What changed in this filing

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Item 1A. Risk Factors

2023-03-16 compared with 2022-03-18 · 143 added, 174 removed, 630 unchanged (33% of the section changed)

10 unchanged sentences

– Decline in general business and economic conditions

– Impact of COVID-19

– Participation in the Small Business Administration (“SBA”) Paycheck Protection Program

– Ongoing impact of Covid-19

– Adverse economic conditions in Asia, particularly South Korea

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– Commercial borrowers present risks

– Small and medium business loans subject to greater risks from adverse business developments

– Risks from non-qualified single family home mortgage lending business

– Unreliability of loan appraisals used in real property loan decisions

– Small and medium business loans subject to greater risks from adverse business developments

– Increased regulatory scrutiny of commercial real estate concentrations

– Underwriting practices may not forecast poor loan performance

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Risks Related to Credit Quality

– Our business ability to manage credit risk

– Nonperforming assets demand management time to resolve and can affect our financial results

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Risks Related to Our Capital

– Recent regulatory requirements

– Increased regulatory requirements

– Raising new capital

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– Severe weather, natural disasters (including fire and earthquakes), wide spread disease or pandemics (including the COVID-19 pandemic), acts of war, and terrorism

– Climate change could have material negative impact

Risks Related to Our Reputation

1 unchanged sentence

– Failure of our risk management framework

– Failure to implement new technology

– System failures or breaches of our network security

– Difficulties of our third-party providers, termination of their services, or their failure to comply with regulatory requirements

– Breaches of customer information, computer viruses

– Inaccurate information provided to us by customers or counterparts

– Inaccurate information provided by third party consumer reporting agencies

– Employee misconduct

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– Legislative and regulatory actions now or in the future increase our costs, impact our business and financial results

– Monetary policies and regulations of the Federal Reserve

– Federal and state regulatory exams

– Consumer protection laws and regulations

– Mortgage lender liability and penalties under federal law for making false statements

– Potential violation of predatory lending laws

– Complaints and demands of consumer advocacy groups alleging discriminatory lending practices

– Complaints and allegations of discriminatory lending practices

– Noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations

– Failure to comply with privacy, information security and data protection requirements

Risks Related to Our Common Stock

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Geopolitical developments, such as existing and potential trade wars and other events beyond our control, can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets.

Concerns about the performance of international economies, especially in Europe and emerging markets, and economic conditions in Asia, particularly the economies of China, South Korea and Japan, can impact the economy and financial markets here in

the United States.

If the national, regional and local economies experience worsening economic conditions, including high levels of unemployment, our growth and profitability could be constrained.

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Economic pressure on consumers and uncertainty regarding continuing economic improvement may result in changes in consumer and business spending, borrowing and saving habits.

Our business is significantly affected by monetary and other regulatory policies of the U.S.

federal government, its agencies and government-sponsored entities.

Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control, are difficult to predict and could have a material adverse effect on our business, financial position and results of operations.

Risks relating to the Impact of COVID-19 could have a material adverse effect on our business, financial condition and results of operations.

The COVID-19 pandemic has created economic and financial disruptions that could adversely affect our business, financial condition, liquidity, capital, and results of operations.

Even as efforts to contain the pandemic, including vaccinations, have made progress and some restrictions have relaxed, new variants of the virus are causing additional outbreaks.

The impact of the omicron variant, or other variants that may emerge, cannot be predicted at this time, and could depend on numerous factors, including the availability of vaccines in different parts of the world, vaccination rates among the population, the effectiveness of COVID-19 vaccines against the omicron variant and other variants, and the response by governmental bodies to reinstate restrictive measures.

As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material adverse effect on our business, financial condition and results of operations:

• demand for our products and services may decline, making it difficult to grow assets and income;

• our allowance for credit losses on loans may have to be increased if borrowers experience financial difficulties;

• the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

• as the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

• a prolonged weakness in economic conditions resulting in a reduction of future projected earnings could result in our recording a valuation allowance against our current outstanding deferred tax assets;

• cybersecurity, information security and operational risks could result from work-from-home arrangements, and the unavailability of critical services provided by third party vendors.

Our commercial real estate loans are dependent on the profitable operation and management of the properties securing such loans.

