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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of the Company’s audited consolidated financial statements are based upon its audited consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these audited consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

The Company has sufficient capital and does not anticipate any need for additional liquidity as of December 31, 2022, As of December 31, 2022 and based on the values of loans pledged as collateral, we had $1.1 billion and $833.6 million of additional borrowing capacity with the FHLB. We also maintain relationships in the capital markets with brokers and dealers to issue certificates of deposit. As of December 31, 2022, we had $92.0 million of unsecured federal funds lines. In addition, lines of credit from the Federal Reserve Discount Window were $12.0 million at December 31, 2022. We did not have any borrowings outstanding with the federal fund lines or Federal Reserve Discount Window at December 31, 2022. The Bank and the Company exceeded all regulatory capital requirements under Basel III and were considered to be “well-capitalized” at December 31, 2022.

Allowance for Credit Losses on Loans Held for Investment

The use of reasonable and supportable forecasts requires significant judgment, such as selecting forecast scenarios and related scenario-weighting, as well as determining the appropriate length of the forecast horizon management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Any unexpected adverse changes or uncertainties to these factors that are beyond the Company’s control could result in increases in to the ACL through additional provision for credit losses.

A sensitivity analysis of our ACL was performed as of December 31, 2022. Based on this sensitivity analysis, a positive 25% change in prepayment speed would result in a $1.2 million, or 3.0%, decrease to the ACL. A negative 25% change in prepayment speed would result in a $1.7 million, or 4.0%, increase to the ACL. Additionally, a 1% increase in the unemployment rate would result in a $644,000, or 2.0%, increase to the ACL and a 1% decrease in the unemployment rate would result in a $919,000, or 2.2%, decrease to the ACL. Management reviews the results using the comparison scenario for sensitivity analysis and considered the results when evaluating the qualitative factor adjustments.

Investment Securities

Effective January 1, 2022, upon the adoption of ASU 2016-13, the Company accounts for credit losses on available for sale ("AFS") securities in accordance with ASC 326-30. Debt securities are measured at fair value and subject to impairment testing. When a debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factors and then, (1) recognize an allowance for credit loss by a charge to earnings for the credit-related component (if any) of the decline in fair value, and (2) recognize in other comprehensive income (loss) any non-credit related components of the fair value change. If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation reserve would be reduced, but not more than the amount of the current existing reserve for that security.

Our significant accounting policies are described in greater detail in our 2022 audited financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report, specifically in “Note 2 – Summary of Significant Accounting Policies,” which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations.

For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities AFS that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.

The determination of credit losses when fair value decline in available for sale security involves significant judgment. Adverse changes in management’s assessment that concluded a credit impairment on investment security could result in an increase in impairment charges that negatively impacted our earnings.

Goodwill and Other Intangible Assets

Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill resulting from whole bank acquisitions is not amortized, but tested for impairment at least annually.

The Company performs goodwill impairment test in accordance with ASC 350 “Intangibles- Goodwill and Other.” Fair value of goodwill is based on selection and weighting of valuations methods using management assumptions not limited to discounted cash flow, diversification, market position, customer dependence, access to capital markets, financial risk, growth, and earnings trends. Consideration of economic conditions is also an important part of the valuation process.

Changes to assumptions, to selection and weighting in the valuation methods and to economic conditions could result in goodwill impairment losses that negatively impact our earnings.

Income Taxes

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.

Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets are also recognized for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The value of deferred tax assets and liabilities are based on many factors including: estimates of the timing of reversals of temporary differences, the application of federal and state income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ from the estimates and interpretations used in determining the current and deferred income tax liabilities.

Under ASC 740, a valuation allowance is required to be recognized if it is “more likely than not” that all or a portion of the Company's deferred tax assets will not be realized. The Company's policy is to evaluate the deferred tax assets on a quarterly basis and record a valuation allowance for the Company's deferred tax assets if there is not sufficient positive evidence available to demonstrate utilization of the Company's deferred tax assets. Initial setup or an increase to deferred tax asset valuation allowance would be charged to income tax expense that would negatively impacted our earnings.

OVERVIEW

For the year 2022, we reported net earnings of $64.3 million, compared with $56.9 million for the year 2021. This represented an increase of $7.4 million, or 13.0%, over the prior year. The increase in net earnings reflected a $25.2 million increase in net interest income, which was partially offset by a $7.5 million decrease in non-interest income, a $2.1 million increase in the provision for credit losses, a $5.2 million increase in non-interest expenses and a $3.0 million increase in income tax expense.

At December 31, 2022, total assets were $3.9 billion, a decrease of $309.1 million, or 7.3%, from total assets of $4.2 billion at December 31, 2021. The decrease in assets was primarily due to a $417.8 million decrease in interest bearing cash and due from banks, a $193.0 million decrease in federal funds sold and a decrease of $112.0 million in investment securities, partially offset by an increase of $405.1 million in HFI loans.

At December 31, 2022, available for sale (“AFS”) investment securities totaled $256.8 million inclusive of a pre-tax net unrealized loss of $31.3 million, compared to $368.3 million inclusive of a pre-tax net unrealized loss of $2.4 million at December 31, 2021. At December 31, 2022, held to maturity (“HTM”) investment securities totaled $5.7 million, compared to $6.3 million as of December 31, 2021.

Net loans (held for investment, net of deferred fees, discounts, and the allowance for credit losses) were $3.3 billion at December 31, 2022, compared to $2.9 billion at December 31, 2021. Net loans and leases increased $397.0 million, or 13.7%, from December 31, 2021. The increase in net loans was due to organic growth. The increase in net loans is mainly due to increases of $459.5 million in SFR mortgage loans and $64.1 million in CRE loans, partially offset by a $67.5 million decrease in C&I loans, a $26.3 million decrease in construction loans, a $14.7 million decrease in SBA loans and a $10.1 million decrease in other loans.

Total deposits were $3.0 billion at December 31, 2022, a decrease of $407.8 million, or 12.0%, compared to $3.4 billion at December 31, 2021, primarily due to a decrease of $805.0 million in non-maturity deposits, partially offset by an increase of $397.2 million of time deposits.

Noninterest-bearing deposits were $798.7 million at December 31, 2022, a decrease of $492.7 million, or 38.2%, from $1.3 billion at December 31, 2021. At December 31, 2022, noninterest-bearing deposits were 26.8% of total deposits, compared to 38.1% at December 31, 2021.

Borrowings, consisting of FHLB advances, long-term debt and subordinated debt, increased $70.8 million to $408.3 million as of December 31, 2022 compared to $337.5 million as of December 31, 2021. The Company had $70.0 million in short-term FHLB advances and $150.0 million in long-term advances at December 31, 2022, compared to no short-term FHLB advances and $150.0 million in long-term advances at December 31, 2021.

The allowance for credit losses was $41.1 million at December 31, 2022, an increase of $8.2 million or 24.8%, from $32.9 million at December 31, 2021. During 2022, there was a $6.0 million provision for credit losses excluding provision for unfunded commitments compared to $4.0 million for 2021. The Company retroactively adopted CECL to January 1, 2022. Upon adoption of CECL, the Company recorded a $2.1 million transition adjustment for the allowance for credit losses through retained earnings on January 1, 2022. The increase in the 2022 provision expense was reflective of changes in forecasts of GDP growth rates, levels of unemployment, vacancy rates, and changes in the value of commercial real estate properties in the Company's CECL model adopted and loan growth. The ACL to HFI loans outstanding was 1.23% and 1.12% as of December 31, 2022 and December 31, 2021, respectively.

Shareholders’ equity increased $17.9 million, or 3.8%, to $484.6 million as of December 31, 2022 from $466.7 million at December 31, 2021. The increase during 2022 was primarily due to $64.3 million of net income and $5.5 million from the exercise of stock options, partially offset by $10.7 million of cash dividends, a $20.0 million increase in net accumulated other comprehensive loss and $19.8 million from the repurchase of common stock. There was also a one-time $2.2 million cumulative-effect adjustment to the opening balance of retained earnings upon the adoption of the new CECL accounting standard.

Our capital ratios under the Basel III capital framework regulatory standards remain well capitalized. As of December 31, 2022, the Company’s Tier 1 leverage capital ratio was 11.67%, common equity Tier 1 ratio was 16.03%, Tier 1 risk-based capital ratio totaled 16.58%, and total risk-based capital ratio was 24.27%.

ANALYSIS OF THE RESULTS OF OPERATIONS

Financial Performance

2022 2021 Increase (Decrease) % December 31, 2020 Increase (Decrease) %

(Dollars in thousands, except per share data)

Share Data

Earnings per common share:

Performance Ratios

Results of Operations—Comparison of Results of Operations for the Years Ended December 31, 2022 to December 31, 2021

Net Interest Income/Average Balance Sheet

In 2022, we generated fully-taxable equivalent net interest income of $149.7 million, an increase of $25.2 million, or 20.3%, from $124.4 million in 2021. This increase was largely due to a $121.1 million increase in the average balance of interest-earning assets, in part due to organic loan growth, and a 78 basis point increase in the average yield of interest-earning assets, partially offset by a 37 basis point increase in the cost of interest bearing liabilities. For the years ended December 31, 2022 and 2021, our reported net interest margin was 4.02% and 3.46%, respectively. Our net interest margin benefits from discount accretion on our purchased loan portfolios.

Interest Income. Total fully-taxable equivalent interest income was $181.1 million in 2022 compared to $147.1 million in 2021. The $33.9 million, or 23.1%, increase in total interest income was mainly due to an increase in the average balance of HFI loans of $351.3 million and an increase in the average balance of securities of $17.2 million, partially offset by a decrease of $227.9 million in the average balance of Federal funds sold, cash equivalents and other investments.

Interest and fees on total loans was $171.1 million in 2022 compared to $141.6 million in 2021. The $29.5 million, or 20.9%, increase in interest income on loans was primarily due to a $331.7 million increase in the average balance of total loans outstanding and a 41 basis point increase in the average yield on total loans. The increase in the average balance of loans outstanding was primarily due to organic growth in single-family residential mortgage loans and commercial real estate loans during 2022. The yield on the loan portfolio benefited from accretion income associated with purchase accounting discounts on loans acquired in prior acquisitions. For the years 2022 and 2021, the yield on total loans was 5.52% and 5.12%, respectively.

