping center.
The current monthly rent is $10,790 and is subject to annual increases of 3.0% until the lease expires in August 2027. We have reserved the right to extend the term of the lease for two additional periods of five years each. Carrollton Office . In September 2018, we leased approximately 5,532 square feet in a commercial shopping center.
The current monthly rent is $11,860 and is subject to annual CPI adjustments until the lease expires. We have reserved the right to extend the term of the lease for an additional period of five years. Santa Clara Office . In August 2017, we leased approximately 2,678 square feet in a building.
The current monthly rent is $13,358 and is subject to annual CPI adjustments until the lease expires. We have reserved the right to extend the term of the lease for an additional period of five years. Santa Clara Office . In August 2017, we leased approximately 2,678 square feet in a building.
We have reserved the right to extend the term of the lease for two additional periods of five years. Western Office . In June 2015, we leased a building with approximately 12,450 square feet. The current monthly rent is $49,072 and is subject to 3.0% annual increases until the lease expires in May 2025.
In June 2015, we leased a building with approximately 12,450 square feet. The current monthly rent is $50,544 and is subject to 3.0% annual increases until the lease expires in May 2025. We have reserved the right to extend the term of the lease for two additional periods of five years each.
Wilshire Office . The Wilshire Office is located on the first floor at 1000 Wilshire Blvd, Los Angeles, California, where our corporate offices are also located. The office consists of 11,115 square feet and is subject to a lease which expires in January 2030.
The Wilshire Office is located on the first floor at 1000 Wilshire Blvd, Los Angeles, California, where our corporate offices are also located. The office consists of 11,115 square feet and is subject to a lease which expires in January 2030. The current monthly rent is $24,171 and is subject to 3.0% annual increases until the lease expires.
We have reserved the right to extend the term of the lease for two additional periods of five years. 51 Olympic Office . In April 2014, we leased approximately 3,800 square feet in a one-story shopping strip building. The current monthly rent is $10,322 and is subject to annual CPI adjustments until the lease expires in March 2024.
In April 2014, we leased approximately 3,800 square feet in a one-story shopping strip building. The current monthly rent is $11,635 and is subject to annual CPI adjustments until the lease expires in March 2029. We have reserved the right to extend the term of the lease for an additional period of five years. Western Office .
The office consists of approximately 2,189 square foot and is subject to a lease which expires in June 2027. The current monthly rent is $5,963 and is subject to 3.0% annual increases until the lease expires. We have reserved the right to extend the term of the lease for two additional periods of five years. Aroma Office .
The current monthly rent is $6,142 and is subject to 3.0% annual increases until the lease expires. We have reserved the right to extend the term of the lease for two additional periods of five years. Aroma Office .
The Buena Park Office is located on a Class-A shopping strip building. The office consists of approximately 3,047 square feet and is subject to a lease which expires on March 2023. We extended the lease for a period of five years until March 2028.
The current monthly rent payment is $5,479 and is subject to 3.0% annual increases until the lease expires. Buena Park Office . The Buena Park Office is located on a Class-A shopping strip building. The office consists of approximately 3,047 square feet and is subject to a lease which expires on March 2028.
The current monthly rent is $23,453 and is subject to 3.0% annual increases until the lease expires. Fashion District Office . The Fashion District Office is located on the third floor in a four-story multi-tenant multi-use stand-alone building in Downtown, Los Angeles, California.
Fashion District Office . The Fashion District Office is located on the third floor in a four-story multi-tenant multi-use stand-alone building in Downtown, Los Angeles, California. The office consists of approximately 2,189 square foot and is subject to a lease which expires in June 2027.
The Gardena Office is located on the first floor in a two-story multi-tenant, multi-use, stand-alone building. The office consists of approximately 1,520 square feet and is subject to a lease which expires on August 2027. The current monthly rent payment is $5,320 and is subject to 3.0% annual increases until the lease expires. Buena Park Office .
The office utilizes approximately 4,000 square feet, and the remaining space, including the common area, is being used by two other departments. Gardena Office . The Gardena Office is located on the first floor in a two-story multi-tenant, multi-use, stand-alone building. The office consists of approximately 1,520 square feet and is subject to a lease which expires on August, 2027.
In June 2013, we leased approximately 2,734 square feet on the ground floor in a five-story multi-tenant multi-use stand-alone building located in Koreatown, Los Angeles, California. The current monthly rent is $8,708 and is subject to annual increases equal to the Consumer Price Index (CPI), not to exceed 3.0%, until the lease expires in May 2023.
In June 2013, we leased approximately 2,734 square feet on the ground floor in a five-story multi-tenant multi-use stand-alone building located in Koreatown, Los Angeles, California. We extended the lease for a period of five years until March 2028.
The current monthly rent for the fifth floor is $41,430 and is subject to 3.1% annual increases until the lease expires. Branch Offices Office Location Wilshire Office 1000 Wilshire Blvd., Los Angeles, CA 90017 Fashion District Office 747 East 10th Street, 3 rd Floor Los Angeles, CA 90021 Aroma Office 3680 Wilshire Blvd.
The current monthly rent for the fifth floor is $42,720 and is subject to 3.1% annual increases until the lease expires.
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Los Angeles, CA 90010 Olympic Office 3030 West Olympic Blvd. Los Angeles, CA 90006 Western Office 550 South Western Avenue Los Angeles, CA 90020 Gardena Office 15435 South Western Avenue Gardena, CA 90249 Buena Park Office 5141 Beach Blvd.
Added
The current monthly rent is $8,960 and is subject to annual increases equal to the Consumer Price Index (CPI), not to exceed 3.0%, until the lease expires. We have reserved the right to extend the term of the lease for an additional period of five years. 53 Olympic Office .
Removed
We have reserved the right to extend the term of the lease for two additional periods of five years each. The office utilizes approximately 4,000 square feet, and the remaining space, including the common area, is being used by two other departments. Gardena Office .

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. In the normal course of business, we are subject to legal proceedings or claims. Management has reviewed all legal claims against us and possible loss contingencies, and does not expect the amounts to be material to any of the consolidated financial statements. Item 4. Mine Safety Disclosures. Not applicable. 52 PART II
Biggest changeItem 3. Legal Proceedings. In the normal course of business, we are subject to legal proceedings or claims. Management has reviewed all legal claims against us and possible loss contingencies, and does not expect the amounts to be material to any of the consolidated financial statements. Item 4. Mine Safety Disclosures. Not applicable. 54 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSecurity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters – Securities Authorized for Issuance Under Equity Compensation Plans.” Recent Sales of Unregistered Securities None. Purchases of Equity Securities by the Issuer and Affiliated Purchasers We did not purchase any shares of our common stock or other securities during the quarter ended December 31, 2022. Item 6. [Reserved]
Biggest changeSecurity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters — Securities Authorized for Issuance Under Equity Compensation Plans.” Recent Sales of Unregistered Securities None.
We believe that the proposed level of dividends is reasonable based on our review of our overall risk profile, and an evaluation of our current and anticipated capital, asset quality, earnings, liquidity and sensitivity position.
We believe that current level of dividends is reasonable based on our review of our overall risk profile, and an evaluation of our current and anticipated capital, asset quality, earnings, liquidity and sensitivity position.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock is traded on the NASDAQ Global Market under the symbol “OPBK.” As of December 31, 2022, we had 160 record holders of our common stock, not including beneficial owners whose shares are held in record names of brokers or other nominees.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock is traded on The Nasdaq Global Market under the symbol “OPBK.” As of March 1, 2024, we had 163 record holders of our common stock, not including beneficial owners whose shares are held in record names of brokers or other nominees.
Dividends On July 28, 2022, the Company increased a quarterly cash dividend to $0.12 per share from $0.10 per share ($0.48 per share on an annualized basis and an annual yield of 4.3% based on a common share price of $11.16 per share at December 31, 2022).
Consistent with this policy, on July 28, 2022, the Company increased a quarterly cash dividend from $0.10 per share to $0.12 per share ($0.48 per share on an annualized basis and an annual yield of 4.4% based on a common share price of $10.95 per share as of December 31, 2023).
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Dividends OP Bancorp maintains a policy of returning capital to shareholders in a manner, and at times and amounts, that provide for what we believe is an optimum balance between preserving liquidity and capital to assure compliance with applicable regulatory requirements and state laws, on the one hand, while providing an attractive total return to shareholders after giving effect to fluctuations in our stock price.
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers On August 24, 2023, our Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to 750,000 shares of its common stock, which is approximately 5% of its outstanding shares.