The longer the pandemic persists, the stronger the likelihood that COVID-19 could have a significant adverse impact by reducing the revenue and cash flows of our borrowers, impacting the borrowers’ ability to repay their loans, increasing the risk of delinquencies and defaults, and reducing the collateral value underlying the loans.

The extent to which the COVID-19 pandemic will ultimately affect our financial condition and results of operations is unknown and will depend, among other things, on the duration of the pandemic, the actions undertaken by national, state and local governments and health officials to contain the virus or mitigate its effects, the safety and effectiveness of the vaccines that have been developed and the ability of pharmaceutical companies and governments to continue to manufacture and distribute those vaccines, changes to interest rates, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume.

Any one or a combination of these factors could negatively impact our business, financial condition and results of operations.

As a participating lender in the U.S.

Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), we are subject to additional risks of litigation from our customers or other parties regarding our processing of loans for the PPP and risks that the SBA may not fund some or all PPP loan guaranties.

Federal and state governments have enacted laws intending to stimulate the economy in light of the business and market disruptions related to COVID-19, including the Small Business Administration Paycheck Protection Program.

Our Bank participated as a lender in both rounds of the PPP.

We understand that PPP loans are fully guaranteed by the SBA and believe the majority of these loans will be forgiven.

However, there can be no assurance that the borrowers will use or have used the funds appropriately or will have satisfied the staffing or payment requirements to qualify for forgiveness in whole or in part.

Any portion of the loan that is not forgiven must be repaid by the borrower.

In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded or serviced by the Bank, which may or may not be related to an ambiguity in the laws, rules or guidance regarding operation of the PPP, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if we have already been paid under the guaranty, seek recovery from us of any loss related to the deficiency.

Several other large banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP.

We and the Bank may be exposed to the risk of litigation, from both customers and non-customers that approached the Bank regarding PPP loans and our PPP process.

If any such litigation is filed against the Bank and is not resolved in a manner favorable to the Bank, it may result in significant financial liability or adversely affect our reputation.

In addition, litigation can be costly, regardless of outcome.

Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations

The ongoing global COVID-19 outbreak could harm our business and results of operations, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.

Our business is dependent on the willingness and ability of our customers to conduct banking and other financial transactions.

The ongoing COVID-19 global and national health emergency caused significant disruption in the United States and international economies and financial markets and continues to cause illness, quarantines, reduced attendance at events and reduced travel, reduced commercial and financial activity, and overall economic and financial market instability.

While the level of disruption caused by, and the economic impact of, COVID-19 has lessened in 2022, there is no assurance that the pandemic will not worsen again, including as a result of the emergence of new strains of the virus.

Any worsening of the pandemic and its effects on the economy could further impact our business, our provision and allowance for credit losses, and the value of certain assets that we carry on our balance sheet such as goodwill.

Our customers, business partners, and third-party providers, including those who perform critical services for our business, may also be adversely affected.

The ultimate risk posed by the COVID-19 pandemic remains highly uncertain;

however, COVID-19 poses a material risk to our business, financial condition and results of operations.

Adverse conditions in Asia and elsewhere could adversely affect our business.

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Adverse economic conditions in Asia, and in South Korea in particular, may also negatively impact asset values and the profitability and liquidity of our customers who operate in this region.

Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve.

An important function of the Federal Reserve is to regulate the money supply and credit conditions.

Among the instruments used by the Federal Reserve to implement these objectives are open market purchases and sales of U.S.

government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits.

These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits.

Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.

Fluctuations in interest rates may reduce net interest income and otherwise negatively impact our financial condition and results of operations.

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For example, mortgage production historically, including refinancing activity, declines in rising interest rate environments.

Changes in interest rates also have a significant impact on the carrying value of certain of our assets, including loans, real estate and investment securities, on our balance sheet.

Changes in interest rates can also affect the level of loan refinancing activity, which impacts the amount of prepayment penalty income we receive on loans we hold.

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Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income.

Subsequently, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense.

Subsequently, we continue to have a cost to

fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense.

Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income.

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If debt securities in an unrealized loss position are sold, such losses become realized and will reduce our regulatory capital ratios.

Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve.

An important function of the Federal Reserve is to regulate the money supply and credit conditions.

Among the instruments used by the Federal Reserve to implement these objectives are open market purchases and sales of U.S.

government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits.

These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits.

Their use also affects interest rates charged on loans or paid on deposits.