The table below presents the accretion income by loan type for the years 2022, 2021 and 2020:

Beginning balance of discount on purchased loans $ 1,726 $ 2,872 $ 5,068

Additions due to acquisitions:

Commercial and industrial 8 — 39

Commercial real estate 26 — 397

Single family residential mortgages (52 ) — 449

Total additions $ (18 ) $ — $ 885

Accretion:

Commercial and industrial 5 (9 ) —

Construction and land development (1 ) — 5

Single family residential mortgages 488 998 714

Ending balance of discount on purchased loans $ 1,237 $ 1,726 $ 2,872

Interest income from our securities portfolio increased $2.7 million, or 78.9%, to $6.2 million in 2022. The increase in interest income on securities was primarily due to an increased average balance of $17.2 million, or 5.3%, and a 74 basis point increase in the average yield of securities.

Interest income on our federal funds sold, cash equivalents and other investments increased $1.7 million, or 79.1%, to $3.8 million in 2022. The increase in interest income on these earning assets was primarily due to a 95 basis point increase in average yield of cash equivalents, partially offset by a $227.9 million decrease in the average balance. The decrease in the average balance resulted from utilization of these funds to fund higher yielding loans and securities.

Interest Expense. Interest expense on interest-bearing liabilities increased $8.7 million, or 38.3%, to $31.4 million in 2022 primarily due to a 37 basis point increase in the average rate on these liabilities, partially offset by a $1.2 million decrease in the average balance of interest bearing liabilities.

Our average cost of total deposits was 0.61% for 2022, compared to 0.40% for 2021. The increase was due to a 36 basis point increase in the average rate paid on interest bearing deposits.

Interest expense on total deposits increased to $18.9 million in 2022. The $6.9 million, or 58.0%, increase in interest expense on total deposits was primarily due to a 36 basis point increase in the average rate paid on total average interest bearing deposits due to higher rates paid on time deposits, partially offset by a $64.0 million decrease in the average balance of time deposits. Noninterest-bearing demand deposits decreased primarily due to the continued reduction of a single deposit relationship and the withdrawal of $451.7 million of deposits by digital currency businesses. The average balance of interest-bearing deposits decreased $59.4 million, or 2.9%, from $2.1 billion in 2021 compared to $2.0 billion in 2022 due to customers shifting their deposit balances into higher yielding alternatives available in the market.

Average Balance Sheet, Interest and Yield/Rate Analysis

The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax equivalent (“TE”) basis by adjusting interest income utilizing the federal statutory tax rate of 21% for 2022, 2021 and 2020. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in the growth and maturity of earning assets. See “Analysis of Financial Condition—Capital Resources and Liquidity Management” and Item 7A “Quantitative and Qualitative Disclosures about Market Risk” included herein.

The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the years 2022, 2021 and 2020. The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of discount accretion and net deferred loan origination costs accounted for as yield adjustments.

Year Ended December 31,

thousands) Balance & Fees Rate Balance & Fees Rate Balance & Fees Rate

Interest-earning assets:

Securities: (2)

Loans held for investment: (3)

Interest-bearing liabilities:

Noninterest-bearing liabilities

The following table summarizes the extent to which changes in (1) interest rates, and (2) volume of average interest-earning assets and average interest-bearing liabilities affected by the Company’s net interest income for the periods presented. The total change for each category of interest-earning assets and interest-bearing liabilities is segmented into changes attributable to variations in volume and yield/rate. Changes that are not solely due to either volume or yield/rate are allocated proportionally based on the absolute value of the change related to average volume and average yield/rate.

Change due to: Change due to:

Interest-earning assets:

Securities: (2)

Loans held for investment: (3)

Interest-bearing liabilities

Provision for Credit Losses

Effective January 1, 2022, the Company adopted the provisions of ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination. As a result, the Company recorded an increase of $2.1 million to allowance for credit losses and an increase of $1.0 million to allowance for unfunded commitments. For unfunded commitments, the ACL is a liability account that is reported as reserve for unfunded commitments in our consolidated balance sheet. The Company applied the modified retrospective transition approach, and recorded a decrease of $2.2 million, net of tax, to the beginning balance of retained earnings as of January 1, 2022 for the cumulative effect adjustment. The provision for credit losses in 2022 was $4.9 million compared to $4.0 million in 2021. The increase in the 2022 provision expense was reflective of forecasts employed in the Company’s CECL model adopted as of January 1, 2022 and loan growth. Non-performing loans that were individually analyzed, with $48,000 in 2022 and $30,000 in 2021, net addition to the allowance for credit losses.

Noninterest Income

Noninterest income decreased $7.5 million, or 40.0%, to $11.3 million in 2022 from $18.7 million in 2021. The following table sets forth the major components of noninterest income for the years ended December 31, 2022, 2021 and 2020:

Noninterest income:

Gain on sale of securities — — 210 — — (210 ) (100.0 )%

Gain on sale of fixed assets 757 — — 757 100 % — —

Service charges, fees and others. The $2.2 million decrease in noninterest income from service charges, fees and other income was primarily due to a $1.8 million CDFI RRP award received in 2021 and $447,000 decrease in analysis charges, mainly due to the reduction in wire volume and associated fees on a digital currency related client.

Gain on sale of loans. Gains on sale of loans are comprised primarily of gains on sale of SFR mortgage loans and SBA loans. Gains on sale of loans totaled $1.9 million in 2022, compared to $10.0 million in 2021. The $8.1 million or 81.0% decrease was primarily caused by a decrease of $238.8 million in loan sale volume, primarily due to the increase in interest rates, which resulted in the decreases in FNMA mortgage loan originations and loan sales.

Loans sold:

Gain on loans sold:

Loan servicing income, net of amortization. Loan servicing income, net of amortization, increased by $1.5 million to $2.2 million for 2022 compared to net servicing income of $684,000 for 2021. The increase was due to higher interest rates, which decreased the pre-payment speeds on loans serviced. We are experienced lower loan pre-payments in SFR loans due to higher mortgage rates. We experienced an increase in SBA loan servicing income due to less loan payoffs for 2022 compared to loan payoffs in 2021, though the volume of SBA loans we service is decreasing due to lower originations.

Loan servicing income, net of amortization:

As of year-end, dollars in thousands

Unrealized (loss) gain on equity investments. There was no unrealized loss on equity investments for 2022, compared to $360,000 unrealized loss in 2021. The balance of the equity investments remained unchanged from December 31, 2021 to December 31, 2022.

(Loss) gain on derivatives. Loss on derivatives in 2022 was $247,000 compared to a gain of $5,000 for 2021. The loss in 2022 were caused by lower amounts of loans that were committed to be delivered to FNMA due to interest rate hikes during 2022.

Increase in cash surrender of life insurance. The income from the cash surrender value of life insurance increased $255,000 in 2022 compared to 2021. We purchased additional BOLI of $19.8 million in June 2021.

Gain on sale of fixed assets. A $757,000 gain on sale of fixed assets was recorded from the sale of a real estate asset during 2022, which was used to house staff while traveling.

Noninterest Expense

Noninterest expense increased $5.2 million, or 9.0%, to $63.4 million in 2022 from $58.2 million in 2021. The following table sets forth the major components of our noninterest expense for the years ended December 31, 2022, 2021 and 2020:

Noninterest expense:

Salaries and employee benefits expense. Salaries and employee benefits expense increased $1.9 million due to normal salary increases. The number of full-time equivalent employees was 379 at December, 31, 2022, 365 at December 31, 2021 and 366 at December 31, 2020. None of our employees are represented by a labor union, or governed by any collective bargaining agreements.

Occupancy and equipment expense. Occupancy and equipment expense increased $401,000, or 4.6%, to $9.1 million for 2022 compared to $8.7 million for 2021 due to higher expenses from a new branch in Brooklyn, New York.

Data processing expense. Data processing expense increased $586,000, or 13.1%, to $5.1 million for 2022, compared to $4.5 million for 2021 due to increases in ATM processing fees and data line expenses. As of December 31, 2022, $732,000 of this benefit remained for future use.

Legal and professional expense. Legal and professional expense increased $1.6 million in 2022 due to a previously disclosed special investigation led by the Company's board of directors.

Marketing and business promotion expense. Marketing and business promotion expense increased $421,000, due to increases in business promotion and CRA donation expenses.

Insurance and regulatory assessments. Insurance and regulatory assessments increased $289,000, or 18.5%, to $1.9 million in 2022 due to an increase in the FDIC assessment by $116,000.

Other noninterest expenses. Other expenses increased by $977,000, or 38.9%, to $3.5 million primarily due to a $331,000 increase in director restricted stock unit compensation expense, a $264,000 increase in loan servicing expense and a $417,000 reversal in mortgage servicing rights valuation that occurred in 2021.

Income Tax Expense

Income tax expense was $27.0 million in 2022 compared to $24.0 million in 2021, an increase of $3.0 million, or 12.4%. The effective tax rate for 2022 was 29.6% and 29.7% for 2021. Income tax expense included a $587,000 benefit for stock options exercised in 2022 and an $873,000 benefit in 2021. The Company amended its 2020 tax returns and 2018 California state tax return and recorded a total of $315,000 tax expense reduction in 2022.

Net Income

Net income increased $7.4 million to $64.3 million in 2022, compared to $56.9 million in 2021. The increase is primarily due to an increase in net interest income of $25.2 million, partially offset by a decrease in non-interest income of $7.5 million, a $5.2 million increase in non-interest expense, and a $2.1 million increase in the credit loss provision and a $3.0 million increase in tax expense.

Results of Operations—Comparison of Results of Operations for the Years Ended December 31, 2021 with December 31, 2020

Net Interest Income/Average Balance Sheet

In 2021, we generated fully-taxable equivalent net interest income of $124.4 million, an increase of $19.6 million, or 18.7%, from $104.8 million in 2020. This increase was largely due to a 20.7% increase in the average balance of interest-earning assets, in part due to organic loan growth, partially offset by a 6 basis point decrease in the net interest margin. For the years ended December 31, 2021 and 2020 our reported net interest margin was 3.46% and 3.52%, respectively. Our net interest margin benefits from discount accretion on our purchased loan portfolios.

Interest Income. Total fully-taxable equivalent interest income was $147.1 million in 2021 compared to $139.2 million in 2020. The $8.0 million, or 5.7%, increase in total interest income was mainly due to increases in the average balance of total loans of $180.9 million, average balance of securities of $144.1 million, and average balance of Federal funds sold, cash equivalents and other investments of $292.2 million. This was partially offset by a decrease in the average total loan yield of 6 basis points.