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The following table summarizes share repurchase activities of the stock repurchase program during the quarter ended December 31, 2023. 55 Purchase date Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Publicly Announced Program Approximate Number of Shares that May Yet Be Purchased Under the Program October 1, 2023 - October 31, 2023 150,000 $ 8.72 150,000 600,000 November 1, 2023 - November 30, 2023 — — — 600,000 December 1, 2023 - December 31, 2023 — — — 600,000 150,000 $ 8.72 150,000 600,000 Item 6. [Reserved]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeSelected Financial Data 54 As of or For the Year Ended December 31, ($ in thousands, except share and per share data) 2022 2021 2020 Income Statement Data: Interest income $ 88,212 $ 64,158 $ 53,656 Interest expense 11,301 3,132 8,292 Net interest income 76,911 61,026 45,364 Provision for loan losses 2,976 522 5,961 Noninterest income 17,619 16,017 10,771 Noninterest expense 44,830 35,865 31,940 Income before income taxes 46,724 40,656 18,234 Income tax expense 13,414 11,816 5,107 Net income 33,310 28,840 13,127 Per Share Data: Basic income per share $ 2.15 $ 1.89 $ 0.85 Diluted income per share $ 2.14 $ 1.88 $ 0.85 Book value per share $ 11.59 $ 10.92 $ 9.55 Shares of common stock outstanding 15,270,344 15,137,808 15,016,700 Performance Ratios: Return on average assets 1.74 % 1.83 % 1.03 % Return on average equity 19.57 % 18.90 % 9.35 % Yield on total loans 5.25 % 4.94 % 4.91 % Yield on average earning assets 4.79 % 4.23 % 4.40 % Cost of average interest bearing liabilities 1.22 % 0.42 % 1.18 % Cost of deposits 0.65 % 0.22 % 0.75 % Net interest margin 4.18 % 4.02 % 3.72 % Efficiency ratio (1) 47.42 % 46.55 % 56.90 % Balance Sheet Data: Gross loans receivable $ 1,678,292 $ 1,314,019 $ 1,099,736 Loans held for sale 44,335 89,428 26,659 Allowance for loan losses 19,241 16,123 15,352 Total assets 2,094,497 1,726,691 1,366,826 Deposits 1,885,771 1,534,066 1,200,090 Shareholders’ equity 176,916 165,222 143,366 Asset Quality Data: Net charge-offs to average gross loans receivable 0.00 % 0.02 % 0.00 % Nonperforming loans to gross loans receivable 0.18 % 0.24 % 0.09 % Allowance for loan losses to nonperforming loans 624.51 % 503.84 % 1558.58 % Allowance for loan losses to gross loans receivable 1.15 % 1.23 % 1.40 % Balance Sheet and Capital Ratios: Gross loans receivable to deposits 89.00 % 85.66 % 91.64 % Noninterest-bearing deposits to deposits 37.20 % 50.50 % 43.56 % Average equity to average total assets 8.88 % 9.71 % 11.06 % Leverage ratio 9.38 % 9.58 % 10.55 % Common equity tier 1 ratio 11.87 % 12.42 % 13.56 % Tier 1 risk-based capital ratio 11.87 % 12.42 % 13.56 % Total risk-based capital ratio 13.06 % 13.66 % 14.81 % (1) Represent noninterest expense divided by the sum of net interest income and noninterest income. 55 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.
Biggest changeFor the year ended December 31, 2022 compared to 2021 • Net interest income increased to $76.9 million, an increase of $15.9 million, or 26.0%, from $61.0 million. • Net income was $33.3 million or $2.14 per diluted common share, an increase of $4.5 million, or 15.5%, from $28.8 million or $1.88 per diluted common share. 57 SELECTED FINANCIAL DATA Year Ended December 31, ($ in thousands, except share and per share data) 2023 2022 2021 Income Statement Data: Interest income $ 121,665 $ 88,212 $ 64,158 Interest expense 52,978 11,301 3,132 Net interest income 68,687 76,911 61,026 Provision for credit losses 1,651 2,976 522 Noninterest income 14,181 17,619 16,017 Noninterest expense 47,726 44,830 35,865 Income before income taxes 33,491 46,724 40,656 Income tax expense 9,573 13,414 11,816 Net income 23,918 33,310 28,840 Per Share Data: Basic income per share $ 1.55 $ 2.15 $ 1.89 Diluted income per share 1.55 2.14 1.88 Book value per share 12.84 11.59 10.92 Shares of common stock outstanding 15,000,436 15,270,344 15,137,808 Performance Ratios: Return on average assets 1.13 % 1.74 % 1.83 % Return on average equity 13.05 19.57 18.90 Yield on total loans 6.33 5.25 4.94 Yield on average earning assets 5.96 4.79 4.23 Cost of average interest-bearing liabilities 4.10 1.22 0.42 Cost of deposits 2.70 0.65 0.22 Net interest margin 3.37 4.18 4.02 Efficiency ratio (1) 57.59 47.42 46.55 (1) Represent noninterest expense divided by the sum of net interest income and noninterest income. 58 As of December 31, ($ in thousands) 2023 2022 Balance Sheet Data: Gross loans $ 1,765,845 $ 1,678,292 Loans held for sale 1,795 44,335 Allowance for credit losses 21,993 19,241 Total assets 2,147,730 2,094,497 Total deposits 1,807,558 1,885,771 Shareholders’ equity 192,626 176,916 Asset Quality Data: Nonperforming loans to gross loans 0.34 % 0.18 % Allowance for credit losses to nonperforming loans 362 625 Allowance for credit losses to gross loans 1.25 1.15 Balance Sheet and Capital Ratios: Gross loans to deposits 97.69 % 89.00 % Noninterest-bearing deposits to deposits 28.92 37.20 Average equity to average total assets 8.62 8.88 Leverage ratio 9.57 9.38 Common equity tier 1 ratio 12.52 11.87 Tier 1 risk-based capital ratio 12.52 11.87 Total risk-based capital ratio 13.77 13.06 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.
Year Ended December 31, 2022 2021 ($ in thousands) Average Balance Interest and Fees Yield / Rate Average Balance Interest and Fees Yield / Rate Interest-earning assets: Interest-bearing deposits in other banks $ 79,482 $ 1,399 1.76 % $ 132,090 $ 170 0.13 % Federal funds sold and other investments (1) 11,810 598 5.06 10,755 455 4.23 Available-for-sale debt securities 170,479 3,351 1.97 108,346 1,085 1.00 Total investments 261,771 5,348 2.04 251,191 1,710 0.68 Commercial real estate loans 777,776 37,861 4.87 672,045 30,645 4.56 SBA loans 321,757 24,073 7.48 355,114 21,760 6.13 Commercial and industrial loans 142,630 7,217 5.06 114,628 4,463 3.89 Home mortgage loans 334,984 13,660 4.08 122,465 5,520 4.51 Consumer & other loans 1,071 53 4.95 1,095 60 5.51 Loans (2) 1,578,218 1,578,218 82,864 5.25 1,265,347 62,448 4.94 Total interest-earning assets 1,839,989 88,212 4.79 1,516,538 64,158 4.23 Noninterest-earning assets 76,883 55,201 Total assets $ 1,916,872 $ 1,571,739 Interest-bearing liabilities: Money market deposits and others $ 475,414 $ 5,305 1.12 % $ 362,900 $ 1,134 0.31 % Time deposits 445,169 5,905 1.33 378,585 1,998 0.53 Total interest-bearing deposits 920,583 11,210 1.22 741,485 3,132 0.42 Borrowings 2,089 91 4.36 1,988 — — Total interest-bearing liabilities 922,672 11,301 1.22 743,473 3,132 0.42 Noninterest-bearing liabilities: Noninterest-bearing deposits 796,175 656,130 Other noninterest-bearing liabilities 27,829 19,558 Total noninterest-bearing liabilities 824,004 675,688 Shareholders’ equity 170,196 152,578 Total liabilities and shareholders’ equity $ 1,916,872 $ 1,571,739 Net interest income / interest rate spreads $ 76,911 3.57 % $ 61,026 3.81 % Net interest margin 4.18 % 4.02 % Cost of deposits 0.65 % 0.22 % Cost of funds 0.66 % 0.22 % (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. 62 Year Ended December 31, 2022 2021 ($ in thousands) Average Balance Interest and Fees Yield / Rate Average Balance Interest and Fees Yield / Rate Interest-earning assets: Interest-bearing deposits in other banks $ 79,482 $ 1,399 1.76 % $ 132,090 $ 170 0.13 % Federal funds sold and other investments (1) 11,810 598 5.06 10,755 455 4.23 Available-for-sale debt securities 170,479 3,351 1.97 108,346 1,085 1.00 Total investments 261,771 5,348 2.04 251,191 1,710 0.68 Commercial real estate loans 777,776 37,861 4.87 672,045 30,645 4.56 SBA loans 321,757 24,073 7.48 355,114 21,760 6.13 Commercial and industrial loans 142,630 7,217 5.06 114,628 4,463 3.89 Home mortgage loans 334,984 13,660 4.08 122,465 5,520 4.51 Consumer & other loans 1,071 53 4.95 1,095 60 5.51 Loans (2) 1,578,218 82,864 5.25 1,265,347 62,448 4.94 Total interest-earning assets 1,839,989 88,212 4.79 1,516,538 64,158 4.23 Noninterest-earning assets 76,883 55,201 Total assets $ 1,916,872 $ 1,571,739 Interest-bearing liabilities: Money market deposits and others $ 475,414 $ 5,305 1.12 % $ 362,900 $ 1,134 0.31 % Time deposits 445,169 5,905 1.33 378,585 1,998 0.53 Total interest-bearing deposits 920,583 11,210 1.22 741,485 3,132 0.42 Borrowings 2,089 91 4.36 1,988 — — Total interest-bearing liabilities 922,672 11,301 1.22 743,473 3,132 0.42 Noninterest-bearing liabilities: Noninterest-bearing deposits 796,175 656,130 Other noninterest-bearing liabilities 27,829 19,558 Total noninterest-bearing liabilities 824,004 675,688 Shareholders’ equity 170,196 152,578 Total liabilities and shareholders’ equity $ 1,916,872 $ 1,571,739 Net interest income / interest rate spreads $ 76,911 3.57 % $ 61,026 3.81 % Net interest margin 4.18 % 4.02 % Cost of deposits 0.65 % 0.22 % Cost of funds 0.66 % 0.22 % (1) Includes income and average balances for Federal Home Loan Bank (“FHLB”) and Pacific Coast Bankers Bank stock, CRA qualified mutual fund, term federal funds, interest-earning time deposits and other miscellaneous interest-earning assets.
The changes in quantitative reserves from loan growth in real estate and home mortgage loans accounted for an increase of $5.8 million in the provision for loan losses for the year ended December 31, 2022. The changes in quantitative reserves included a $205 thousand decrease in the provision for accrued interest receivables on deferred loans.