We could recognize losses on securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate.

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Because of changing economic and market conditions affecting interest rates, the financial condition of issuers of the securities and the performance of the underlying collateral, we may recognize realized and/or unrealized losses in future periods, which could have a material adverse effect on our business, financial condition and results of operations.

Liquidity risks could affect operations and jeopardize our business, financial condition, and results of operations.

Liquidity risks could affect operations and adversely affect our business, financial condition, and results of operations.

Liquidity is essential to our business.

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Our most important source of funds consists of our customer deposits.

Such deposit balances can decrease when customers perceive alternative investments, such as the stock market, as providing a better risk/return tradeoff.

Such deposit balances can decrease when customers perceive alternative investments, such as money market funds, bonds and the stock market, as providing a better risk/return tradeoff.

If customers move money out of bank deposits and into other investments, we could lose a relatively low cost source of funds, which would require us to seek wholesale funding alternatives in order to continue to grow, thereby increasing our funding costs and reducing our net interest income and net income.

Other primary sources of funds consist of cash from operations, investment maturities and sales, sale of loans and proceeds from the issuance and sale of our equity securities to investors.

Other primary sources of funds consist of cash from operations, investment maturities and sales, and sale of loans.

Additional liquidity is provided by our ability to borrow from the Federal Reserve Bank of San Francisco and the Federal Home Loan Bank of San Francisco.

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Any decline in available funding could adversely impact our ability to continue to implement our strategic plan, including our ability to originate loans, invest in securities, meet our expenses, or to fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse effect on our liquidity, business, financial condition and results of operations.

Our business depends on our ability to successfully manage credit risk.

The operation of our business requires us to manage credit risk.

As a lender, we are exposed to the risk that our borrowers will be unable to repay their loans according to their terms, and that the collateral securing repayment of their loans, if any, may not be sufficient to ensure repayment.

In addition, there are risks inherent in making any loan, including risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers.

To manage credit risk successfully , we must, among other things, maintain disciplined and prudent underwriting standards and ensure that our bankers follow those standards.

The weakening of these standards for any reason, such as an attempt to attract higher yielding loans, a lack of discipline or diligence by our employees in underwriting and monitoring loans, the inability of our employees to adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers and the quality of our loan portfolio, may result in loan defaults, foreclosures and additional charge-offs and may necessitate that we significantly increase our allowance for loan losses, each of which could adversely affect our net income.

As a result, our inability to successfully manage credit risk could have a material adverse effect on our business, financial condition and results of operations.

We may be adversely affected by the uncertainty relating to LIBOR calculation process and potential phasing out of LIBOR.

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however, in 2021 we began transitioning to SOFR for our instruments indexed to LIBOR.

Uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans, and to a lesser extent, securities in our portfolio.

Uncertainty as to the nature of

alternative reference rates and as to potential changes or other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans, and to a lesser extent, securities in our portfolio.

In addition, there is a risk that we may not complete our full transition to alternative indices or reference rates by the time LIBOR is no longer available.

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At December 31, 2022, we had $1.19 billion of commercial loans, consisting of $842.2 million of commercial real estate loans, $234.7 million of SBA loans, and $117.0 million of commercial and industrial loans, including trade finance loans, for which real estate is not the primary source of collateral.

Commercial loans represented 86.7% of our total loan

portfolio at December 31, 2021.

Commercial loans represented 71.1% of our total loan portfolio at December 31, 2022.

Commercial loans are often larger and involve greater risks than other types of lending.

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Due to the larger average size of each commercial loan as compared with other loans such as residential loans, as well as collateral that is generally less readily-marketable, losses incurred on a small number of commercial loans could have a material adverse effect on our business, financial condition and results of operations.

The small- and medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair a borrower’s ability to repay a loan, and such impairment could adversely affect our business, financial condition and results of operations.

We target our business development and marketing strategy primarily to serve the banking and financial services needs of small- to medium-sized businesses.

These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need significant additional capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower’s ability to repay a loan.

In addition, the success of a small- and medium-sized business often depends on the management talents and efforts of one or two people

or a small group of people, and the death, disability or resignation of one or more of these people could have a material adverse impact on the business and its ability to repay its loan.