Interest and fees on loans was $141.6 million in 2021 compared to $133.9 million in 2020. The $7.7 million, or 5.7%, increase in interest income on loans was primarily due to a $180.9 million increase in the average balance of total loans outstanding, partially offset by 6 basis point decrease in the average yield on total loans. The increase in the average balance of loans outstanding was primarily due to organic growth in commercial real estate and single-family residential mortgage loans during 2021. The yield on the loan portfolio benefited from accretion income associated with purchase accounting discounts established on loans acquired in prior acquisitions. For the years 2021 and 2020, the reported yield on total loans was 5.12% and 5.18%, respectively. The impact of accretion income on our yield on total loans for the years 2021 and 2020 was to increase our reported yield on total loans by 0.03% and 0.08%, respectively. A substantial portion of our acquired loan portfolio that is subject to discount accretion consists of commercial real estate loans and single family residential mortgages.

Taxable equivalent interest income from our securities portfolio increased $454,000, or 15.1%, to $3.5 million in 2021. The increase in interest income on securities was primarily due to an increased average balance of $144.1 million, or 78.8%, partially offset by a 58 basis point decrease in the average yield of securities.

Interest income on our federal funds sold, cash equivalents and other investments decreased $143,000, or 6.3%, to $2.1 million in 2021. The decrease in interest income on these earning assets was primarily due to a 64 basis point decrease in average yield of cash equivalents, partially offset by a $292.2 million increase in the average balance. The increase in the average balance resulted from pending utilization of these funds to higher yielding loans and securities.

Interest Expense. Interest expense on interest-bearing liabilities decreased $11.6 million, or 33.9%, to $22.7 million in 2021 primarily due to a 63 basis point decrease in the average rate on these liabilities plus an increase in average non-interest bearing deposits of $374.6 million, partially offset by a $216.5 million increase in the average balance of interest bearing liabilities.

Interest expense on total deposits decreased to $12.0 million in 2021. The $13.2 million, or 52.6%, decrease in interest expense on total deposits was primarily due to a 73 basis point decrease in the average rate paid on total average interest bearing deposits, partially offset by a $141.9 million increase in the average balance of interest-bearing deposits. The increase in the average balance of deposits resulted primarily from organic growth in 2021.

Interest expense on borrowings increased 17.5% from $9.2 million in 2020 to $10.8 million in 2021. This increase reflected increased average balances in long term debt. In 2021, the average rate on these liabilities was 3.34% compared to 3.70% in 2020.

Provision for Credit Losses

The provision for credit losses in 2021 was $4.0 million compared to $11.8 million in 2020. The decrease in the 2021 provision expense was primarily attributable to a decrease in COVID-19 pandemic related market effects from 2020, partially offset by increases in past due loans, substandard loans and impaired loans. Non-performing loans that increased during the year were individually analyzed, with $30,000 in 2021 and $525,000 in 2020, net addition to the allowance for credit losses. The Company calculated the allowance for loan losses under ASC 310 and ASC 450 in 2021 and 2020.

Noninterest Income

Noninterest income increased $4.7 million, or 33.5%, to $18.7 million in 2021 from $14.0 million in 2020.

Service charges, fees and others. The increase in noninterest income from service charges, fees and other income was primarily from receiving a $1.8 million CDFI RRP award in 2021 and $800,000 in service charges on the additional transactional deposit accounts originated organically.

Gain on sale of loans. The gain on sale of loans increased $4.0 million due primarily to the increase in gains of $2.7 million in SFR mortgage loans sold and increase in gains of $1.3 million in SBA loans sold. Increases in gains on sale of loans were due to increases of $7.2 million on SBA loans sold and $92.4 million on mortgage loans held for sale. The increase in the mortgage loan sales was attributable to the favorable change in market conditions in the secondary market for FNMA loans.

Loan servicing income, net of amortization. Loanservicing income decreased due to increased loan pre-payments in the SFR loans serviced causing a decrease in the volume of mortgage loans we are servicing. SBA loan servicing income decreased due to a decline in SBA pre-payments.

Recoveries on loans acquired in business combinations. Recoveries on loans acquired in business combinations decreased by $2,000 to $82,000 in 2021 compared to $84,000 in 2020.

Gain on derivatives. Due to the amount of loans that were committed to be delivered to FNMA at year-end, we recorded derivatives which resulted in a gain of $46,000 in 2021 and $78,000 in 2020. In 2021 and 2020, the income from interest rate lock commitments (“IRLCs”) was ($41,000) and $182,000, respectively, and was recorded as a net to gain on derivatives. The income from forward mortgage loan sales commitments (“FMLSCs”) was $46,000 and $78,000 in 2021 and 2020, respectively, and is reported in the income statement.

Cash surrender value income of bank owned life insurance. Cash surrender value income of bank owned life insurance (“BOLI”) increased $300,000 due to additional BOLI investment of $19.9 million in June 2021.

Gain on sales of securities, net. Gain on sales of securities, net was $210,000 in 2020 from the sale of $11.7 million securities. There was no gain on sale of securities in 2021.

Noninterest Expense

Noninterest expense decreased $1.3 million, or 2.2%, to $58.2 million in 2021 from $59.5 million in 2020.

Salaries and employee benefits expense. Salaries and employee benefits expense increased $256,000 due to normal salary increases. The number of full-time equivalent employees were 365 at December, 31, 2021, 366 at December 31, 2020 and 355 at December 31, 2019. None of our employees are represented by a labor union, or governed by any collective bargaining agreements. We consider relations with our employees to be satisfactory. On a periodic basis, the human resources department will advise senior management of the following human capital management metrics: (1) open positions, (2) overtime expense, (3) staff turnover, and (4) employee headcount.

Occupancy and equipment expense. Occupancy and equipment expense decreased $1.0 million from 2020 to 2021 mainly due to the savings from branch closures in 2020 and in early 2021.

Data processing expense. Data processing expense increased $238,000 in 2021. This increase was primarily due to upgrading our infrastructure. Effective June 2019, the Company renegotiated its data processing master agreement with its vendor, under which the Company is allowed to offset future monthly data processing expenses up to approximately $2.2 million through January 2026. As of December 31, 2021, this offset benefit amounted to $1.2 million to be recognized through January 2026.

Legal and professional expense. Legal and professional expense increased $1.0 million in 2021 due to increases in internal control audits, professional expense associated with emerging growth company status and problem loan collections.

Office expenses. Office expenses, comprised of communications, postage, armored car, and office supplies, decreased by $29,000 in 2021.

Marketing and business promotion expense. Marketing and business promotion expense increased $406,000, due to increased marketing efforts following the COVID-19 pandemic.

Insurance and regulatory assessments expense. Insurance and regulatory assessments expense increased by $577,000 to $1.6 million in 2021 compared to $984,000 in 2020. The FDIC insurance assessment was $949,000 in 2021 and $455,000 in 2020, an increase of $494,000. The California DFPI regulatory assessment increased by $20,000 from $163,000 for the year 2020 to $183,000 for year 2021. The corporate insurance expense (including directors and officers insurance and fidelity bond), was $435,000 for 2021 compared to $363,000 for 2020.

Amortization of intangibles. Amortization of intangibles totaled $1.1 million in 2021 as compared to $1.4 million for 2020. The decrease was due to continued amortization of the core deposit intangible asset, following the additional core deposit intangible asset of $491,000 recognized in connection with the 2020 PGBH acquisition.

OREO expenses. OREO expenses were $17,000 in 2021 and $35,000 in 2020. The $18,000 decrease was due to no further ongoing expenses for past OREOs.

Merger expenses. Merger expenses were $137,000 in 2021 compared to $746,000 in 2020. The 2021 expense includes expenses relating to the acquisition of the Hawaii Branch from BOTO, while the 2020 expenses relate to the PGBH acquisition.

Other noninterest expenses. Other expenses decreased by $1.9 million from 2020, primarily due to the provision (benefit) for credit losses associated with unfunded commitments as of the balance sheet date of ($180,000) in 2021 compared to $558,000 in 2020. The off-balance sheet liabilities are letters of credit and other commitments to lend. The provision for off-balance sheet liabilities is a function of the volume of undisbursed loans and other loan commitments multiplied by a risk factor. Other expense increases included a $417,000 decrease in mortgage servicing rights valuation due to reversal of write-downs reflecting the decline in market rates of interest.

Income Tax Expense

Income tax expense was $24.0 million in 2021 compared to $14.5 million in 2020, an increase of $9.5 million, or 65.4%. The effective tax rate for 2021 was 29.7% and 30.6% for 2020. Income tax expense for 2021 included an $873,000 benefit for stock options exercised and a $26,000 benefit for 2020.

Net Income

Net income increased $24.0 million to $56.9 million in 2021, compared to $32.9 million in 2020. The increase was primarily due to an increase in net interest income of $19.6 million, an increase in non-interest income of $4.7 million, a $1.3 million decrease in non-interest expense and a $7.9 million decrease in the credit loss provision, partially offset by a $9.5 million increase in tax expense.

ANALYSIS OF FINANCIAL CONDITION

Total assets were $3.9 billion as of December 31, 2022 and $4.2 billion as of December 31, 2021. We increased our net loans held for investment by $396.9 million, which resulted from organic loan growth. Organic loan growth increased mainly in single family residential mortgages and commercial real estate loans. Our mortgage loans held for sale decreased by $6.0 million in 2022 to none. The decrease in assets was primarily due to a decrease in cash and cash equivalents. The decline in cash and cash equivalents was due to the decreases in the balances of demand deposits and money market accounts due to the continued reduction of concentration with certain deposit customers and higher yielding alternatives available in the market.

Investment Securities. We manage our securities portfolio and cash to maintain adequate liquidity and to ensure the safety and preservation of invested principal, with a secondary focus on yield and returns. Specific goals of our investment portfolio are as follows:

Our investment portfolio is comprised primarily of U.S. government agency securities, corporate note securities, mortgage-backed securities backed by government-sponsored entities and taxable and tax exempt municipal securities.

Our investment policy is reviewed annually by our board of directors. Overall investment goals are established by our board of directors, CEO, CFO and members of our Asset Liability Committee (“ALCO”) of our board of directors. Our board of directors has delegated the responsibility of monitoring our investment activities to our ALCO. Day-to-day activities pertaining to the securities portfolio are conducted under the supervision of our CEO and CFO. We actively monitor our investments on an ongoing basis to identify any material changes in the securities. We also review our securities for potential other-than-temporary impairment at least quarterly.