The changes in quantitative reserves from loan growth in real estate and home mortgage loans 66 accounted for an increase of $5.8 million in the provision for loan losses for the year ended December 31, 2022. The changes in quantitative reserves included a $205 thousand decrease in the provision for accrued interest receivables on deferred loans.
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.
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 77 recognized only to the extent that cash is received, and the loan’s principal balance is deemed collectible.
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. 57 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, (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates, (iii) net interest income, (iv) the interest rate spread, and (v) the net interest margin.
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. 61 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, (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates, (iii) net interest income, (iv) the interest rate spread, and (v) the net interest margin.
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 as of December 31, 2022 and 2021.
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 as of December 31, 2023 and 2022.
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 credit losses is determined by conducting a quarterly evaluation of the adequacy of our allowance for credit losses and charging the shortfall or excess, if any, to the current quarter’s expense. This has the effect of creating variability in the amount and frequency of charges to earnings.
The 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 December 31, 2022, the FDIC categorized us as well-capitalized under the prompt corrective action framework.
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 December 31, 2023, the FDIC categorized us as well-capitalized under the prompt corrective action framework.
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.
We seek to maximize net interest income without exposing us to an excessive level of interest rate risk through our asset and liability policies. Interest rate risk is managed by monitoring the pricing, maturity and repricing options of all classes of interest-bearing assets and liabilities.
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.
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 us.
(2) Average loan balances include non-accrual loans and loans held for sale. 59 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.
(2) Average loan balances include non-accrual loans and loans held for sale. 63 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.
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.
Liquidity and Capital Resources 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.
Economic conditions and the stability of 75 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 $100.0 million of unsecured federal funds lines with no amounts advanced as of December 31, 2022 and 2021.
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 $100.0 million of unsecured federal funds lines with no amounts advanced as of December 31, 2023 and 2022.
Qualitative measures established by regulation 76 to ensure capital adequacy required us to maintain minimum amounts and various ratios of CET1 capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets, referred to as the “leverage ratio.” 77 The table below also summarizes the capital requirements applicable to us and the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as our and the Bank’s capital ratios as of December 31, 2022 and 2021.
Qualitative measures established by regulation to ensure capital adequacy required us to maintain minimum amounts and various ratios of CET1 capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets, referred to as the “leverage ratio.” The table below also summarizes the capital requirements applicable to us and the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as our and the Bank’s capital ratios as of December 31, 2023 and 2022.
Net interest income, the difference between interest income and interest expense, is the largest component of the Company’s total revenue. Management closely monitors both total net interest income and the net interest margin (net interest income divided by average earning assets).
Net interest income, the difference between interest income and interest expense, is the largest component of our total revenue. Management closely monitors both total net interest income and the net interest margin (net interest income divided by average earning assets).
December 31, 2022 Due in One Year or Less Due after One Year Through Five Years Due after Five Years Through Ten Years Due after Ten Years ($ in thousands) Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield U.S.
December 31, 2023 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.
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.
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 other real estate owned ("OREO").
Income Tax Expense Income tax expense was $13.4 million for the year ended December 31, 2022, compared to $11.8 million for the same period of 2021. The increase was primarily due to higher tax provision as a result of higher net income. Effective tax rates were 28.7% and 29.1% for the years ended December 31, 2022 and 2021, respectively.
Effective tax rates were 28.6% and 28.7% for the years ended December 31, 2023 and 2022, respectively. Income tax expense was $13.4 million for the year ended December 31, 2022, compared to $11.8 million for the same period of 2021. The increase was primarily due to higher tax provision as a result of higher net income.
As of December 31, 2022, our average loan to value for commercial real estate loans was 51%. 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.
As of December 31, 2023, our average loan to value for commercial real estate loans was 50.7%. Loans — SBA : 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.
The increase was primarily due to a $15.9 million increase in net interest income, partially offset by a $9.0 million increase in noninterest expense and a $2.5 million increase in provision for loan losses.
The increase was primarily due to a $15.9 60 million increase in net interest income, partially offset by a $9.0 million increase in noninterest expense and a $2.5 million increase in provision for credit losses.
There have been no conditions or events since December 31, 2022 that management believes would change this classification.
There have been no conditions or events since December 31, 2023 that management believes would change this classification.
(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.
(2) Excludes accrued interest. In addition to contractual obligations, other commitments of us impact liquidity. These include unused commitments to extend credit, standby letters of credit and commercial letters of credit.
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. 2022 Compared to 2021 The provision for loan losses was $3.0 million for the year ended December 31, 2022, compared to $522 thousand for the same period of 2021.
The provision for credit losses and level of allowance for each period are dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, management’s assessment of the quality of the loan portfolio, the valuation of problem loans and the general economic conditions in our market area. 2023 Compared to 2022 The provision for credit losses was $1.7 million for the year ended December 31, 2023, compared to $3.0 million for the same period of 2022.
All securities in our investment portfolio were classified as available-for-sale as of December 31, 2022. There were no held-to-maturity or trading securities in our investment portfolio as of December 31, 2022. All available-for-sale securities are carried at fair value and consist of U.S. government agencies or sponsored agency securities.
All securities in our investment portfolio were classified as available-for-sale as of December 31, 2023. There were no held-to-maturity or trading securities in our investment portfolio as of December 31, 2023. All available-for-sale 70 securities are carried at fair value and consist of U.S. government agencies or sponsored agency securities and tax-exempt municipal securities.
We currently operate eight branches in Los Angeles County and Orange County, California, one branch in Santa Clara County, California, and one branch in Carrollton, Texas. We have four loan production offices in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynnwood, Washington.
We currently operate eight branches in Los Angeles and Orange Counties in California, one branch in Santa Clara, California, one branch in Carrollton, Texas and one branch in Las Vegas, Nevada. We have four loan production offices in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynnwood, Washington.
Other sources of noninterest income include service charges on deposit. 2022 Compared to 2021 The following table sets forth the various components of our noninterest income for the years ended December 31, 2022 and 2021: Year Ended December 31, ($ in thousands) 2022 2021 $ Change % Change Noninterest income: Service charges on deposit $ 1,675 $ 1,562 $ 113 7.2 % Loan servicing fees, net of amortization 2,416 1,953 463 23.7 Gain on sale of loans 12,285 11,313 972 8.6 Other income 1,243 1,189 54 4.5 Total noninterest income $ 17,619 $ 16,017 $ 1,602 10.0 % Noninterest income for the year ended December 31, 2022 was $17.6 million, an increase of $1.6 million, or 10.0%, compared to $16.0 million for the same period of 2021.
Service charges on deposit was $2.1 million for the year ended December 31, 2023, compared to $1.7 million for the same period of 2022, an increase of $448 thousand or 26.7%, primarily due to an increase in deposit analysis fees from an increase in the number of analysis accounts. 67 2022 Compared to 2021 The following table sets forth the various components of our noninterest income for the years ended December 31, 2022 and 2021: Year Ended December 31, ($ in thousands) 2022 2021 $ Change % Change Noninterest income: Service charges on deposit $ 1,675 $ 1,562 $ 113 7.2 % Loan servicing fees, net of amortization 2,416 1,953 463 23.7 Gain on sale of loans 12,285 11,313 972 8.6 Other income 1,243 1,189 54 4.5 Total noninterest income $ 17,619 $ 16,017 $ 1,602 10.0 % Noninterest income for the year ended December 31, 2022 was $17.6 million, an increase of $1.6 million, or 10.0%, compared to $16.0 million for the same period of 2021.
We do not have any material concentrations by industry or group of industries in the loan portfolio. 69 However, 92.1% of our gross loans were secured by real property as of December 31, 2022, compared to 83.3% as of December 31, 2021.
We do not have any material concentrations by industry or group of industries in the loan portfolio. However, 92.2% of our gross loans were secured by real property as of December 31, 2023, compared to 92.1% as of December 31, 2022.
In addition, on such dates we had lines of credit from the Federal Reserve discount window of $175.6 million and $141.6 million.. The Federal Reserve discount window lines were collateralized by a pool of commercial real estate loans and commercial and industrial loans totaling $254.7 million and $240.6 million as of December 31, 2022 and 2021, respectively.
In addition, on such dates we had lines of credit from the Federal Reserve discount window of $183.0 million and $175.6 million, respectively. The Federal Reserve discount window lines were collateralized by a pool of commercial real estate loans and commercial and industrial loans totaling $251.0 million and $254.7 million as of December 31, 2023 and 2022, respectively.
Activity for loan servicing rights was as follows: Year Ended December 31, ($ in thousands) 2022 2021 2020 Beginning balance $ 12,720 $ 7,360 $ 7,024 Additions from loans sold with servicing retained 4,424 2,799 2,073 Additions from purchase of servicing rights — 6,097 — Amortized to expense (4,385) (3,536) (1,737) Ending balance $ 12,759 $ 12,720 $ 7,360 Loan servicing rights are reported on our Consolidated Balance Sheets and reported net of amortization.
Activity for loan servicing rights was as follows: Year Ended December 31 ($ in thousands) 2023 2022 2021 Beginning balance $ 12,759 $ 12,720 $ 7,360 Additions from loans sold with servicing retained 3,400 4,424 2,799 Additions from purchase of servicing rights — — 6,097 Amortized to expense (4,418) (4,385) (3,536) Ending balance $ 11,741 $ 12,759 $ 12,720 Loan servicing rights are reported on our Consolidated Balance Sheets and reported net of amortization.
We did not have any borrowings outstanding with the Federal Reserve as of December 31, 2022 or 2021, and our borrowing capacity is limited only by eligible collateral. Based on the values of loans pledged as collateral, we had $440.4 million of additional borrowing availability with the FHLB as of December 31, 2022.