If general economic conditions negatively impact the markets in which we operate and our borrowers are otherwise affected by adverse business developments, our business, financial condition and results of operations may be adversely affected.

Our single family residential loan product consists primarily of non-qualified single family home mortgage loans which may be considered less liquid and more risky.

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As of December 31, 2022, most of our single family home mortgage loans were non-qualified mortgage loans, and our non-qualified single family home mortgage loans had an average loan-to-value of 58%.

We originated $57.6 million and $48.2 million of single family home mortgage loans for the year ended December 31, 2021 and 2020, respectively.

We also purchased $48.9 million of single family home mortgage loans from TPO for the year ended December 31, 2021.

We originated $150.2 million and $57.6 million of single family home mortgage loans for the years ended December 31, 2022 and 2021, respectively.

We also purchased $185.8 million and $48.9 million of single family home mortgage loans from TPO for the years ended December 31, 2022 and 2021, respectively.

The non-qualified single-family home mortgage loans that we originate are designed to assist mainly Korean-Americans who have recently immigrated to the United States and those Korean-Americans without sufficient documentation to qualify for a traditional home mortgage loan and as such are willing to provide higher down payment amounts and pay higher interest rates and fees in return for reduced documentation requirements.

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We attempt to address this enhanced risk through our underwriting process, including requiring larger down payments and, in some cases, interest reserves.

Increased scrutiny by regulators of commercial real estate concentrations could restrict our activities and impose financial requirements or limits on the conduct of our business.

Banking regulators are giving commercial real estate lending greater scrutiny, and may require banks with higher levels of commercial real estate loans to implement improved underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for losses and capital levels as a result of commercial real estate lending growth and exposures.

Therefore, we could be required to raise additional capital or restrict our future growth as a result of our higher level of commercial real estate loans.

Our use of appraisals in deciding whether to make a loan on or secured by real property does not ensure the value of the real property collateral.

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As a result of any of these factors the value of collateral securing a loan may be less than estimated, and if a default occurs, we may not recover the outstanding balance of the loan.

We target our business development and marketing strategy primarily to serve the banking and financial services needs of small- to medium-sized businesses.

In addition, the success of a small- and medium-sized business often depends on the management talents and efforts of one or two people or a small group of people, and the death, disability or resignation of one or more of these people could have a material adverse impact on the business and its ability to repay its loan.

We may suffer losses in our loan portfolio despite our underwriting practices.

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As a result of the organic growth of our loan portfolio over the past five years, a large portion of our loans and of our lending relationships are of relatively recent origin.

In general, loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process referred to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a newer portfolio.

In general, loans do not begin to show signs of credit deterioration

or default until they have been outstanding for some period of time, a process referred to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a newer portfolio.

Because a large portion of our portfolio is relatively new, the current level of delinquencies and defaults may not represent the level that may prevail as the portfolio becomes more seasoned.

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government guaranteed loans will comprise a significant component of our revenue.

The gain on such sales recognized for the year ended December 31, 2021 was $11.3 million.

The gain on such sales recognized for the years ended December 31, 2022 and 2021 was $11.9 million and $11.0 million, respectively.

The determination of these gains is based on assumptions regarding the value of unguaranteed loans retained, servicing rights retained and deferred fees and costs, and net premiums paid by purchasers of the guaranteed portions of U.S.

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Deferred fees and costs are determined using internal analysis of the cost to originate loans.

Significant errors in assumptions used to compute gains on sale of loans or servicing asset valuations could result in material revenue misstatements, which may have a material adverse effect on our business, results of operations and profitability.

Significant errors in

assumptions used to compute gains on sale of loans or servicing asset valuations could result in material revenue misstatements, which may have a material adverse effect on our business, results of operations and profitability.

In addition, while such valuations are subject to validation by an independent third party we believe these valuations reflect fair value, if they do not, then our business, financial condition and results of operations may be materially and adversely affected.

The non-guaranteed portion of SBA loans that we retain on our balance sheet as well as the guaranteed portion of SBA loans that we sell could expose us to various credit and default risks.

We originated $304.9 million of SBA loans, including SBA PPP loans of $88.1 million, for the year ended December 31, 2021, compared to $204.1 million of SBA loans, including SBA PPP loans of $66.3 million, for the year ended December 31, 2020.