Effective January 1, 2022, upon the adoption of ASU 2016-13, Financial Instruments - Credit Losses, debt securities available-for-sale are measured at fair value and subject to impairment testing. When an AFS debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factors and then, (1) recognize an allowance for credit losses by a charge to earnings for the credit-related component (if any) of the decline in fair value, and (2) recognize in other comprehensive income (loss) any non-credit related components of the fair value change. If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation reserve would be reduced, but not more than the amount of the current existing reserve for that security.

The following table sets forth the book value and percentage of each category of securities at December 31, 2022, 2021 and 2020. The book value for securities classified as available for sale is equal to fair market value and the book value for securities classified as held to maturity is equal to amortized cost.

(dollars in thousands) Amount % of Total Amount % of Total Amount % of Total

Securities, available for sale, at fair value

Securities, held to maturity, at amortized cost

The tables below set forth investment securities AFS and HTM for the periods presented.

(dollars in thousands) Amortized Unrealized Unrealized Fair

December 31, 2022 Cost Gains Losses Value

Available for sale

Government agency securities $ 5,012 $ — $ (517 ) $ 4,495

Mortgage-backed securities: commercial 4,887 — (16 ) 4,871

Collateralized mortgage obligations: commercial 44,591 — (2,901 ) 41,690

Held to maturity

Municipal taxable securities $ 1,003 $ 7 $ (3 ) $ 1,007

Available for sale

Government agency securities $ 5,689 $ 4 $ (83 ) $ 5,610

Mortgage-backed securities: commercial 9,977 — (4 ) 9,973

Held to maturity

Municipal taxable securities $ 1,506 $ 77 $ — $ 1,583

The weighted-average yield on the total investment portfolio at December 31, 2022 was 2.55% with a weighted-average life of 5.8 years. This compares to a weighted-average yield of 1.03% at December 31, 2021 with a weighted-average life of 3.8 years. The weighted average life is the average number of years that each dollar of unpaid principal due remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal pay downs.

Approximately 19.0% of the securities in the total investment portfolio at December 31, 2022, are issued by the U.S. government or U.S. government-sponsored agencies and enterprises, which have the implied guarantee of payment of principal and interest. As of December 31, 2022, no U.S. government agency bonds are callable.

The table below shows the Company’s investment securities’ amortized cost and fair value by maturity in the following maturity groupings as of December 31, 2022. The amortized cost and fair value of the investment securities portfolio are shown by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

(dollars in thousands) Amortized Amortized Amortized Amortized Amortized

The tables below show the Company’s investment securities’ gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2022 and December 31, 2021. The unrealized losses on these securities were primarily attributed to changes in interest rates. The issuers of these securities have not evidenced any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated. However, we have the ability and the intention to hold these securities until their fair values recover to cost or maturity. A summary of our analysis of these securities and the unrealized losses is described more fully in Note 4 — Investment Securities in the notes to the consolidated financial statements included in this Annual Report.

Less than Twelve Months Twelve Months or More Total

(dollars in thousands) Unrealized Unrealized Unrealized

December 31, 2022 Fair Value Losses Fair Value Losses Fair Value Losses

Mortgage-backed securities: commercial 4,871 (16 ) — — 4,871 (16 )

Municipal taxable securities $ 498 $ (3 ) $ — $ — $ 498 $ (3 )

Less than Twelve Months Twelve Months or More Total

Unrealized Unrealized Unrealized

December 31, 2021 Fair Value Losses Fair Value Losses Fair Value Losses

Government sponsored agencies $ 4,860 $ (83 ) $ — $ — $ 4,860 $ (83 )

Mortgage-backed securities: commercial — — 9,974 (4 ) 9,974 (4 )

The Company did not record any charges for other-than-temporary impairment losses for the twelve months ended December 31, 2022 and 2021.

Loans

The loan portfolio is the largest category of our earning assets. At December 31, 2022, total loans held for investment, net of ACL, totaled $3.3 billion.

The following table presents the balance and associated percentage of each major category in our loan portfolio at December 31 for the past five years:

As of December 31,

(dollars in thousands) $ % $ % $ % $ % $ %

Loans:(1)

(1) Net of discounts and deferred fees and costs

Net loans held for investment increased $396.9 million, or 13.7%, to $3.3 billion at December 31, 2022 as compared to $2.9 billion at December 31, 2021. The increase in net loans resulted from organic growth in single family residential mortgages loans and commercial real estate.

Commercial and industrial loans. We provide a mix of variable and fixed rate C&I loans. The loans are typically made to small- and medium-sized manufacturing, wholesale, retail and service businesses for working capital needs, business expansions and for international trade financing. C&I loans include lines of credit with a maturity of one year or less, C&I term loans with maturities of five years or less, shared national credits with maturities of five years or less, mortgage warehouse lines with a maturity of one year or less, bank subordinated debentures with a maturity of 10 years and international trade discounts with a maturity of three months or less. Substantially all of our C&I loans are collateralized by business assets or by real estate.

We originate commercial and industrial lines of credit, term loans, mortgage warehouse lines and international trade discounts which totaled $201.2 million as of December 31, 2022 and $268.7 million at December 31, 2021. The interest rate on these loans are generally Wall Street Journal Prime rate based.

Our trade finance unit supplies financial needs to many of our core customers including trade financing needs for many of our commercial and industrial loan customers. The unit provides international letters of credit, SWIFT, export advice, trade finance discounts and foreign exchange. Our trade finance has a correspondent relationship with many of the largest banks in China, Taiwan, Vietnam, Hong Kong and Singapore. All of our international letters of credit, SWIFT, export advice and trade finance discounts are denominated in U.S. currency, and all foreign exchange is issued through a major bank that is also denominated in U.S. currency.

C&I loans decreased $67.5 million, or 25.1%, to $201.2 million as of December 31, 2022 compared to $268.7 million at December 31, 2021. This decrease resulted primarily from a $46.7 million decrease in commercial loans and lines of credit and a $20.9 million decrease in mortgage warehouse lines.

Commercial real estate loans. CRE loans include owner-occupied and non-occupied commercial real estate, multi-family residential and SFR loans originated for a business purpose. Except for the multi-family residential loan portfolio, the interest rate for the majority of these loans are Prime based and have a maturity of five years or less except for the SFR loans originated for a business purpose which may have a maturity of one year. The interest rate for multi-family residential loans are based on the 5-year treasury, are 10 year maturity with a five year fixed rate period followed by a five year floating rate period, and have a declining prepayment penalty for the first five years. At December 31, 2022, approximately 14.5% of the CRE portfolio consisted of fixed-rate loans. In mid-2022 we decreased our policy maximum loan-to-value (“LTV”) to 70% from 75% for CRE loans originated after the effective date. The total CRE portfolio totaled $1.3 billion as of December 31, 2022 and $1.2 billion as of December 31, 2021, of which $255.2 million and $222.8 million, respectively, are secured by owner occupied properties. The multi-family residential loan portfolio totaled $643.2 million as of December 31, 2022 and $545.9 million as of December 31, 2021. The SFR loan portfolio originated for a business purpose totaled $69.3 million as of December 31, 2022 and $65.6 million as of December 31, 2021.

Construction and land development loans. Our C&D loans are comprised of residential construction, commercial construction and land acquisition and development construction. Interest reserves are generally established on real estate construction loans. These loans are typically Prime based and have maturities of less than 18 months. In mid-2022 we decreased our LTV policy limits to 70% from 75% for construction and land development loans originated after the effective date. C&D loans decreased $26.3 million or 8.7%, to $276.9 million at December 31, 2022 as compared to $303.1 million at December 31, 2021. This decrease was primarily due to decreases in residential construction loans. As of December 31, 2022 and 2021, our real estate construction loan portfolio was divided among the foregoing categories as shown in the table below.

As of December 31, 2022 As of December 31, 2021 Increase (Decrease)

(dollars in thousands) $ Mix % $ Mix % $ %

SBA guaranteed loans. We are designated a Preferred Lender under the SBA Preferred Lender Program. We offer mostly SBA 7(a) variable-rate loans. We generally sell the 75% guaranteed portion of the SBA loans that we originate. Our SBA loans are typically made to small-sized manufacturing, wholesale, retail, hotel/motel and service businesses for working capital needs or business expansions. SBA loans can have any maturity up to 25 years. Typically, non-real estate secured loans mature in less than 10 years. Collateral may also include inventory, accounts receivable and equipment, and includes personal guarantees. Our unguaranteed SBA loans collateralized by real estate are monitored by collateral type and are included in our CRE Concentration Guidance.

We originate SBA loans through our branch staff, loan officers and through SBA brokers. In 2022, we originated $29.7 million in SBA loans, $17.8 million were SBA 7A originations and $11.9 million were SBA 504 originations.

As of December 31, 2022 our SBA portfolio totaled $61.4 million of which $6.1 million is guaranteed by the SBA and $55.3 million is unguaranteed, of which $54.1 million is secured by real estate and $1.2 million is unsecured or secured by business assets. We monitor the unguaranteed portfolio by type of real estate collateral. As of December 31, 2022, $27.3 million or 49.3% is secured by hotel/motels; $4.4 million or 7.9% by gas stations; and $23.7 million or 42.8% in other real estate types. As of December 31, 2022, $34.5 million or 62.3% is located in California; $4.1 million or 7.4% is located in Texas; $4.0 million or 7.2% is located in Nevada; $3.5 million or 6.3% is located in Washington; and $9.2 million or 16.8% is located in other states.

SBA loans decreased $14.7 million, or 19.3%, to $61.4 million at December 31, 2022 compared to $76.1 million at December 31, 2021. This decrease was primarily due to SBA loan sales of $12.7 million, and $31.8 million in net loan payoffs and payments in 2022, partially offset by SBA 7A loan originations of $17.8 million and SBA 504 originations of $11.9 million.

SFR real estate loans. We originate qualified SFR mortgage loans and non-qualified, alternative documentation SFR mortgage loans through correspondent relationships or through our branch network or retail channel. The qualified SFR mortgage loans, 15-year and 30-year conforming mortgages, are originated by our branch network and are sold directly to FNMA within seven days of funding.