We did not have any borrowings outstanding with the Federal Reserve as of December 31, 2023 or December 31, 2022, and our borrowing capacity is limited only by eligible collateral. 79 Based on the values of loans pledged as collateral, we had $363.6 million of additional borrowing availability with the FHLB as of December 31, 2023.
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.
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.
The decrease was primarily due to a $187 thousand decrease in fair value of equity investment in a mutual fund that the Company invested for CRA purposes. 64 Noninterest Expense 2022 Compared to 2021 The following table sets forth the major components of our noninterest expense for the years ended December 31, 2022 and 2021: Year Ended December 31, ($ in thousands) 2022 2021 $ Change % Change Noninterest expense: Salaries and employee benefits $ 27,189 $ 21,253 $ 5,936 27.9 % Occupancy and equipment 5,964 5,213 751 14.4 Data processing and communication 2,085 2,000 85 4.3 Professional fees 1,620 1,192 428 35.9 FDIC insurance and regulatory assessments 813 583 230 39.5 Promotion and advertising 543 684 (141) (20.6) Directors' fees 682 593 89 15.0 Foundation donation and other contributions 3,393 2,890 503 17.4 Other expenses 2,541 1,457 1,084 74.4 Total noninterest expense $ 44,830 $ 35,865 $ 8,965 25.0 % Noninterest expense for the year ended December 31, 2022 was $44.8 million, compared with $35.9 million for the same period of 2021, an increase of $9.0 million, or 25.0%.
The decrease was primarily due to lower donation accruals for Open Stewardship Foundation as a result of lower net income. 2022 Compared to 2021 The following table sets forth the major components of our noninterest expense for the years ended December 31, 2022 and 2021: Year Ended December 31, ($ in thousands) 2022 2021 $ Change % Change Noninterest expense: Salaries and employee benefits $ 27,189 $ 21,253 $ 5,936 27.9 % Occupancy and equipment 5,964 5,213 751 14.4 Data processing and communication 2,085 2,000 85 4.3 Professional fees 1,620 1,192 428 35.9 FDIC insurance and regulatory assessments 813 583 230 39.5 Promotion and advertising 543 684 (141) (20.6) Directors' fees 682 593 89 15.0 Foundation donation and other contributions 3,393 2,890 503 17.4 Other expenses 2,541 1,457 1,084 74.4 Total noninterest expense $ 44,830 $ 35,865 $ 8,965 25.0 % Noninterest expense for the year ended December 31, 2022 was $44.8 million, compared with $35.9 million for the same period of 2021, an increase of $9.0 million, or 25.0%.
Deposits are the primarily funding source for the Bank. Deposits provide a stable source of funding and reduce the Company's reliance on the wholesale funding markets.
Deposits are the primary funding source for the Bank. Deposits provide a stable source of funding and reduce our reliance on the wholesale funding markets.
After consideration of the matters in the preceding paragraph, we have determined that it is more likely than not that net deferred tax assets as of December 31, 2022 and 2021 will be fully realized in future years.
We recognized net deferred tax assets of $13.3 million and $14.3 million as of December 31, 2023 and 2022, respectively. After consideration of the matters in the preceding paragraph, we have determined that it is more likely than not that net deferred tax assets as of December 31, 2023 will be fully realized in future years.
During the year ended December 31, 2022, we originated $200.1 million of commercial real estate loans. As of December 31, 2022, approximately 78.9% 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.
During the year ended December 31, 2023, we originated $103.3 million of commercial real estate loans. As of December 31, 2023, approximately 76.1% 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.
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. Our commercial real estate loan portfolio totaled $842.2 million at December 31, 2022 compared to $701.5 million at December 31, 2021.
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. Our commercial real estate loan portfolio totaled $885.6 million as of December 31, 2023 compared to $842.2 million as of December 31, 2022.
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.
We establish an allowance for credit losses both on loans and off-balance sheet commitments through charges to earnings, which are shown in the statements of operations as the provision for credit losses. Specifically identifiable and quantifiable known losses are promptly charged off against the allowance.
The 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 10. Commitments and Contingencies to the Consolidated Financial Statements in this Form 10-K.
Our liquidity sources have been, and are expected to be, sufficient to meet the cash requirements of its lending activities, Information about our loan commitments, standby letters of credit and commercial letters of credit is provided in Note 10.
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.
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.
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. 53 Overview We are a bank holding company headquartered in Los Angeles, California.
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.
Foundation donation and other contributions for the year ended December 31, 2022 were $3.4 million, compared to $2.9 million for the same period of 2021, an increase of $503 thousand, or 17.4%. The increase was primarily due to higher donation accruals for Open Stewardship Foundation as a result of higher net income.
The increase was primarily due to higher donation accruals for Open Stewardship Foundation as a result of higher net income. Other expenses for the year ended December 31, 2022 were $2.5 million, compared to $1.5 million for the same period of 2021, an increase of $1.1 million, or 74.4%.
The advances from the FHLB are collateralized by residential and commercial real estate loans. As of December 31, 2022 and 2021, we had maximum borrowing capacity from the FHLB of $582.8 million and $417.6 million, respectively. We had no borrowing from FHLB as of December 31, 2022 and 2021.
The advances from the FHLB are collateralized by residential and commercial real estate loans. As of December 31, 2023 and 2022, we had maximum borrowing capacity from the FHLB of $655.9 million and $582.8 million, respectively. We had $105.0 million borrowings from FHLB as of December 31, 2023 and no borrowing from FHLB as of December 31, 2022.
The following table presents the loan and deposit balances, the loans-to-deposit ratios, and deposits as a percentage of total liabilities as of dates presented: As of December 31, ($ in thousands) 2022 2021 Deposits $ 1,885,771 $ 1,534,066 Deposits as a % of total liabilities 98.3 % 98.2 % Loans, net $ 1,659,051 $ 1,297,896 Loans-to-deposits ratio 88.0 % 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.
The following table presents the loan and deposit balances, the loans-to-deposit ratios, and deposits as a percentage of total liabilities as of December 31, 2023 and 2022: December 31, ($ in thousands) 2023 2022 Deposits $ 1,807,558 $ 1,885,771 Deposits as a % of total liabilities 92.5 % 98.3 % Loans, net $ 1,743,852 $ 1,659,051 Loans-to-deposits ratio 96.5 % 88.0 % In addition to deposits, we have 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.
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.
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 “Item 1A.
Nonperforming loans were $3.1 million at December 31, 2022, compared to $3.2 million at December 31, 2021. As of December 31, 2022 and 2021, nonaccrual loans of $1.0 million and $1.0 million, respectively were the guaranteed portion of SBA loans.
Nonperforming loans were $6.1 million as of December 31, 2023, compared to $2.0 million as of December 31, 2022. Nonperforming loans excluded the guaranteed portion of SBA loans of $2.0 million and $1.0 million as of December 31, 2023 and 2022, respectively.
The following table presents an allocation of the allowance for loan losses by portfolio as of December 31, 2022 and 2021: December 31, 2022 December 31, 2021 ($ in thousands) Amount % to Total Amount % to Total Commercial real estate $ 6,951 36.1 % $ 8,150 50.5 % SBA loans—real estate 1,607 8.4 2,022 12.5 SBA loan—non- real estate 207 1.1 199 1.2 Commercial and industrial 1,643 8.5 2,848 17.7 Home mortgage 8,826 45.9 2,891 17.9 Consumer 7 — 13 0.1 Total $ 19,241 100.0 % $ 16,123 100.0 % 73 Nonperforming Assets Loans are considered delinquent when principal or interest payments are past due 30 days or more.
The following table presents an allocation of the allowance for credit losses by portfolio as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 ($ in thousands) Amount % to Total Amount % to Total Commercial real estate $ 7,915 36.0 % $ 6,951 36.1 % SBA—real estate 1,657 7.5 1,607 8.4 SBA—non- real estate 147 0.7 207 1.1 Commercial and industrial 1,215 5.5 1,643 8.5 Home mortgage 11,045 50.2 8,826 45.9 Consumer 14 0.1 7 — Total $ 21,993 100.0 % $ 19,241 100.0 % Nonperforming Assets Loans are considered delinquent when principal or interest payments are past due 30 days or more.
As of December 31, 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 $ 213,862 13.06 % N/A N/A N/A N/A N/A N/A Bank 211,981 12.94 % $ 131,020 8.00 % $ 163,775 10.00 % $ 171,964 10.50 % Tier 1 capital (to risk-weighted assets) Consolidated 194,358 11.87 % N/A N/A N/A N/A N/A N/A Bank 192,477 11.75 % 98,265 6.00 131,020 8.00 139,209 8.50 CET1 capital (to risk-weighted assets) Consolidated 194,358 11.87 % N/A N/A N/A N/A N/A N/A Bank 192,477 11.75 % 73,699 4.50 106,454 6.50 114,642 7.00 Tier 1 leverage (to average assets) Consolidated 194,358 9.38 % N/A N/A N/A N/A N/A N/A Bank 192,477 9.29 % 82,836 4.00 103,545 5.00 82,836 4.00 (1) The capital requirements are only applicable to the Bank, and the Company's ratios are included for comparison purpose.