We sold $110.3 million of SBA loans for the year ended December 31, 2021, and $85.0 million for the year ended December 31, 2020, of the guaranteed portion of our SBA loans.

We originated $192.1 million of SBA loans for the year ended December 31, 2022, compared to $304.9 million of SBA loans, including SBA PPP loans of $88.1 million, for the year ended December 31, 2021.

We sold $181.9 million of SBA loans for the year ended December 31, 2022, compared to $110.3 million for the year ended December 31, 2021, of the guaranteed portion of our SBA loans.

We generally retain the non-guaranteed portions of the SBA loans that we originate.

As of December 31, 2021, we held $365.3 million of SBA loans on our balance sheet, of which $235.2 million, or 64%, consisted of the non-guaranteed portion of SBA loans, of which $40.6 million, or 11%, consisted of the 100% guaranteed SBA PPP loans of SBA loans, and of which $89.4 million, or 25%, consisted of the guaranteed portion of SBA loans which we intend to sell in 2022.

As of December 31, 2022, we held $279.1 million of SBA loans on our balance sheet, of which $234.3 million, or 84%, consisted of the non-guaranteed portion of SBA loans, of which $442 thousand consisted of the 100% guaranteed SBA PPP loans of SBA loans, and of which $44.3 million, or 16%, consisted of the guaranteed portion of SBA loans which we intend to sell in 2023.

The non-guaranteed portion of SBA loans have a higher degree of credit risk and risk of loss as compared to the guaranteed portion of such loans.

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In addition, as a provider of relationship-based commercial banking services, we must attract and retain qualified banking personnel to continue to grow our business, and competition for such personnel can be intense.

Our ability to effectively compete for senior executives and other qualified personnel by offering competitive compensation and benefit arrangements may be restricted by applicable banking laws and regulations.” In addition, to attract and retain personnel with appropriate skills and knowledge to support our business, we may offer a variety of benefits, which could reduce our earnings.

In addition, to attract and retain personnel with appropriate skills and knowledge to support our business, we may offer a variety of benefits, which could reduce our earnings.

The loss of the services of any senior executive and, in particular, Ms.

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Risks Related to our Credit Quality

Our business depends on our ability to successfully manage credit risk.

The operation of our business requires us to manage credit risk.

To manage credit risk successfully, we must, among other things, maintain disciplined and prudent underwriting standards and ensure that our bankers follow those standards.

As a result, our inability to successfully manage credit risk could have a material adverse effect on our business, financial condition and results of operations.

Nonperforming assets take significant time to resolve and adversely affect our results of operations and financial condition, and could result in further losses in the future.

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In addition, we evaluate all loans identified as impaired loans and allocate an allowance based upon our estimation of the potential loss associated with those problem loans.

While we strive to carefully manage and monitor credit quality

and to identify loans that may be deteriorating, at any time there are loans included in the portfolio that may result in losses, but that have not yet been identified as nonperforming or potential problem loans.

While we strive to carefully manage and monitor credit quality and to identify loans that may be deteriorating, at any time there are loans included in the portfolio that may result in losses, but that have not yet been identified as nonperforming or potential problem loans.

Through established credit practices, we attempt to identify deteriorating loans and adjust the allowance for loan losses accordingly.

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The new CECL standard is effective for public business entities for fiscal years after December 15, 2019, including interim periods within those fiscal years.

In October 2019, FASB agreed to delay implementation of the CECL standard for certain companies, including those companies that qualify as smaller reporting companies under SEC rules, until January 1, 2023.

We currently expect to continue to qualify as a smaller reporting company based upon the current SEC definition and as a result will likely be able to defer implementation of the new CECL standard for a period of time.

Nevertheless, we are currently evaluating the potential impact on our consolidated financial statements.

Since the magnitude of the anticipated change in the allowance for credit losses will be impacted by economic conditions and trends in our portfolio at the time of adoption, the quantitative impact cannot yet be reasonably determined, but it is expected that we will likely be required to increase our reserves and allowance for loan loss as a result of the implementation of CECL.

In October 2019, FASB agreed to delay implementation of the CECL standard for certain companies, including those companies that qualify as smaller reporting companies under SEC rules,

until January 1, 2023.

We are qualified as a smaller reporting company based upon the current SEC definition and adopted CECL on January 1, 2023.