During 2022, we originated $672.1 million of SFR mortgage loans. The loans are generally originated through our retail branch network to our customers, many of whom establish a deposit relationship with us. During 2022, we originated $386.1 million of such loans through our retail channel, and $286.0 million through our wholesale and correspondent channel. We originated $39.5 million in FNMA loans in 2022 and sold $46.1 million to FNMA. In 2022 we did not sell any non-qualified SFR mortgages due to the market environment. However, when market conditions are correct we plan to sell non-qualified SFR mortgage loans to other Asian-American banks and private investors.

The loans sold to other banks are sold with no representation or warranties and with a replacement feature for the first 90-days if the loan pays off early. For SFR loans sold to FNMA and to investment funds we provide limited representations and warranties and with a repurchase and premium refund for loans that become delinquent in the first 90-days or a premium refund if paid-off in the first 90-days with respect to all loans sold. As a condition of the sale, the buyer must have the loans audited for underwriting and compliance standards.

SFR real estate loans held for investment increased $459.5 million, or 45.7%, to $1.5 billion as of December 31, 2022 as compared to $1.0 billion as of December 31, 2021. There were no loans held for sale as of December 31, 2022 compared to $6.0 million as of December 31, 2021. In addition, our SFR mortgage lending unit originates mortgage warehouse lines to our correspondents. These loans are included in our commercial and industrial lending unit and totaled $29.3 million as of December 31, 2022 and $47.2 million as of December 31, 2021.

The loan maturities in the table below are based on contractual maturities as of December 31, 2022. As is customary in the banking industry, loans that meet underwriting criteria can be renewed by mutual agreement between us and the borrower. Because we are unable to estimate the extent to which our borrowers will renew their loans, the table is based on contractual maturities. As a result, the data shown below should not be viewed as an indication of future cash flows.

Construction & land development

Commercial & industrial

Commercial real estate

SBA

SFR mortgage

Other

Floating rate 16 — — — $ 16

Allowance for credit losses $ (41,076 )

Loan Quality

We use what we believe is a comprehensive methodology to monitor credit quality and prudently manage credit concentration within our loan portfolio. Our underwriting policies and practices govern the risk profile and credit and geographic concentration for our loan portfolio. We also have what we believe to be a comprehensive methodology to monitor these credit quality standards, including a risk classification system that identifies potential problem loans based on risk characteristics by loan type as well as the early identification of deterioration at the individual loan level.

Discounts on Purchased Loans. At acquisition we hire a third-party to determine the fair value of loans acquired. In many of the cases fair values were determined by estimating the cash flows expected to result from those loans and discounting them at appropriate market rates. The excess of expected cash flows above the fair value of the majority of loans will be accreted to interest income over the remaining lives of the loans in accordance with FASB Accounting Standards Codification (ASC) 310-20.

None of the loans we acquired after 2011 had evidence of deterioration of credit quality since origination for which it was probable, at acquisition, that the Company would be unable to collect all contractually required payments receivable.

Analysis of the ACL. The following table allocates the ACL, or the allowance, by category:

As of December 31,

(dollars in thousands) $ % (1) $ % (1) $ % (1) $ % (1) $ % (1)

Loans:

Unallocated — — — — — — 101 — — —

Allowance for credit losses.

The Company accounts for credit losses on loans in accordance with ASC 326, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination. The ACL is maintained at a level deemed appropriate by management to provide for expected credit losses in the portfolio as of the date of the consolidated balance sheet. Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. The measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. The Company has elected to utilize a discounted cash flow (“DCF”) approach for all segments except consumer loans and warehouse mortgage loans, for these a remaining life approach was elected.

The Company’s discounted cash flow methodology incorporates a probability of default, loss given default and exposure at default model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. The use of reasonable and supportable forecasts requires significant judgment, such as selecting unemployment forecast scenarios and related scenario-weighting, as well as determining the appropriate length of the forecast horizon. Management estimates the allowance balance required using past loan loss experience from peers with similar portfolio sizes and geographic locations to the Company, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. The Company’s CECL methodology utilizes a four-quarter reasonable and supportable forecast period, and a four-quarter reversion period. The Company is using the Federal Open Market Committee to obtain forecasts for the unemployment rate, while reverting to a long-run average of each considered economic factor.

The Company uses both internal and external qualitative factors within the CECL model: lending policies, procedures, and strategies; changes in nature and volume of the portfolio; credit & lending personnel experience; changes in volume and trends in classified loans, delinquencies, and nonaccrual; concentration risk; collateral values; regulatory and business environment; loan review results; and economic conditions.

Individual loans considered to be uncollectible are charged off against the allowance. Factors used in determining the amount and timing of charge-offs on loans include consideration of the loan type, length of delinquency, sufficiency of collateral value, lien priority and the overall financial condition of the borrower. Collateral value is determined using updated appraisals and/or other market comparable information. Charge-offs are generally taken on loans once the impairment is determined to be other-than-temporary. Recoveries on loans previously charged off are added to the allowance. Net charge-offs to average loans were 0.00% and 0.01% for the twelve months ended December 31, 2022 and 2021, respectively

The ACL was $41.1 million at December 31, 2022 compared to $32.9 million at December 31, 2021. The $8.2 million increase in 2022 was primarily due to $2.1 million increase in the allowance from the adoption of ASU 2016-13 on January 1, 2022, net recoveries of $2,000 and a provision for credit losses of $6.0 million, excluding the provision for unfunded commitments.

Prior to the Company's adoption of ASC 326 on January 1, 2022, the Company maintained an allowance for loan losses (“ALLL”) in accordance with ASC 450, Contingencies and ASC 310, Receivables. The allowance for loan losses was a valuation allowance for probable incurred credit losses. Loan losses were charged against the allowance when management believed the uncollectibility of a loan balance was confirmed. Subsequent recoveries, if any, were credited to the allowance. Management estimated the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.

The following table provides an analysis of the ACL, provision for credit losses and net charge-offs for the years 2018 to 2022:

Year Ended December 31,

Charge-offs:

Commercial and industrial (5 ) (500 ) (200 ) — —

Recoveries:

Commercial and industrial 2 1 — — 36

Commercial real estate — 61 — — —

Reserve for off-balance sheet credit commitments

Allowance for credit losses to total loans 1.23 % 1.12 % 1.08 % 0.86 % 0.82 %

Problem Loans. Loans are considered delinquent when principal or interest payments are past due 30 days or more; delinquent loans may remain on accrual status between 30 days and 89 days past due. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability in the normal course of business. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on nonaccrual loans is subsequently recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible. Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable.

In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a modified loan. These concessions may include a reduction of the interest rate, principal or accrued interest, extension of the maturity date or other actions intended to minimize potential losses. Loans restructured at a rate equal to or greater than that of a new loan with comparable risk at the time the loan is modified may be excluded from restructured loan disclosures in years subsequent to the restructuring if the loans are in compliance with their modified terms.

Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as OREO until sold, and is carried at the balance of the loan at the time of foreclosure or at estimated fair value less estimated costs to sell, whichever is less.

The following table sets forth the allocation of our nonperforming assets among our different asset categories as of the dates indicated. Nonperforming loans include nonaccrual loans, loans past due 90 days or more and still accruing interest, and loans modified under troubled debt restructurings. Nonperforming loans exclude PCI loans. The Company did not have any loans past due 90 days or more but still accruing interest at any of the dates presented. The balances of nonperforming loans reflect the net investment in these assets.

As of December 31,

Accruing troubled debt restructured loans:

Commercial and industrial $ 306 $ 410 $ 502 $ — $ —

Construction and land development — — — 264 276

Non-accrual loans:

Construction and land development 141 149 173 — —

The $2.8 million increase in nonperforming loans at December 31, 2022 was primarily due to two commercial real estate loans of $12.3 million, eight SFR loans of $6.3 million, three SBA loan of $1.4 million, five C&I loans of $1.2 million, one CRE loan of $290,000 and fifteen other consumers loans of $129,000 that migrated into non-accrual status during 2022. Offsetting the increases were non-accrual and accruing modified loan payoffs or paydowns of $17.4 million and loans that migrated to accruing status of $1.4 million. Additionally, there was $181,000 in net loan recoveries of non-accrual loans that had been previously charged off.

Our 30-89 day delinquent loans, excluding non-accrual loans, decreased to $15.2 million as of December 31, 2022, compared to $17.6 million at December 31, 2021. From December 31, 2021 to December 31, 2022, the decrease in past due loans (excluding non-accrual loans) resulted from decreases of $1.6 million in C&I loans, $1.6 million in SBA loans, $1.1 million in commercial real estate loans, partially offset by a $1.7 million increase in SFR mortgage loans and a $167,000 increase in other loans.

We did not recognize any interest income on nonaccrual loans during the years ended December 31, 2022 and December 31, 2021 while the loans were in nonaccrual status. We recognized interest income on modified loans of $143,000 and $159,000 during the years ended December 31, 2022 and December 31, 2021, respectively.

We utilize an asset risk classification system in compliance with guidelines established by the FDIC as part of our efforts to improve asset quality. In connection with examinations of insured institutions, examiners have the authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard”, “doubtful”, and “loss”. Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full questionable and there is a high probability of loss based on currently existing facts, conditions and values. An asset classified as loss is not considered collectable and is of such little value that continuance as an asset is not warranted.

We use a risk grading system to categorize and determine the credit risk of our loans. Potential problem loans include loans with a risk grade of 6, which are “special mention,” loans with a risk grade of 7, which are “substandard” loans that are generally not considered to be impaired and loans with a risk grade of 8, which are “doubtful” loans generally considered to be impaired. These loans generally require more frequent loan officer contact and receipt of financial data to closely monitor borrower performance. Potential problem loans are managed and monitored regularly through a number of processes, procedures and committees, including oversight by a loan administration committee comprised of executive officers and other members of the Bank’s senior management.

Cash and Cash Equivalents. Cash and cash equivalents decreased $610.8 million, or 88.0%, to $83.5 million as of December 31, 2022 as compared to $694.4 million at December 31, 2021. This decrease was primarily due to $444.5 million used in financing activities and $260.2 million used in investing activities, partially offset by $93.8 million provided by cash from operating activities.

The Federal Reserve announced the reduction of the reserve requirement ratio to zero percent across all deposit tiers, effective March 26, 2020. Depository institutions that were required to maintain deposits in a Federal Reserve Bank account to satisfy reserve requirements are no longer be required to do so and can use the additional liquidity to lend to individuals and businesses.