As of December 31, 2023 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 $ 229,544 13.77 % N/A N/A N/A N/A N/A N/A Bank 227,773 13.66 $ 133,353 8.00 % $ 166,691 10.00 % $ 175,025 10.50 % Tier 1 capital (to risk-weighted assets) Consolidated 208,707 12.52 N/A N/A N/A N/A N/A N/A Bank 206,936 12.41 100,014 6.00 133,353 8.00 141,687 8.50 CET1 capital (to risk-weighted assets) Consolidated 208,707 12.52 N/A N/A N/A N/A N/A N/A Bank 206,936 12.41 75,011 4.50 108,349 6.50 116,684 7.00 Tier 1 leverage (to average assets) Consolidated 208,707 9.57 N/A N/A N/A N/A N/A N/A Bank 206,936 9.49 87,207 4.00 109,008 5.00 87,207 4.00 (1) The capital requirements are only applicable to the Bank, and our ratios are included for comparison purpose. 81 As of December 31, 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 $ 213,862 13.06 % N/A N/A N/A N/A N/A N/A Bank 211,981 12.94 $ 131,020 8.00 % $ 163,775 10.00 % $ 171,964 10.50 % Tier 1 capital (to risk-weighted assets) Consolidated 194,358 11.87 N/A N/A N/A N/A N/A N/A Bank 192,477 11.75 98,265 6.00 131,020 8.00 139,209 8.50 CET1 capital (to risk-weighted assets) Consolidated 194,358 11.87 N/A N/A N/A N/A N/A N/A Bank 192,477 11.75 73,699 4.50 106,454 6.50 114,642 7.00 Tier 1 leverage (to average assets) Consolidated 194,358 9.38 N/A N/A N/A N/A N/A N/A Bank 192,477 9.29 82,836 4.00 103,545 5.00 82,836 4.00 (1) The capital requirements are only applicable to the Bank, and our ratios are included for comparison purpose.
Some items of income and expense are recognized in different years for tax purposes than when applying GAAP, leading to timing differences between our actual tax liability and the amount accrued for liability based on book income.
Effective tax rates were 28.7% and 29.1% for the years ended December 31, 2022 and 2021, respectively. Some items of income and expense are recognized in different years for tax purposes than when applying GAAP, leading to timing differences between our actual tax liability and the amount accrued for liability based on book income.
For the year ended December 31, 2022, we originated $150.2 million of home mortgage loans and purchased $185.8 million of home mortgage loans from third party mortgage originators. 70 Loan Servicing As of December 31, 2022, 2021 and 2020, we serviced $702.1 million, $667.0 million and $388.8 million, respectively, of SBA loans for others.
For the year ended December 31, 2023, we originated $65.0 million of home mortgage loans and purchased $11.2 million of home mortgage loans from third party mortgage originators. Loan Servicing As of December 31, 2023 and 2022, we serviced $707.4 and $702.1 million, respectively, of SBA loans for others.
Occupancy and equipment expense for the year ended December 31, 2022 was $6.0 million, compared to $5.2 million for the same period of 2021, an increase of $751 thousand, or 14.4%. The increase was primarily due to a new branch opened in the first quarter of 2022 and increased equipment expense to support our continued growth.
The increase was primarily due to a new branch opened in the first quarter of 2022 and increased equipment expense to support our continued growth. 69 Foundation donation and other contributions for the year ended December 31, 2022 were $3.4 million, compared to $2.9 million for the same period of 2021, an increase of $503 thousand, or 17.4%.
The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, including forecasts of future income, cumulative losses, applicable tax planning strategies, and assessments of current and future economic and business conditions. 66 We recognized net deferred tax assets of $14.3 million and $8.4 million as of December 31, 2022, and 2021, respectively.
The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, including forecasts of future income, cumulative losses, applicable tax planning strategies, and assessments of current and future economic and business conditions.
The following significant items are of note as of or for the periods presented: As of December 31, 2022 compared to as of 2021 • Total assets were $2.09 billion, an increase of $367.8 million, or 21.3%, from $1.73 billion. • Gross loans were $1.68 billion, an increase of $364.3 million, or 27.7%, from $1.31 billion. • Total deposits were $1.89 billion, an increase of $351.7 million, or 22.9%, from $1.53 billion. • Shareholders’ equity was $176.9 million, an increase of $11.7 million, or 7.1%, from $165.2 million.
The following significant items are of note as of or for the periods presented: As of December 31, 2023 compared to as of 2022 • Total assets were $2.15 billion, an increase of $53.2 million, or 2.5%, from $2.09 billion. • Gross loans were $1.77 billion, an increase of $87.6 million, or 5.2%, from $1.68 billion. • Total deposits were $1.81 billion, a decrease of $78.2 million, or 4.1%, from $1.89 billion. • Shareholders’ equity was $192.6 million, an increase of $15.7 million, or 8.9%, from $176.9 million.
We offer a variety of deposit products including demand deposits accounts, interest-bearing products, savings accounts and certificate of deposits.
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.
For the year ended December 31, 2022 compared to 2021 • Net income was $33.3 million or $2.14 per diluted common share, an increase of $4.5 million, or 15.5%, from $28.8 million or $1.88 per diluted common share. • Net interest income increased to $76.9 million, an increase of $15.9 million, or 26.0%, from $61.0 million.
For the year ended December 31, 2023 compared to 2022 • Net interest income decreased to $68.7 million, a decrease of $8.2 million, or 10.7%, from $76.9 million. • Net income was $23.9 million or $1.55 per diluted common share, a decrease of $9.4 million, or 28.2%, from $33.3 million or $2.14 per diluted common share.
We reported net income for the year ended December 31, 2021 of $28.8 million, compared to net income of $13.1 million for the same period of 2020.
We reported net income for the year ended December 31, 2022 of $33.3 million, and increase of $4.5 million, or 15.5%, compared to net income of $28.8 million for the same period of 2021.
Our unguaranteed SBA loans collateralized by real estate are monitored by collateral type and included in our commercial real estate Concentration Guidance. As of December 31, 2022, our SBA portfolio totaled $234.7 million, including $442 thousand of SBA PPP loans, compared to $275.9 million, including $40.6 million of SBA PPP loans as of December 31, 2021.
Our unguaranteed SBA loans collateralized by real estate are monitored by collateral type and included in our commercial real estate Concentration Guidance. As of December 31, 2023, our SBA portfolio totaled $239.7 million, compared to $234.7 million as of December 31, 2022. We originated $141.5 million for the year ended December 31, 2023.
Net interest margin was 4.18% for the year ended December 31, 2022, a 16 basis point increase from 4.02% for the same period of 2021, primarily due to a 56 basis point increase in average yield on interest-earning assets. 61 2021 Compared to 2020 Net interest income for the year ended December 31, 2021 was $61.0 million compared to $45.4 million for the year ended December 31, 2020, an increase of $15.7 million, or 34.5%.
Net interest margin was 4.18% for the year ended December 31, 2022, a 16 basis point increase from 4.02% for the same period of 2021, primarily due to a 56 basis point increase in average yield on interest-earning assets. Provision for Credit Losses Credit risk is inherent in the business of making loans.
The changes in qualitative factors, primarily due to improvements in economic conditions and commercial real estate concentration, accounted for a decrease of $2.8 million in the provision for loan losses for the year ended December 31, 2022. 2021 Compared to 2020 The provision for loan losses was $522 thousand for the year ended December 31, 2021, compared to $6.0 million for the year ended December 31, 2020.
The changes in qualitative factors, primarily due to improvements in economic conditions and commercial real estate concentration, accounted for a decrease of $2.8 million in the provision for loan losses for the year ended December 31, 2022. Noninterest Income While interest income remains the largest single component of total revenues, noninterest income is also an important component.
Year Ended December 31, ($ in thousands) 2022 Change 2021 Change 2020 Interest income $ 88,212 $ 24,054 $ 64,158 $ 10,502 $ 53,656 Interest expense 11,301 8,169 3,132 (5,160) 8,292 Net interest income 76,911 15,885 61,026 15,662 45,364 Provision for (reversal of) loan losses 2,976 2,454 522 (5,439) 5,961 Noninterest income 17,619 1,602 16,017 5,246 10,771 Noninterest expense 44,830 8,965 35,865 3,925 31,940 Income before income tax expense 46,724 6,068 40,656 22,422 18,234 Income tax expense 13,414 1,598 11,816 6,709 5,107 Net income $ 33,310 $ 4,470 $ 28,840 $ 15,713 $ 13,127 Net Interest Income The management of interest income and expense is fundamental to our financial performance.
Year Ended December 31, Change 2023 vs. 2022 Change 2022 vs. 2021 ($ in thousands) 2023 2022 2021 Interest income $ 121,665 $ 88,212 $ 64,158 $ 33,453 $ 24,054 Interest expense 52,978 11,301 3,132 41,677 8,169 Net interest income 68,687 76,911 61,026 (8,224) 15,885 Provision for credit losses 1,651 2,976 522 (1,325) 2,454 Noninterest income 14,181 17,619 16,017 (3,438) 1,602 Noninterest expense 47,726 44,830 35,865 2,896 8,965 Income before income tax expense 33,491 46,724 40,656 (13,233) 6,068 Income tax expense 9,573 13,414 11,816 (3,841) 1,598 Net income $ 23,918 $ 33,310 $ 28,840 $ (9,392) $ 4,470 Net Interest Income The management of interest income and expense is fundamental to our financial performance.
Other expenses for the year ended December 31, 2022 were $2.5 million, compared to $1.5 million for the same period of 2021, an increase of $1.1 million, or 74.4%.
Occupancy and equipment expense for the year ended December 31, 2022 was $6.0 million, compared to $5.2 million for the same period of 2021, an increase of $751 thousand, or 14.4%.