Since the magnitude of the anticipated change in the allowance for credit losses will be impacted by economic conditions and trends in our portfolio at the time of adoption, the quantitative impact cannot yet be reasonably determined, but we expect to increase our allowance for loan losses approximately by 10% to 15% as a result of the implementation of CECL.

Risks Related to our Growth Strategy

We may not be able to continue growing our business, particularly if we cannot increase loans and deposits through organic growth.

We have grown our consolidated assets from $1.37 billion as of December 31, 2020 to $1.73 billion as of December 31, 2021.

Our deposits have grown from $1.20 billion as of December 31, 2020 to $1.53 billion as of December 31, 2021.

We have grown our consolidated assets to $2.09 billion as of December 31, 2022 from $1.73 billion as of December 31, 2021.

Our deposits have grown to $1.89 billion as of December 31, 2022 from $1.53 billion as of December 31, 2021.

Our ability to continue to grow successfully will depend to a significant extent on our capital resources.

It also will depend, in part, upon our ability to attract deposits and grow our loan portfolio and investment opportunities and on

whether we can continue to fund growth while maintaining cost controls and asset quality, as well on other factors beyond our control, such as national, regional and local economic conditions and interest rate trends.

It also will depend, in part, upon our ability to attract deposits and grow our loan portfolio and investment opportunities and on whether we can continue to fund growth while maintaining cost controls and asset quality, as well on other factors beyond our control, such as national, regional and local economic conditions and interest rate trends.

There is risk related to acquisitions.

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Under the Coexistence Agreement, Open Bank S.A.

retains the right to use and market its services in relation to its registered trademark in any state or territory in the United States.

retains the right to use and market its services in relation to its registered trademark in any state or territory in

the United States.

The Bank further agreed not to challenge Open Bank, S.A.’s trademark registration or any future applications by Open Bank S.A.

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We are subject to more stringent capital requirements.

We are subject to current and changing regulatory requirements specifying minimum amounts and types of capital that we must maintain.

In particular, the capital requirements applicable to us under the recently adopted Capital Rules started to be phased-in on January 1, 2015.

The failure to meet applicable regulatory capital requirements could result in one or more of our regulators placing limitations or conditions on our activities, including our growth initiatives, or restricting the commencement of new activities, and could affect customer and investor confidence, our costs of funds and FDIC insurance costs, our ability to pay dividends on our common stock, our ability to make acquisitions, and could materially adversely affect our business, financial condition and results of operations.

The failure to meet applicable regulatory capital requirements could result in one or more of our regulators placing limitations or conditions on our activities, including our growth initiatives, or restricting the commencement of new activities, and could affect customer and investor confidence, our costs of funds and FDIC insurance costs, our ability to pay dividends on our common stock, our ability to make acquisitions, and our business, financial condition and results of operations.

We may need to raise additional capital in the future, and if we fail to maintain sufficient capital, whether due to losses, an inability to raise additional capital or otherwise, our financial condition, liquidity and results of operations, as well as our ability to maintain regulatory compliance, would be adversely affected.

We face significant capital and other regulatory requirements as a financial institution.

Although management believes that the Company has sufficient capital to fund operations and growth initiatives for at least the next twenty-four

months based on our estimated future operations, we may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs.

In addition, the Company, on a consolidated basis, and the Bank, on a stand-alone basis, must meet certain regulatory capital requirements and maintain sufficient liquidity.

Importantly, regulatory capital requirements could increase from current levels, which could require us to raise additional capital or contract our operations.

Although management believes that the Company has sufficient capital to fund operations and growth initiatives for at least the next twenty-four months based on our estimated future operations, we may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs.

Our ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, and on our financial condition and performance.

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Moreover, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would have to compete with those institutions for investors.

Accordingly, we cannot assure you that we will be able to raise additional capital if needed or on terms acceptable to us.

If we fail to maintain capital to meet regulatory requirements, our business, financial condition and results of operations would be materially and adversely affected.

We, therefore, may not be able to raise additional capital if needed or on terms acceptable to us.

We are committed to contribute 10% of our consolidated after tax net income to the Open Stewardship Foundation.

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Consumers can also complete transactions such as paying bills and transferring funds directly without the assistance of banks.

The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.

The process of eliminating banks as intermediaries, known as

“disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.

The loss of these revenue streams and access to lower cost deposits as a source of funds could have a material adverse effect on our business, financial condition and results of operations.