Goodwill and Other Intangible Assets. Goodwill was $71.5 million at December 31, 2022 and $69.2 million at December 31, 2021. Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired. Goodwill in the amount of $2.3 million was recognized in conjunction with the acquisition of the Hawaii Branch from BOTO. Our other intangible assets, which consist of core deposit intangibles, were $3.7 million and $4.1 million at December 31, 2022 and December 31, 2021. These core deposit intangible assets are amortized primarily on an accelerated basis over their estimated useful lives, generally over a period of 3 to 10 years.

Liabilities. Total liabilities decreased $327.0 million to $3.4 billion, or 8.7%, at December 31, 2022 from $3.8 billion at December 31, 2021, primarily due to a $407.8 million decrease in deposits, partially offset by a $70.0 million increase in short-term FHLB advances.

Deposits. As an Asian-American business bank that focuses on successful businesses and their owners, many of our depositors choose to leave large deposits with us. The Bank measures core deposits by reviewing all relationships over $250,000 on a quarterly basis. We track all deposit relationships over $250,000 on a quarterly basis and consider a relationship to be core if there are any three or more of the following: (i) relationships with us (as a director or shareholder); (ii) deposits within our market area; (iii) additional non-deposit services with us; (iv) electronic banking services with us; (v) active demand deposit account with us; (vi) deposits at market interest rates; and (vii) longevity of the relationship with us. We consider all deposit relationships under $250,000 as a core relationship except for time deposits originated through an internet service. This differs from the traditional definition of core deposits which is demand and savings deposits plus time deposits less than $250,000. As many of our customers have more than $250,000 on deposit with us, we believe that using this method reflects a more accurate assessment of our deposit base. As of December 31, 2022, the Bank considers $2.24 billion or 75.2% of our deposits as adjusted core relationships. As of December 31, 2022, our top ten deposit relationships totaled $411.4 million, of which two are related to directors and large shareholders of the Company for a total of $74.3 million or 2.5% of our top ten deposit relationships. As of December 31, 2022, our directors and shareholders with deposits over $250,000 totaled $58.0 million or 2.8% of all relationships over $250,000.

The following table summarizes our average deposit balances and weighted average rates at December 31, 2022, 2021 and 2020:

For the Year Ended

Weighted Weighted Weighted

Average Average Average Average Average Average

(dollars in thousands) Balance Rate (%) Balance Rate (%) Balance Rate (%)

Interest-bearing:

The following table sets forth the maturity of non-core time deposits as of December 31, 2022:

Maturity Within:

The following table sets forth the estimated deposits exceeding the FDIC insurance limit:

(dollars in thousands) For the Year Ended December 31,

The estimated aggregate amount of time deposits in excess of the FDIC insurance limit is $581.2 million at December 31, 2022. The following table sets forth the maturity distribution of time deposits in amounts of more than $250,000 as of December 31, 2022.

(dollars in thousands) December 31, 2022

We acquired wholesale deposits from the internet and outside deposits originators as needed to supplement liquidity. These time deposits are primarily under $250,000 and we do not consider them core deposits. The total amount of such deposits as of December 31, 2022 was $7.1 million or 0.2% of total deposits. The balance of such deposits as of December 31, 2021 were $70.1 million or 2.1% of total deposits.

Total deposits decreased $407.8 million to $3.0 billion at December 31, 2022 as compared to $3.4 billion at December 31, 2021. The decrease was expected and mainly due to managing large deposit concentration limits and customers moving such funds out of the Bank and into other higher yielding investments. During 2022 noninterest-bearing deposits decreased by $492.7 million due to the continued reduction of a single deposit relationship and the withdrawal of $451.7 million of deposits by digital currency businesses and interest-bearing non-maturity deposits decreased by $312.3 million due to the Bank's customers pursuing higher rates offered by the Bank's time deposits, and time deposits increased by $397.2 million. As of December 31, 2022, total deposits were comprised of 26.8% noninterest-bearing demand accounts, 20.7% interest-bearing non-maturity deposit accounts and 52.5% of time deposits.

FHLB Borrowings. In addition to deposits, we have used long- and short-term borrowings, such as federal funds purchased and FHLB long-and short-term advances, as a source of funds to meet the daily liquidity needs of our customers and fund growth in earning assets. We had $70.0 million and no FHLB short-term advances at December 31, 2022 and at December 31, 2021, respectively. The Company secured these short-term FHLB advances in order to maintain its liquidity to meet its funding needs due to reduced concentration of certain deposit customers and other deposit outflows. In the first quarter of 2020, the Company obtained $150.0 million in long-term FHLB advances. The term is five years, maturing by March 2025. The average fixed interest rate is 1.18%. The Company secured this funding in case there was a liquidity issue caused by the COVID-19 pandemic and to obtain an attractive interest rate. The following table sets forth information on our total FHLB advances during the periods presented:

Year Ended December 31,

Weighted average interest rate:

Long-Term Debt. Long-term debt consists of subordinated notes. As of December 31, 2022 the amount of subordinated notes outstanding was $173.6 million as compared to $173.0 million at December 31, 2021.

In March and April 2016, we issued an aggregate of $50.0 million of subordinated notes for net proceeds of $49.4 million. The subordinated notes have a maturity date of April 1, 2026 at a fixed rate of 6.5% for the first five years and a floating rate based on the three-month LIBOR plus 516 basis points thereafter. The Company redeemed these subordinated notes on March 31, 2021. The redemption price for the subordinated notes was equal to 100% of principal amount of the notes redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date of March 31, 2021.

In November 2018, the Company issued $55.0 million in fixed-to-floating rate subordinated notes due December 1, 2028. The Notes bear a fixed rate of 6.18% for the first five years and will reset quarterly thereafter to the then-current three-month LIBOR rate plus 315 basis points. The subordinated notes were assigned an investment grade rating of BBB by the Kroll Bond Rating Agency, Inc. Under the terms of our subordinated notes and the related subordinated notes purchase agreements, we are not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the long term debt.

In connection with the November 2018 issuance of subordinated notes, Bancorp entered into a registration rights agreement with the purchasers of such notes pursuant to which the Company exchanged the notes for subordinated notes that were registered under the Securities Act and that have substantially the same terms as the privately issued notes. The exchange of notes was completed in March 2019.

In March 2021, the Company issued $120 million of 4.00% fixed to floating rate subordinated notes due April 1, 2031. The interest rate is fixed through April 1, 2026 and floats at three month SOFR plus 329 basis points thereafter. The Company can redeem these subordinated notes beginning April 1, 2026. The subordinated notes are considered Tier 2 capital at the Company.

The Company used the net proceeds from these subordinated debt offerings for general corporate purposes, including providing capital to the Bank and maintaining adequate liquidity at Bancorp. The subordinated notes qualified as Tier 2 capital for Bancorp for regulatory purposes and the portion that Bancorp contributed to the Bank qualified as Tier 1 capital for the Bank.

Subordinated Debentures. Subordinated debentures consist of subordinated debentures issued in connection with trust preferred securities. As of December 31, 2022 and December 31, 2021, the amount outstanding was $14.7 million and $14.5 million, respectively. Under the terms of our subordinated debentures issued in connection with the issuance of trust preferred securities, we are not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the long term debt. These subordinated debentures consist of the following:

In 2016, Bancorp acquired $5.2 million of subordinated debentures as part of the TFC acquisition (TFC Trust) and recorded them at fair value of $3.3 million. The fair value adjustment is being accreted over the remaining life of the securities. These debentures mature on March 15, 2037 and have a variable rate of interest equal to the three-month LIBOR plus 1.65%. The rate at December 31, 2022 was 6.42% and 1.85% at December 31, 2021.

In October 2018, the Company, through the acquisition of FAIC, acquired the FAIC Trust. The FAIC Trust issued thirty-year fixed-to-floating rate capital securities with an aggregate liquidation amount of $7,000,000 to an independent investor, and all of its common securities, amounting to $217,000, financed by the issuance of $7.2 million of debentures. There was a $1.2 million valuation reserve recorded to arrive at market value which is treated as a yield adjustment and is amortized over the life of the security. The Company has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years. The subordinated debentures have a variable rate of interest equal to the three-month LIBOR plus 2.25% through final maturity on December 15, 2034. The rate at December 31, 2022 was 7.02% and 2.45% at December 31, 2021.

In January 2020, the Company, through the acquisition of PGBH, acquired PGBH Trust, a Delaware statutory trust formed in December 2004. PGBH Trust issued 5,000 fixed-to-floating rate capital securities with an aggregate liquidation amount of $5.0 million and 155 common securities with an aggregate liquidation amount of $155,000. There was a $763,000 valuation reserve recorded to arrive at market value which is treated as a yield adjustment and is amortized over the life of the security. The Company has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years. The subordinated debentures have a variable rate of interest equal to the three-month LIBOR plus 2.10% through final maturity on December 15, 2034. The rate at December 31, 2022 was 6.87% and 2.30% at December 31, 2021.

In March 2021, the United Kingdom’s Financial Conduct Authority and Intercontinental Exchange Benchmark Administration announced that the one-week and two-month USD LIBOR settings and non-USD LIBOR settings would cease to be published after December 31, 2021. The publication of the overnight, one-, three-, six- and 12-month USD LIBOR settings has been extended through June 30, 2023. On December 16, 2022, the Federal Reserve adopted a final rule that implements the LIBOR Act by identifying benchmark rates based on SOFR that will replace LIBOR in certain financial contracts after June 30, 2023. For these subordinated notes and debentures, there are provisions for amendments to establish a new interest rate benchmark. After the LIBOR replacement date June 30, 2023, the Company will adopt SOFR with relevant spread adjustment as the alternative reference rate to replace LIBOR with respect to the Company’s subordinated notes and subordinated debentures.

Capital Resources and Liquidity Management

Capital Resources. Shareholders’ equity is influenced primarily by earnings, dividends, sales and redemptions of common stock and preferred stock and changes in accumulated other comprehensive income caused primarily by fluctuations in unrealized holding gains or losses, net of taxes, on AFS investment securities.

Shareholders’ equity increased $17.9 million, or 3.8%, to $484.6 million as of December 31, 2022 from $466.7 million at December 31, 2021. The increase during 2022 was primarily due to $64.3 million of net income and $5.5 million from the exercise of stock options, less $10.7 million of common dividends paid, a $20.0 million decrease in net accumulated other comprehensive income and $19.8 million from the repurchase of common stock. There was also a $2.2 million cumulative-effect adjustment to the opening balance of retained earnings upon the adoption of the new CECL accounting standard.