Analysis of the Allowance for Loan Losses The following table provides an analysis of the allowance for loan losses, provision for loan losses and net charge-offs, by category, for the years ended December 31, 2022, 2021, and 2020: Year Ended December 31, 2022 ($ in thousands) Beginning (Reversal) Provision (1) Charge-offs Recoveries Ending Commercial real estate $ 8,150 $ (1,199) $ — $ — $ 6,951 SBA loans—real estate 2,022 (409) (14) 8 1,607 SBA loan—non- real estate 199 66 (127) 69 207 Commercial and industrial 2,848 (1,205) — — 1,643 Home mortgage 2,891 5,935 — — 8,826 Consumer 13 (7) — 1 7 Total $ 16,123 $ 3,181 $ (141) $ 78 $ 19,241 Gross loans (2) $ 1,678,292 Allowance for loan losses to gross loans 1.15 % Average loans (2) $ 1,509,067 Net (recoveries) charge-offs to average gross loans 0.00 % 72 Year Ended December 31, 2021 ($ in thousands) Beginning (Reversal) Provision (1) Charge-offs Recoveries Ending Commercial real estate $ 8,505 $ (355) $ — $ — $ 8,150 SBA loans—real estate 1,802 279 (59) — 2,022 SBA loan—non- real estate 278 54 (136) 3 199 Commercial and industrial 2,563 285 — — 2,848 Home mortgage 2,185 706 — — 2,891 Consumer 19 (10) — 4 13 Total $ 15,352 $ 959 $ (195) $ 7 $ 16,123 Gross loans (2) $ 1,314,019 Allowance for loan losses to gross loans 1.23 % Average loans (2) $ 1,200,367 Net (recoveries) charge-offs to average gross loans 0.02 % Year Ended December 31, 2020 ($ in thousands) Beginning Provision (Reversal) (1) Charge-offs Recoveries Ending Commercial real estate $ 6,000 $ 2,505 $ — $ — $ 8,505 SBA loans—real estate 939 863 — — 1,802 SBA loan—non- real estate 121 174 (45) 28 278 Commercial and industrial 1,289 1,274 — — 2,563 Home mortgage 1,667 518 — — 2,185 Consumer 34 (16) — 1 19 Total $ 10,050 $ 5,318 $ (45) $ 29 $ 15,352 Gross loans (2) $ 1,099,736 Allowance for loan losses to gross loans 1.40 % Average loans (2) $ 1,038,387 Net (recoveries) charge-offs to average gross loans 0.00 % (1) Excludes (reversal of) provision for uncollectible accrued interest receivable of $(205) thousand, $(438) thousand, and $643 thousand for the years ended December 31, 2022, 2021 and 2020, respectively.
Analysis of the Allowance for Credit Losses The following table provides an analysis of the allowance for credit losses, provision for credit losses and net charge-offs, by category, for the year ended December 31, 2023, 2022 and 2021: As of and for the Year Ended December 31, 2023 ($ in thousands) Beginning Impact of CECL Adoption Provision (Reversal) Net (Charge-offs) Recoveries Ending Commercial real estate $ 6,951 $ 875 $ 723 $ (634) $ 7,915 SBA—real estate 1,607 (238) 321 (33) 1,657 SBA—non- real estate 207 (142) 73 9 147 Commercial and industrial 1,643 (320) (11) (97) 1,215 Home mortgage 8,826 1,753 466 — 11,045 Consumer 7 (4) 10 1 14 Total $ 19,241 $ 1,924 $ 1,582 $ (754) $ 21,993 Gross loans (1) $ 1,765,845 Allowance for credit losses to gross loans 1.25 % Average loans (1) $ 1,744,878 Net (charge-offs) recoveries to average gross loans (2) (0.04) % 76 As of and for the Year Ended December 31, 2022 ($ in thousands) Beginning Provision (Reversal) Net (Charge-offs) Recoveries Ending Commercial real estate $ 8,150 $ (1,199) $ — $ 6,951 SBA—real estate 2,022 (409) (6) 1,607 SBA—non- real estate 199 66 (58) 207 Commercial and industrial 2,848 (1,205) — 1,643 Home mortgage 2,891 5,935 — 8,826 Consumer 13 (7) 1 7 Total $ 16,123 $ 3,181 $ (63) $ 19,241 Gross loans (1) $ 1,678,292 Allowance for loan losses to gross loans 1.15 % Average loans (1) $ 1,509,067 Net (charge-offs) recoveries to average gross loans (2) 0.00 % As of and for the Year Ended December 31, 2021 ($ in thousands) Beginning Provision (Reversal) Net (Charge-offs) Recoveries Ending Commercial real estate $ 8,505 $ (355) $ — $ 8,150 SBA—real estate 1,802 279 (59) 2,022 SBA—non- real estate 278 54 (133) 199 Commercial and industrial 2,563 285 — 2,848 Home mortgage 2,185 706 — 2,891 Consumer 19 (10) 4 13 Total $ 15,352 $ 959 $ (188) $ 16,123 Gross loans (1) $ 1,314,019 Allowance for loan losses to gross loans 1.23 % Average loans (1) $ 1,200,367 Net (charge-offs) recoveries to average gross loans (2) (0.02) % (1) Excludes loans held for sale.
The increase was primarily due to a $15.7 million increase in net interest income and $5.4 million decrease in provision for loan losses, partially offset by a $6.7 million increase in provision for income taxes.
The decrease was primarily due to a $8.2 million decrease in net interest income, a $3.4 million decrease in noninterest income and a $2.9 million increase in noninterest expense, offset by a $3.8 million decrease income tax expense and a $1.3 million decrease in provision for credit losses.
We sold $110.3 million of SBA loans with an average premium of 11.0% in the year ended December 31, 2021, compared to the sale of $85.0 million of SBA loans with an average premium of 8.8% in the same period of 2020.
We sold $145.0 million of SBA loans with an average premium of 6.65% for the year ended December 31, 2023, compared to a sale of $181.9 million of SBA loans with an average premium of 7.45% in the same period of 2022.
Year Ended December 31, 2022 vs 2021 Increases (Decreases) Due to Change in ($ in thousands) Volume Rate Total Interest-earning assets: Interest-bearing deposits in other banks $ (497) $ 1,726 $ 1,229 Federal funds sold and other investments 78 65 143 Available-for-sale debt securities 923 1,343 2,266 Total investments 504 3,134 3,638 Commercial real estate loans 4,983 2,233 7,216 SBA loans (3,276) 5,589 2,313 Commercial and industrial loans 734 2,020 2,754 Home mortgage loans 8,602 (462) 8,140 Consumer & other loans (1) (6) (7) Total loans 11,042 9,374 20,416 Total interest-earning assets 11,546 12,508 24,054 Interest-bearing liabilities: Money market deposits and others 1,159 3,012 4,171 Time deposits 669 3,238 3,907 Total interest-bearing deposits 1,828 6,250 8,078 Borrowings 2 89 91 Total interest-bearing liabilities 1,830 6,339 8,169 Net interest income $ 9,716 $ 6,169 $ 15,885 60 Year Ended December 31, 2021 vs 2020 Increases (Decreases) Due to Change in ($ in thousands) Volume Rate Total Interest-earning assets: Interest-bearing deposits in other banks $ 118 $ (229) $ (111) Federal funds sold and other investments 49 37 86 Available-for-sale debt securities 444 (536) (92) Total investments 611 (728) (117) Commercial real estate loans 1,650 (1,622) 28 SBA loans 8,959 1,569 10,528 Commercial and industrial loans 851 (275) 576 Home mortgage loans 13 (469) (456) Consumer & other loans (56) (1) (57) Total loans 11,417 (798) 10,619 Total interest-earning assets 12,028 (1,526) 10,502 Interest-bearing liabilities: Money market deposits and others 261 (1,301) (1,040) Time deposits (162) (3,958) (4,120) Total interest-bearing deposits 99 (5,259) (5,160) Borrowings — — — Total interest-bearing liabilities 99 (5,259) (5,160) Net interest income $ 11,929 $ 3,733 $ 15,662 2022 Compared to 2021 Net interest income increased $15.9 million, or 26.0%, to $76.9 million for the year ended December 31, 2022 from $61.0 million for the same period of 2021, primarily due to higher interest income on loans.
Year Ended December 31, 2023 vs 2022 Increases (Decreases) Due to Change in ($ in thousands) Volume Rate Total Interest-earning assets: Interest-bearing deposits in other banks $ (28) $ 2,669 $ 2,641 Federal funds sold and other investments 238 195 433 Available-for-sale debt securities 803 1,977 2,780 Total investments 1,013 4,841 5,854 Commercial real estate loans 4,167 6,284 10,451 SBA loans (5,493) 9,934 4,441 Commercial and industrial loans (1,716) 3,688 1,972 Home mortgage loans 7,937 2,787 10,724 Consumer & other loans (5) 16 11 Total loans 4,890 22,709 27,599 Total interest-earning assets 5,903 27,550 33,453 Interest-bearing liabilities: Money market deposits and others (1,527) 10,052 8,525 Time deposits 11,914 17,786 29,700 Total interest-bearing deposits 10,387 27,838 38,225 Borrowings 3,349 103 3,452 Total interest-bearing liabilities 13,736 27,941 41,677 Net interest income $ (7,833) $ (391) $ (8,224) 64 Year Ended December 31, 2022 vs 2021 Increases (Decreases) Due to Change in ($ in thousands) Volume Rate Total Interest-earning assets: Interest-bearing deposits in other banks $ (497) $ 1,726 $ 1,229 Federal funds sold and other investments 78 65 143 Available-for-sale debt securities 923 1,343 2,266 Total investments 504 3,134 3,638 Commercial real estate loans 4,983 2,233 7,216 SBA loans (3,276) 5,589 2,313 Commercial and industrial loans 734 2,020 2,754 Home mortgage loans 8,602 (462) 8,140 Consumer & other loans (1) (6) (7) Total loans 11,042 9,374 20,416 Total interest-earning assets 11,546 12,508 24,054 Interest-bearing liabilities: Money market deposits and others 1,159 3,012 4,171 Time deposits 669 3,238 3,907 Total interest-bearing deposits 1,828 6,250 8,078 Borrowings 2 89 91 Total interest-bearing liabilities 1,830 6,339 8,169 Net interest income $ 9,716 $ 6,169 $ 15,885 2023 Compared to 2022 Net interest income decreased $8.2 million, or 10.7%, to $68.7 million for the year ended December 31, 2023 from $76.9 million for the same period of 2022, primarily due to higher interest expense on deposits, partially offset by higher interest income on loans and investments.