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Our modest size makes it more difficult for us to compete with other financial institutions which are generally larger and can more easily afford to invest in the marketing and technologies needed to attract and retain customers.

Because our principal source of income is the net interest income we earn on our loans and investments after deducting

interest paid on deposits and other sources of funds, our ability to generate the revenues needed to cover our expenses and finance such investments is limited by the size of our loan and investment portfolios.

Because our principal source of income is the net interest income we earn on our loans and investments after deducting interest paid on deposits and other sources of funds, our ability to generate the revenues needed to cover our expenses and finance such investments is limited by the size of our loan and investment portfolios.

Accordingly, we are not always able to offer new products and services as quickly as our competitors.

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Because of our geographic concentration, we are less able than regional or national financial institutions to diversify our credit risks across multiple markets.

Other Business Risks

We have a continuing need for technological change, and we may not have the resources to effectively implement new technology or we may experience operational challenges when implementing new technology.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services.

The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.

Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.

Many of our competitors have substantially greater resources to invest in technological improvements than we do.

We may not be able to effectively implement new, technology-driven products and services or be successful in marketing these products and services to our customers which would put us at a competitive disadvantage.

In addition, the implementation of technological changes and upgrades to maintain current systems and integrate new ones may also cause service interruptions, transaction processing errors and system conversion delays and may cause us to fail to comply with applicable laws.

Failure to successfully keep pace with technological change affecting the financial services industry and avoid interruptions, errors and delays could have a material adverse effect on our business, financial condition or results of operations.

We expect that new technologies and business processes applicable to the consumer credit industry will continue to emerge, and these new technologies and business processes may be better than those we currently use.

Because the pace of technological change is high and our industry is intensely competitive, we may not be able to sustain our investment in new technology as critical systems and applications become obsolete or as better ones become available.

A failure to maintain current technology and business processes could cause disruptions in our operations or cause our products and services to be less competitive, all of which could have a material adverse effect on our business, financial condition and results of operations.

Other Risks Related to Our Business

The costs and effects of litigation, investigations or similar matters, or adverse facts and developments related thereto, could materially affect our business, operating results and financial condition.

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As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions.

These losses or defaults could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Additionally, if our competitors were extending credit on terms we found to pose excessive risks, or at interest rates which we believed did not warrant the credit exposure, we may not be able to maintain our business volume and could experience deteriorating financial performance.

These losses or defaults could have a material adverse effect on our business, financial condition and results of operations.

Severe weather, natural disasters, pandemics, acts of war or terrorism and other external events could significantly impact our business.

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Although management has established disaster recovery policies and procedures, the occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations.

Climate change could have a material negative impact on the Company and our customers.

The Company’s business, as well as the operations and activities of our clients, could be negatively impacted by climate change.

Climate change presents both immediate and long-term risks to the Company and its clients, and these risks are expected to increase over time.

Climate change presents multi-faceted risks, including:

operational risk from the physical effects of climate events on the Company and its clients’ facilities and other assets;

credit risk from borrowers with significant exposure to climate risk;

transition risks associated with the transition to a less carbon-dependent economy;

and reputational risk from stakeholder concerns about our practices related to climate change, the Company’s carbon footprint, and the Company’s business relationships with clients who operate in carbon-intensive industries.

Federal and state banking regulators and supervisory authorities, investors, and other stakeholders have increasingly viewed financial institutions as important in helping to address the risks related to climate change both directly and with respect to their clients, which may result in financial institutions coming under increased pressure regarding the disclosure and management of their climate risks and related lending and investment activities.

Given that climate change could impose systemic risks upon the financial sector, either via disruptions in economic activity resulting from the physical impacts of climate change or changes in policies as the economy transitions to a less carbon-intensive environment, the Company may face regulatory risk of increasing focus on the Company’s resilience to climate-related risks, including in the context of stress testing for various climate stress scenarios.

Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit, and reputational risks and costs.

Risks Related to Our Reputation and Operations

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We may also be subject to potentially adverse regulatory consequences.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services.

The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.

Many of our competitors have substantially greater resources to invest in technological improvements than we do.

System failure or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.

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Notwithstanding, our facilities and systems, and those of third party service providers, are vulnerable to interruptions, external or internal security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, force majeure events, or other similar events.