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

Our liquidity position is supported by management of liquid assets and liabilities and access to alternative sources of funds. Liquid assets include cash, interest-earning deposits in banks, federal funds sold, available for sale securities, term federal funds, purchased receivables and maturing or prepaying balances in our securities and loan portfolios. Liquid liabilities include core deposits, federal funds purchased, securities sold under repurchase agreements and other borrowings. Other sources of liquidity include the sale of loans, the ability to acquire additional national market noncore deposits, the issuance of additional collateralized borrowings such as FHLB advances, the issuance of debt securities, additional borrowings through the Federal Reserve’s discount window and the issuance of preferred or common securities. Our short-term and long-term liquidity requirements are primarily to fund on-going operations, including payment of interest on deposits and debt, extensions of credit to borrowers, capital expenditures and shareholder dividends. These liquidity requirements are met primarily through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, debt financing and increases in customer deposits. For additional information regarding our operating, investing and financing cash flows, see the consolidated statements of cash flows provided in our consolidated financial statements.

Integral to our liquidity management is the administration of short-term borrowings. To the extent we are unable to obtain sufficient liquidity through core deposits, we seek to meet our liquidity needs through wholesale funding or other borrowings on either a short- or long-term basis.

As of December 31, 2022 and December 31, 2021, we had $92.0 million for both years of unsecured federal funds lines, with no amounts advanced against the lines as of such dates. In addition, lines of credit from the Federal Reserve Discount Window at December 31, 2022 and December 31, 2021 were $12.0 million and $22.3 million, respectively. Federal Reserve Discount Window lines were collateralized by a pool of CRE loans totaling $16.8 million and $33.2 million as of December 31, 2022 and December 31, 2021, respectively. We did not have any borrowings outstanding with the Federal Reserve at December 31, 2022 and December 31, 2021 and our borrowing capacity is limited only by eligible collateral.

At December 31, 2022 and 2021, there were $150.0 million in FHLB long-term advances outstanding. At December 31, 2022 we had $70.0 million FHLB short-term advances outstanding and zero outstanding at December 31, 2021. Based on the values of loans pledged as collateral, we had $1.1 billion and $833.6 million of additional borrowing capacity with the FHLB as of December 31, 2022 and December 31, 2021, respectively. We also maintain relationships in the capital markets with brokers and dealers to issue certificates of deposit.

Bancorp is a corporation separate and apart from the Bank and, therefore, must provide for its own liquidity. Bancorp’s main source of funding is dividends declared and paid to us by the Bank and RAM. There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to Bancorp. Management believes that these limitations will not impact our ability to meet our ongoing short-term cash obligations.

Regulatory Capital Requirements

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

The table below summarizes the minimum capital requirements applicable to us and the Bank pursuant to Basel III regulations as of the dates reflected and assuming the capital conservation buffer has been fully-phased in. The minimum capital requirements are only regulatory minimums and banking regulators can impose higher requirements on individual institutions. For example, banks and bank holding companies experiencing internal growth or making acquisitions generally will be expected to maintain strong capital positions substantially above the minimum supervisory levels. Higher capital levels may also be required if warranted by the particular circumstances or risk profiles of individual banking organizations. 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 December 31, 2021. The Bank exceeded all regulatory capital requirements under Basel III and was considered to be “well-capitalized” as of the dates reflected in the table below:

Tier 1 Leverage Ratio

Common Equity Tier 1 Risk-Based Capital Ratio (1)

Tier 1 Risk-Based Capital Ratio

Total Risk-Based Capital Ratio

Contractual Obligations

The following table contains supplemental information regarding our total contractual obligations at December 31, 2022:

Payments Due

Within One to Three to After Five

(dollars in thousands) One Year Three Years Five Years Years Total

Off-Balance Sheet Arrangements

We have limited off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

In the ordinary course of business, the Company enters into financial commitments to meet the financing needs of its customers. These financial commitments include commitments to extend credit, unused lines of credit, commercial and similar letters of credit and standby letters of credit. Those instruments involve to varying degrees, elements of credit and interest rate risk not recognized in the Company’s financial statements.

The Company’s exposure to loan loss in the event of nonperformance on these financial commitments is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for loans reflected in the financial statements.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. The Company evaluates each client’s credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company is based on management’s credit evaluation of the customer.

Non-GAAP Financial Measures

Some of the financial measures included in this Annual Report are not measures of financial performance recognized by GAAP. These non-GAAP financial measures include “tangible common equity to tangible assets”, “tangible book value per share”, “return on average tangible common equity”, “adjusted earnings”, “adjusted diluted earnings per share”, “adjusted return on average assets”, and “adjusted return on average tangible common equity”. Our management uses these non-GAAP financial measures in its analysis of our performance.

Tangible Common Equity to Tangible Assets Ratio and Tangible Book Value Per Share. The tangible common equity to tangible assets ratio and tangible book value per share are non-GAAP measures generally used by financial analysts and investment bankers to evaluate capital adequacy. We calculate: (i) tangible common equity as total shareholders’ equity less goodwill and other intangible assets (excluding mortgage servicing rights); (ii) tangible assets as total assets less goodwill and other intangible assets; and (iii) tangible book value per share as tangible common equity divided by shares of common stock outstanding.

Our management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions. Tangible common equity, tangible assets, tangible book value per share and related measures should not be considered in isolation or as a substitute for total shareholders’ equity, total assets, book value per share or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate tangible common equity, tangible assets, tangible book value per share and any other related measures may differ from that of other companies reporting measures with similar names. The following table reconciles shareholders’ equity (on a GAAP basis) to tangible common equity and total assets (on a GAAP basis) to tangible assets, and calculates our tangible book value per share:

Tangible common equity:

Adjustments

Core deposit intangible (3,718 ) (4,075 )

Tangible assets:

Adjustments

Core deposit intangible (3,718 ) (4,075 )

Common equity to assets ratio 12.36 % 11.04 %

Tangible common equity to tangible assets ratio 10.65 % 9.47 %

Tangible book value per share $ 21.58 $ 20.22

Return on Average Tangible Common Equity. Management measures return on average tangible common equity (“ROATCE”) to assess the Company’s capital strength and business performance. Tangible equity excludes goodwill and other intangible assets (excluding mortgage servicing rights), and is reviewed by banking and financial institution regulators when assessing a financial institution’s capital adequacy. This non-GAAP financial measure should not be considered a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled measures used by other companies. The following table reconciles return on average tangible common equity to its most comparable GAAP measure:

For the year

Adjustments:

Return on average tangible common equity 16.26 % 15.22 % 9.62 %

Regulatory Reporting to Financial Statements

Some of the financial measures included in this Annual Report differ from those reported on the FRB Y-9C report. These financial measures include “core deposits to total deposits” and “net non-core funding dependency ratio.” Our management uses these financial measures in its analysis of our performance.

Adjusted Core Deposits and Non-core Funding Dependency. The Bank measures core deposits by reviewing all relationships over $250,000 on a quarterly basis. We track all deposit relationships over $250,000 on a quarterly basis and consider a relationship to be core if there are any three or more of the following: (i) relationships with us (as a director or shareholder); (ii) deposits within our market area; (iii) additional non-deposit services with us; (iv) electronic banking services with us; (v) active demand deposit account with us; (vi) deposits at market interest rates; and (vii) longevity of the relationship with us. We consider all deposit relationships under $250,000 as a core relationship except for time deposits originated through an internet service. This differs from the traditional definition of core deposits which is demand and savings deposits plus time deposits less than $250,000. As many of our customers have more than $250,000 on deposit with us, we believe that using this method reflects a more accurate assessment of our deposit base. The following table reconciles the adjusted core deposit to total deposits and the adjusted net non-core dependency ratio.

As of

Adjusted core deposit to total deposit ratio:

Adjustments:

Less brokered deposits considered non-core (254,970 ) (2,398 )

Less other deposits not considered core (2) (122,865 ) (90,116 )

Adjusted core deposits to total deposits ratio 75.21 % 87.48 %

Short term borrowing outstanding 70,000 —

Adjustment to short term assets:

Purchased receivables with maturities less than 90-days — —

Net non-core funding dependency ratio 17.96 % -6.50 %

Adjusted net non-core funding dependency ratio 18.29 % -10.38 %

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk. Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. We have identified three primary sources of market risk: interest rate risk price risk and basis risk.

Interest Rate Risk

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

Our ALCO establishes broad policy limits with respect to interest rate risk. ALCO establishes specific operating guidelines within the parameters of the board of directors’ policies. In general, we seek to minimize the impact of changing interest rates on net interest income and the economic values of assets and liabilities. Our ALCO meets monthly to monitor the level of interest rate risk sensitivity to ensure compliance with the board of directors’ approved risk limits.

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

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

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

We use two approaches to model interest rate risk: Net Interest Income at Risk (NII at Risk), and Economic Value of Equity (EVE). Under NII at Risk, net interest income is modeled utilizing various assumptions for assets, liabilities, and derivatives. EVE measures the period end market value of assets minus the market value of liabilities and the change in this value as rates change. EVE is a period end measurement.

Net Interest Income Sensitivity

Immediate Change in Rates

We report NII at Risk to isolate the change in income related solely to interest-earning assets and interest-bearing liabilities. The NII at Risk results included in the table above reflect the analysis used quarterly by management. It models gradual −200, −100, +100 and +200 basis point parallel shifts in market interest rates, implied by the forward yield curve over the next one-year period.

The NII at Risk reported at December 31, 2022, projects that our earnings are expected to be asset sensitive to changes in interest rates over the next year. In recent periods, the amount of floating rate assets increased resulting in a position shift from neutral to asset sensitive.

Economic Value of Equity Sensitivity (Shock)

Immediate Change in Rates

The EVE results included in the table above reflect the analysis used quarterly by management. It models immediate −200, −100, +100 and +200 basis point parallel shifts in market interest rates.

We are within board policy limits for all rate scenarios. The EVE reported at December 31, 2022 projects that as interest rates increase immediately, the EVE position will be expected to increase, and if interest rates were to decrease immediately, the EVE position will be expected to decrease. When interest rates rise, fixed rate assets generally lose economic value; the longer the duration, the greater the value lost. The opposite is true when interest rates fall.