The following table summarizes the consideration paid for the loan portfolio and the amounts of assets purchased: ($ in thousands) Consideration Cash $ 97,631 Recognized amounts of identifiable assets purchased: 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, $6.9 million PPP loans and $919 thousand of real estate loans. 68 The loan distribution table that follows sets forth our gross loans outstanding, and the percentage distribution in each category as of the dates indicated: December 31, 2022 December 31, 2021 ($ in thousands) Amount % of Total Amount % of Total Commercial real estate $ 842,208 50.1 % $ 701,450 53.3 % SBA loan - real estate 221,340 13.2 220,099 16.8 SBA loan - non-real estate 13,377 0.8 55,759 4.2 Commercial and industrial 116,951 7.0 162,543 12.4 Home mortgage 482,949 28.8 173,303 13.2 Consumer 1,467 0.1 865 0.1 Gross loans receivable 1,678,292 100.0 % 1,314,019 100.0 % Allowance for loan losses (19,241) (16,123) Loans receivable, net (1) $ 1,659,051 $ 1,297,896 (1) Includes net deferred loan fees or costs, unamortized premiums and unaccreted discounts of $160 thousand and $7.0 million as of December 31, 2022 and 2021, respectively.
The loan distribution table that follows sets forth our gross loans outstanding, and the percentage distribution in each category as of the dates indicated: December 31, 2023 December 31, 2022 ($ in thousands) Amount % of Total Amount % of Total Commercial real estate $ 885,585 50.2 % $ 842,208 50.1 % SBA—real estate 224,695 12.7 221,340 13.2 SBA—non-real estate 14,997 0.8 13,377 0.8 Commercial and industrial 120,970 6.9 116,951 7.0 Home mortgage 518,024 29.3 482,949 28.8 Consumer 1,574 0.1 1,467 0.1 Gross loans receivable 1,765,845 100.0 % 1,678,292 100.0 % Allowance for credit losses (21,993) (19,241) Loans receivable, net (1) $ 1,743,852 $ 1,659,051 (1) Includes net deferred loan costs and unamortized premiums of $140 thousand and $160 thousand as of December 31, 2023 and 2022, respectively.
The following tables presents the contractual loan maturities by loan category and the contractual distribution of loans to changes in interest rates as of December 31, 20221 and 2021: December 31, 2022 Due in One Year or Less Due after One Year Through Five Years Due after Five Years ($ in thousands) Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Total Commercial real estate $ 27,735 $ 33,894 $ 387,902 $ 116,088 $ 248,812 $ 27,777 $ 842,208 SBA loans—real estate — — — 34 — 221,306 221,340 SBA loan—non- real estate — 75 442 3,964 — 8,896 13,377 Commercial and industrial 8,905 27,917 1,611 28,082 31,185 19,251 116,951 Home mortgage — — — — 465,749 17,200 482,949 Consumer — 1,136 — 331 — — 1,467 Gross loans $ 36,640 $ 63,022 $ 389,955 $ 148,499 $ 745,746 $ 294,430 $ 1,678,292 December 31, 2021 Due in One Year or Less Due after One Year Through Five Years Due after Five Years ($ in thousands) Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Total Commercial real estate $ 32,142 $ 64,919 $ 317,631 $ 116,053 $ 132,727 $ 37,978 $ 701,450 SBA loans—real estate — — — 42 395 219,662 220,099 SBA loan—non- real estate 612 128 39,995 5,147 — 9,877 55,759 Commercial and industrial 13,886 66,111 193 43,207 22,885 16,261 162,543 Home mortgage — — — — 154,864 18,439 173,303 Consumer — 216 — 649 — — 865 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).
The following tables presents the contractual loan maturities by loan category and the contractual distribution of loans to changes in interest rates as of December 31, 2023 and 2022: December 31, 2023 Due in One Year or Less Due after One Year Through Five Years Due after Five Years ($ in thousands) Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Total Commercial real estate $ 66,776 $ 84,427 $ 414,863 $ 79,933 $ 192,074 $ 47,512 $ 885,585 SBA—real estate — — — 25 — 224,670 224,695 SBA—non- real estate — 116 1 3,535 — 11,345 14,997 Commercial and industrial 18,478 30,172 7,996 27,154 23,644 13,526 120,970 Home mortgage — — — — 495,425 22,599 518,024 Consumer — 1,574 — — — — 1,574 Gross loans $ 85,254 $ 116,289 $ 422,860 $ 110,647 $ 711,143 $ 319,652 $ 1,765,845 72 December 31, 2022 Due in One Year or Less Due after One Year Through Five Years Due after Five Years ($ in thousands) Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Total Commercial real estate $ 27,735 $ 33,894 $ 387,902 $ 116,088 $ 248,812 $ 27,777 $ 842,208 SBA—real estate — — — 34 — 221,306 221,340 SBA—non- real estate — 75 442 3,964 — 8,896 13,377 Commercial and industrial 8,905 27,917 1,611 28,082 31,185 19,251 116,951 Home mortgage — — — — 465,749 17,200 482,949 Consumer — 1,136 — 331 — — 1,467 Gross loans $ 36,640 $ 63,022 $ 389,955 $ 148,499 $ 745,746 $ 294,430 $ 1,678,292 Our loan portfolio is concentrated in commercial real estate, which includes unguaranteed balances in SBA loans, home mortgage and commercial (primarily manufacturing, wholesale, and services oriented entities).
No issuer of the available-for-sale securities, other than U.S. Government and its agencies, comprised more than ten percent of our shareholders’ equity as of December 31, 2022 and 2021. The following table summarizes the fair value of the available-for-sale securities portfolio as of the dates presented.
No issuer of the available-for-sale securities, other than U.S. Government and its agencies, comprised more than ten percent of our shareholders’ equity as of December 31, 2023 and 2022. Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. The unrealized losses were primarily attributable to interest rate movement, not credit quality.
The provision for loan losses was $3.0 million for the twelve months ended December 31, 2022, compared to $522 thousand for the same period in 2021.
The allowance for credit losses was $22.0 million as of December 31, 2023, compared to $19.2 million as of December 31, 2022. $1.7 million provision of credit losses was recorded for the year ended December 31, 2023, compared to provision for credit losses of $3.0 million for the same period in 2022.
We originated $192.1 million for the year ended December 31, 2022. We sold SBA loans of $181.9 million with 7.45% average premium and $110.3 million with 11.04% average premium during the years ended December 31, 2022 and 2021, respectively.
The increase was primarily due to higher sales volume partially offset by lower average premium on loan sales. We sold $181.9 million of SBA loans with an average premium of 7.45% for the year ended December 31, 2022, compared to a sale of $110.3 million of SBA loans with an average premium of 11.04% in the same period of 2021.
December 31, 2022 December 31, 2021 ($ in thousands) Amortized Cost Fair Value Unrealized Loss Amortized Cost Fair Value Unrealized Loss U.S.
The following table summarizes the fair value of the available-for-sale securities portfolio as of the dates presented: December 31, 2023 December 31, 2022 ($ in thousands) Amortized Cost Fair Value Unrealized Loss Amortized Cost Fair Value Unrealized Loss U.S.
We originated $115.1 million for the year ended December 31, 2022. Loans - Home Mortgage: We originate mainly non-qualified, alternative documentation single-family home mortgage loans (“home mortgage”) primarily through our retail branch network and our correspondent lender network.
Loans - Home Mortgage: We originate mainly non-qualified, alternative documentation single-family home mortgage loans (“home mortgage”) primarily through our retail branch network and our correspondent lender network. The primary loan product is a five-year or seven-year hybrid adjustable rate mortgage, which reprices after five years to a selected SOFR plus certain spreads.
The following table presents the Company's liquid assets as of dates presented: As of December 31, ($ in thousands) 2022 2021 Cash and cash equivalents $ 82,972 $ 115,459 AFS debt securities 209,809 150,444 Total liquid assets $ 292,781 $ 265,903 The following tables summarizes short- and long-term material cash requirements as of December 31, 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) $ 630,543 $ 26,822 $ 501 $ — $ 1,227,905 $ 1,885,771 Operating lease commitments 2,467 4,077 3,857 3,473 — 13,874 Commitments to fund investment for Low Income Housing Tax Credit 3,793 4,437 45 362 111 8,748 Total contractual obligations $ 636,803 $ 35,336 $ 4,403 $ 3,835 $ 1,228,016 $ 1,908,393 (1) Includes deposits with no defined maturity, such as noninterest-bearing demand, savings and money market.
The following table presents our liquid assets and available borrowings as of December 31, 2023 and 2022: ($ in thousands) December 31, 2023 December 31, 2022 % Change Liquid assets: Cash and cash equivalents $ 91,216 $ 82,972 9.9 % AFS debt securities 194,250 209,809 (7.4) Liquid assets $ 285,466 $ 292,781 (2.5) % Liquid assets to total deposits 15.8 % 15.5 % Available borrowings: FHLB $ 363,615 $ 440,358 (17.4) % Federal Reserve Bank 182,989 175,605 4.2 Pacific Coast Bankers Bank 50,000 50,000 — Zions Bank 25,000 25,000 — First Horizon Bank 25,000 24,950 0.2 Total available borrowings $ 646,604 $ 715,913 (9.7) % Total available borrowings to total deposits 35.8 % 38.0 % Liquid assets and available borrowings to total deposits 51.6 % 53.5 % The following tables summarizes short- and long-term material cash requirements as of December 31, 2023, 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 (1) $ 841,257 $ 43,952 $ 580 $ — $ 921,769 $ 1,807,558 Operating lease commitments 2,586 3,809 3,605 1,925 — 11,925 Advances from FHLB (2) 30,000 75,000 — — — 105,000 Commitments to fund investment for Low Income Housing Tax Credit 6,564 4,465 318 558 — 11,905 Total contractual obligations $ 880,407 $ 127,226 $ 4,503 $ 2,483 $ 921,769 $ 1,936,388 (1) Includes deposits with no defined maturity, such as noninterest-bearing demand, savings and money market.
We sold $181.9 million of SBA loans with an average premium of 7.45% for the year ended December 31, 2022, compared to a sale of $110.3 million of SBA loans with an average premium of 11.04% in the same period of 2021. 63 2021 Compared to 2020 The following table sets forth the various components of our noninterest income for the years ended December 31, 2021 and 2020: Year Ended December 31, ($ in thousands) 2021 2020 $ Change % Change Noninterest income: Service charges on deposit $ 1,562 $ 1,431 $ 131 9.2 % Loan servicing fees, net of amortization 1,953 1,856 97 5.2 Gain on sale of loans 11,313 6,092 5,221 85.7 Other income 1,189 1,392 (203) (14.6) Total noninterest income $ 16,017 $ 10,771 $ 5,246 48.7 % Noninterest income for the year ended December 31, 2021 was $16.0 million, an increase of $5.2 million, or 48.7%, compared to $10.8 million for the year ended December 31, 2020.
Other sources of noninterest income include service charges on deposit. 2023 Compared to 2022 The following table sets forth the various components of our noninterest income for the years ended December 31, 2023 and 2022: Year Ended December 31, ($ in thousands) 2023 2022 $ Change % Change Noninterest income: Service charges on deposit $ 2,123 $ 1,675 $ 448 26.7 % Loan servicing fees, net of amortization 2,449 2,416 33 1.4 Gain on sale of loans 7,843 12,285 (4,442) (36.2) Other income 1,766 1,243 523 42.1 Total noninterest income $ 14,181 $ 17,619 $ (3,438) (19.5) % Noninterest income for the year ended December 31, 2023 was $14.2 million, a decrease of $3.4 million, or 19.5%, compared to $17.6 million for the same period of 2022, primarily due to a decrease in gain on sale of loans.
We also maintain relationships in the capital markets with brokers to issue certificates of deposit and money market accounts. The Company maintains liquidity in the form of cash and cash equivalents, and unencumbered high-quality and liquid AFS debt securities.
We also maintain relationships in the capital markets with brokers to issue certificates of deposit and money market accounts. We maintain ample access to liquidity, including highly liquid assets on our balance sheet and available unused borrowings from other financial institutions.
Depending on a particular loan’s circumstances, we measure impairment of a loan based upon either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral less estimated costs to sell if the loan is collateral dependent.
For individually assessed loans, the allowance for credit losses is measured using either 1) the present value of future cash flows discounted at the loan’s effective interest rate; or 2) the fair value of the collateral, if the loan is collateral-dependent. For the collateral-dependent loans, we obtain a new appraisal to determine the fair value of collateral.
The increase were primarily due to an increase in business development expense. 65 2021 Compared to 2020 The following table sets forth the major components of our noninterest expense for the years ended December 31, 2021 and 2020: Year Ended December 31, ($ in thousands) 2021 2020 $ Change % Change Noninterest expense: Salaries and employee benefits $ 21,253 $ 20,041 $ 1,212 6.0 % Occupancy and equipment 5,213 4,974 239 4.8 Data processing and communication 2,000 1,682 318 18.9 Professional fees 1,192 1,101 91 8.3 FDIC insurance and regulatory assessments 583 449 134 29.8 Promotion and advertising 684 467 217 46.5 Directors' fees 593 700 (107) (15.3) Foundation donation and other contributions 2,890 1,335 1,555 116.5 Other expenses 1,457 1,191 266 22.3 Total noninterest expense $ 35,865 $ 31,940 $ 3,925 12.3 % Salaries and employee benefits expense for the year ended December 31, 2021 was $21.3 million, compared to $20.0 million for the year ended December 31, 2020, an increase of $1.2 million, or 6.0%.
Noninterest Expense 2023 Compared 2022 The following table sets forth the major components of our noninterest expense for the years ended December 31, 2023 and 2022: Year Ended December 31, ($ in thousands) 2023 2022 $ Change % Change Noninterest expense: Salaries and employee benefits $ 29,593 $ 27,189 $ 2,404 8.8 % Occupancy and equipment 6,490 5,964 526 8.8 Data processing and communication 2,109 2,085 24 1.2 Professional fees 1,571 1,620 (49) (3.0) FDIC insurance and regulatory assessments 1,457 813 644 79.2 Promotion and advertising 614 543 71 13.1 Directors' fees 680 682 (2) (0.3) Foundation donation and other contributions 2,400 3,393 (993) (29.3) Other expenses 2,812 2,541 271 10.7 Total noninterest expense $ 47,726 $ 44,830 $ 2,896 6.5 % Noninterest expense for the year ended December 31, 2023 was $47.7 million, compared with $44.8 million for the same period of 2022, an increase of $2.9 million or 6.5%. 68 Salaries and employee benefits for the year ended December 31, 2023 was $29.6 million, compared to $27.2 million for the same period of 2022, an increase of $2.4 million, or 8.8%.
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. 56 Results of Operations Net Income We reported net income for the year ended December 31, 2022 of $33.3 million, compared to net income of $28.8 million for the same period of 2021.
RESULTS OF OPERATIONS Net Income We reported net income for the year ended December 31, 2023 of $23.9 million, a decrease of $9.4 million, or 28.2%, compared to net income of $33.3 million for the same period of 2022.
Total gain on sale of loans was $11.3 million in the year ended December 31, 2021, compared to $6.1 million for the same period of 2020, an increase of $5.2 million or 85.7%. Gain on sale of SBA loans totaled $11.0 million in the year ended December 31, 2021, compared to $5.9 million for the same period of 2020.
Gain on sale of loans was $7.8 million for the year ended December 31, 2023, compared to $12.3 million for the same period of 2022, a decrease of $4.4 million or 36.2%. The decrease was primarily due to a lower sold amount in SBA loans and a lower average sales premium.
From our total SBA loan portfolio, $221.3 million is secured by real estate and $13.4 million is unsecured or secured by business assets as of December 31, 2022. Loans — Commercial and Industrial: Commercial and industrial loans totaled $117.0 million as of December 31, 2022, compared to $162.5 million as of December 31, 2021.
We sold SBA loans of $145.0 million with a 6.65% average premium during year ended December 31, 2023. From our total SBA loan portfolio, $224.7 million is secured by real estate and $15.0 million is unsecured or secured by business assets as of December 31, 2023.
Income from service charges on deposit accounts was $1.6 million for 2021, compared to $1.4 million for 2020, an increase of $131 thousand, or 9.2%. The increase was primarily due to higher account analysis charges and wire transaction fees, partially offset by lower overdraft charges in the year ended December 31, 2021, compared to the same period in 2020.
FDIC insurance and regulatory assessments for the year ended December 31, 2023 was $1.5 million, compared to $813 thousand, an increase of $644 thousand, or 79.2%. The increase was primarily due to our deposit growth from the same period of 2022 and an increase in FDIC assessment fees in 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+1 added−0 removed12 unchanged
Biggest changeNet Interest Sensitivity Economic Value of Equity Sensitivity December 31, December 31, 2022 2021 2020 2022 2021 2020 +400 basis points (1.23) % 26.96 % 30.27 % (66.09) % (8.18) % 10.14 % +300 basis points 0.12 % 21.44 % 23.87 % (42.72) % 0.62 % 12.73 % +200 basis points 1.13 % 15.15 % 16.85 % (23.29) % 6.11 % 13.55 % +100 basis points 0.97 % 8.07 % 8.99 % (9.11) % 6.92 % 11.14 % -100 basis points (0.94) % (1.86) % — % (1.78) % (23.05) % (20.87) % -200 basis points (0.70) % (2.64) % (0.21) % (7.31) % (39.80) % (27.55) % -300 basis points (3.24) % (2.92) % (0.43) % (18.42) % (42.11) % (31.07) % Item 8.
Biggest changeNet Interest Sensitivity Economic Value of Equity Sensitivity December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 +300 basis points 1.57 % 0.12 % (41.40) % (42.72) % +200 basis points 2.39 1.13 (18.75) (23.29) +100 basis points 1.54 0.97 (6.32) (9.11) -100 basis points (0.97) (0.94) 5.58 (1.78) -200 basis points (0.14) (0.70) 3.41 (7.31) -300 basis points 1.77 (3.24) (3.47) (18.42) Item 8.
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.
Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate 82 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.
The projections assume (1) immediate, parallel shifts downward of the yield curve of 100, 200 and 300 basis points and (2) immediate, parallel shifts upward of the yield curve of 100, 200, 300 and 400 basis points over 12 months.
The projections assume (1) immediate, parallel shifts downward of the yield curve of 100, 200 and 300 basis points and (2) immediate, parallel shifts upward of the yield curve of 100, 200, and 300 basis points over 12 months.
Financial Statements and Supplementary Data. The Financial Statements required by this Item 8 is contained on pages F-1 through F-38 of this 10-K and are incorporated herein by reference. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.
Financial Statements and Supplementary Data. The Financial Statements required by this Item 8 is contained on pages F-1 through F-39 of this 10-K and are incorporated herein by reference. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.
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. 79 Potential changes to our net interest income in hypothetical rising and declining rate scenarios calculated as of December 31, 2022, 2021 and 2020 are presented in the following table.
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.
Added
Potential changes to our net interest income in hypothetical rising and declining rate scenarios calculated as of December 31, 2023 and 2022 are presented in the following table.

Other OPBK 10-K year-over-year comparisons