Price Risk. Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair value and subject to fair value accounting. We have price risk from the available for sale SFR mortgage loans and fixed-rate available for sale securities.

Basis Risk. Basis risk represents the risk of loss arising from asset and liability pricing movements not changing in the same direction. We have basis risk in the SFR mortgage loan portfolio, the multifamily loan portfolio and our securities portfolio.

Item 8. Financial Statements and Supplementary Data.

CONTENTS

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets 74

Consolidated Statements of Income 76

Consolidated Statements of Comprehensive Income 77

Consolidated Statement of Changes in Shareholders' Equity 78

Consolidated Statements of Cash Flows 79

Notes to Consolidated Financial Statements 80

Report of Independent Registered Public Accounting Firm

Shareholders and the Board of Directors of

RBB Bancorp

Los Angeles, California

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of RBB Bancorp (the "Company") as of December 31, 2022, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated April 7, 2023 expressed an adverse opinion.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company changed its method for accounting for credit losses effective January 1, 2022, due to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification No. 326, Financial Instruments - Credit Losses (ASC 326). The Company adopted the new credit loss standard using the modified retrospective method provided in Accounting Standards Update No. 2016-13 such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. See critical audit matter below.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses on Loans

As described in Notes 2 and 5 to the consolidated financial statements, the Company adopted ASU 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, effective January 1, 2022, which requires the Company to record an estimate of expected lifetime credit losses for loans at the time of origination. Due to the adoption of Current Expected Credit Losses (CECL), the Company recorded a $2.1 million transition adjustment for the allowance for credit losses (ACL) through retained earnings on January 1, 2022. As of December 31, 2022, the Company had gross loan portfolio of $3.34 billion and a related allowance for credit losses on loans of $41.08 million.

The Company’s discounted cash flow methodology incorporates a probability of default, loss given default and exposure at default model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. The use of reasonable and supportable forecasts requires significant judgment, such as selecting forecast scenarios and related scenario-weighting, as well as determining the appropriate length of the forecast horizon. Management estimates the allowance balance required using past loan loss experience from peers with similar portfolio sizes and geographic locations to the Company, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. The Company’s CECL methodology utilizes a four-quarter reasonable and supportable forecast period, and a four-quarter reversion period. The Company is using the Federal Open Market Committee to obtain forecasts for the unemployment rate, while reverting to a long-run average of each considered economic factor.

Within the CECL model, the Company uses both internal and external qualitative factors including lending policies, procedures, and strategies; changes in nature and volume of the portfolio; credit and lending personnel experience; changes in volume and trends in classified loans, delinquencies, and nonaccrual; concentration risk; collateral values; regulatory and business environment; loan review results; and economic conditions.

We identified auditing the Company’s implementation of Current Expected Credit Losses to be a critical audit matter, particularly as it pertains to auditing the impact of the adoption to the qualitative factors and the assumptions used to develop quantitative factors, as the matter involved significant audit effort and especially subjective auditor judgment.

The primary procedures performed to address the critical audit matter included:

Completeness of Related Party Transactions

As described in Note 15 to the consolidated financial statements, the Company has loans, outstanding loan commitments and deposit relationships with principal officers, directors and their affiliates.

The principal consideration for our determination that auditing the completeness of related party transactions is a critical audit matter is the nature and extent of audit procedures related to a) the identification of related parties and affiliates and b) the completeness and accuracy of disclosures of transactions with related parties and affiliates, due to the material weakness in internal controls over related party transactions.

The primary procedures performed to address the critical audit matter included:

/s/ Crowe LLP

We have served as the Company's auditor since 2022.

Los Angeles, California

April 7, 2023

Report of Independent Registered Public Accounting Firm

Shareholders and the Board of Directors of

RBB Bancorp

Los Angeles, California

Opinion on Internal Control over Financial Reporting

We have audited RBB Bancorp’s (the “Company”) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effects of the material weaknesses discussed in the following paragraph, the Company has not maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's report.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of RBB Bancorp (the "Company") as of December 31, 2022, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the "financial statements") and our report dated April 7, 2023 expressed an unqualified opinion. We considered the material weaknesses identified above in determining the nature, timing, and extent of audit procedures applied in our audit of the 2022 financial statements, and this report on Internal Control over Financial Reporting does not affect such report on the financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Crowe LLP

Los Angeles, California

April 7, 2023

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders of

RBB Bancorp and Subsidiaries

Los Angeles, California

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of RBB Bancorp and Subsidiaries (the Company) as of December 31, 2021, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the years ended December 31, 2021 and 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of RBB Bancorp and Subsidiaries as of December 31, 2021, and the results of their operations and cash flows for the years ended December 31, 2021 and 2020, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2 and Note 14 to the financial statements, the Company has adopted the provisions of FASB Accounting Standards Codification Topic 842, Leases, as of January 1, 2021 using the modified retrospective approach with an adjustment at the beginning of the adoption period. Our opinion is not modified with respect to this matter.

Basis for Opinion

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on the Company’s financial statements. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audit of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that responds to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

We served as the Company’s auditor since 2019. Vavrinek, Trine, Day & Co., LLP, who joined Eide Bailly LLP in 2019, had served as the Company’s auditor since 2008.

Laguna Hills, California

April 7, 2023

RBB BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31,

(In thousands, except for share data)

Assets

Federal funds sold and other cash equivalents — 193,000

Interest-earning deposits in other financial institutions 600 600

Securities:

Mortgage loans held for sale — 5,957

Loans held for investment:

Unaccreted discount on acquired loans (1,238 ) (1,727 )

Deferred loan fees, net 717 (3,072 )

Income tax receivable — 477

Cash surrender value of bank owned life insurance (BOLI) 57,310 55,988

Right-of-use assets- operating leases 25,447 22,454

The accompanying notes are an integral part of these consolidated financial statements.

RBB BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31,

(In thousands, except for share data)

Liabilities and Shareholders’ Equity

Deposits:

Reserve for unfunded commitments 1,157 1,203

Accrued interest and other liabilities 20,827 13,985

Commitments and contingencies - Note 13

Shareholders' equity:

Non-controlling interest 72 72

Accumulated other comprehensive loss, net (21,665 ) (1,656 )

The accompanying notes are an integral part of these consolidated financial statements.

RBB BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEAR ENDED DECEMBER 31,

(In thousands, except share and per share data)

Interest and dividend income:

Interest on interest-earning deposits 1,353 552 641

Interest on federal funds sold and other 1,496 694 1,045

Interest expense:

Interest on savings deposits, now and money market accounts 5,561 2,786 3,540

Interest on subordinated debentures and long-term debt 9,645 8,999 7,677

Noninterest income:

Loan servicing fees, net of amortization 2,209 684 2,052

Recoveries on loans acquired in business combinations 198 82 84

Unrealized loss on equity investments — (360 ) —

(Loss)/gain on derivatives (247 ) 5 259

Increase in cash surrender value of life insurance 1,322 1,067 767

Gain on sale of securities — — 210

Gain on sale of fixed assets 757 — —

Noninterest expense:

Net income per share

Weighted-average common shares outstanding

The accompanying notes are an integral part of these consolidated financial statements

RBB BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED DECEMBER 31,

(In thousands)

Other comprehensive (loss)/income:

Unrealized (losses)/gains on securities available for sale:

Reclassification of gains recognized in net income — — (210 )

Related income tax effect:

Reclassification of gains recognized in net income — — 62

Total other comprehensive (loss)/income (20,009 ) (2,785 ) 890

The accompanying notes are an integral part of these consolidated financial statements.

RBB BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020

(In thousands, except share data)

Common Stock Accumulated

Stock-based compensation, net — — 686 — — — 686

Restricted stock vested — 425 (425 ) — — — —

Cash dividends on common stock ($0.33 per share) — — — (6,567 ) — — (6,567 )

Other comprehensive income, net of taxes — — — — — 890 890

Stock-based compensation, net — — 1,086 — — — 1,086

Restricted stock granted 60,000 — — — — — —

Restricted stock vested — 425 (425 ) — — — —

Cash dividends on common stock ($0.51 per share) — — — (9,947 ) — — (9,947 )

Other comprehensive loss, net of taxes — — — — — (2,785 ) (2,785 )

Stock-based compensation, net — — 848 — — — 848

Restricted stock cancelled (40,000 ) — — — — — —

Restricted stock vested — 355 (355 ) — — — —

Restricted stock unit vested 7,450 202 (202 ) — — — —

Cash dividends on common stock ($0.56 per share) — — — (10,736 ) — — (10,736 )

Other comprehensive loss, net of taxes — — — — — (20,009 ) (20,009 )

(1) Represents the impact of the adoption of Accounting Standards Update ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) on January 1, 2022.

The accompanying notes are an integral part of these consolidated financial statements

RBB BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020

(In thousands)

Operating activities

Adjustments to reconcile net income to net cash from Operating activities:

Depreciation and amortization of premises and equipment 2,022 1,943 2,009

Net accretion of securities, loans, deposits, and other (432 ) (191 ) (3,328 )

Unrealized loss on equity securities — 360 —

Amortization of investment in affordable housing tax credits 1,053 1,037 979

Change in valuation allowance on mortgage servicing rights — (417 ) 417

Amortization of right-of-use asset 5,145 5,245 —

Change in operating lease liabilities (4,897 ) (5,058 ) —

Gain on sale of securities — — (210 )

Gain on sale of fixed assets (757 ) — —

Increase in cash surrender value of life insurance (1,322 ) (1,067 ) (767 )

Investing activities

Securities available for sale:

Securities held to maturity:

Redemption of Federal Home Loan Bank stock — 641 —

Purchase of bank owned life insurance — (19,800 ) —

Net cash received in connection with acquisition 71,352 — 6,634

Proceeds from sale of fixed assets 1,053 — —

Purchases of premises and equipment (2,065 ) (1,989 ) (4,206 )

Financing activities

Repayment of Federal Home Loan Bank borrowings (500,000 ) — —

Redemption of subordinated debentures — (50,000 ) —

Issuance of subordinated debentures, net of issuance costs — 118,111 —

Common stock repurchased, net of repurchased costs (19,822 ) (10,540 ) (7,851 )

Supplemental disclosure of cash flow information

Cash paid during the period:

RBB US Equity

RBB · 10-K · period ended 2022-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

RBB US Equity☆

RBB · 10-K · period ended 2022-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

RBB US Equity