We outsource certain aspects of our data

processing and other operational functions to certain third-party providers.

We outsource certain aspects of our data processing and other operational functions to certain third-party providers.

If our third-party providers encounter difficulties including those resulting from breach, breakdowns or other disruptions in communication services, cyber-attacks and security breaches or if we otherwise have difficulty in our ability to deliver products and services to our customers and otherwise conduct business operations and could have a material adverse effect on our business, financial condition and results of operations.

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We are not able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources.

We employ detection and response mechanisms designed to contain and mitigate security incidents, but early detection may be thwarted by sophisticated attacks and malware designed to avoid detection.

We employ detection and response mechanisms designed to contain and mitigate security incidents, but early detection may be thwarted by

sophisticated attacks and malware designed to avoid detection.

Further, our cardholders use their debit and credit cards to make purchases from third parties or through third party processing services.

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Our operations could be interrupted if our third-party service providers experience difficulty, terminate their services or fail to comply with banking regulations.

In deciding whether to extend credit or to enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information.

Some of the information regarding customers provided to us is also used in our proprietary credit decision making and scoring models, which we use to determine whether to do business with customers and the risk profiles of such customers which are subsequently utilized by counterparties who lend us capital to fund our operations.

We may also rely on representations of customers and counterparties as to the accuracy and completeness of that information.

In deciding whether to extend credit, we may rely upon our customers’ representations that their financial statements conform to GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer.

We also may rely on customer representations and certifications, or other audit or accountants’ reports, with respect to the business and financial condition of our customers.

Our financial condition, results of operations, financial reporting and reputation could be negatively affected if those representations are misleading, false, inaccurate or fraudulent and we rely on that materially misleading, false, inaccurate or fraudulent information.

We depend to a significant extent on relationships with third party service providers.

Specifically, we utilize third party core banking services and receive credit card and debit card services, branch capture services, Internet banking services and services complementary to our banking products from various third party service providers.

These types of third party relationships are subject to increasingly demanding regulatory requirements where we must maintain and continue to enhance our due diligence and ongoing monitoring and control over our third party vendors.

We may be required to renegotiate our agreements to meet these enhanced requirements, which could increase our costs.

If our service providers experience difficulties or terminate their services and we are unable to replace them, our operations could be interrupted.

It may be difficult for us to timely replace some of our service providers, which may be at a higher cost due to the unique services they provide.

A third party provider may fail to provide the services we require, or meet contractual requirements, comply with applicable laws and regulations, or suffer a cyber-attack or other security breach.

We expect that our regulators will hold us responsible for deficiencies of our third party relationships which could result in enforcement actions, including civil money penalties or other administrative or judicial penalties or fines, or customer remediation, any of which could have a material adverse effect on our business, financial condition or results of operations.

We depend on the accuracy and completeness of information provided by customers and counterparties and any misrepresented information could adversely affect our business, financial condition and results of operations.

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Any such misrepresented information could have a material adverse effect on our business, financial condition and results of operations.

Credit and other information that we receive from third parties about a borrower may be inaccurate or may not accurately reflect the borrower’s creditworthiness, which may cause us to inaccurately price loans.

We obtain borrower credit information from consumer reporting agencies, such as TransUnion, Experian or Equifax, and assign loan grades to loan requests based on our credit decisions that takes into account reported credit score, other information reported by the consumer reporting agencies and the requested loan amount, in addition to a variety of other factors.

A credit score or loan grade assigned to a borrower may not reflect that borrower’s actual creditworthiness because the credit score may be based on outdated, incomplete, fraudulent or inaccurate consumer reporting data, and we do not independently verify the information obtained from the borrower’s credit report.

Additionally, there is a risk that, following the date of the credit report that we obtain and review, a borrower may have:

become delinquent in the payment of an outstanding obligation;

defaulted on a pre-existing debt obligation;

taken on additional debt;

lost his or her job or other sources of income;

or sustained other adverse financial events.

If borrowers default on loans that are not priced correctly, our reputation may be harmed and we may suffer other adverse effects.

Employee misconduct could expose us to significant legal liability and reputational harm.

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If the models that management uses to measure the fair value of financial instruments are inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what we could realize upon sale or settlement of such financial instruments.

Any such failure in management’s

analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations.

Any such failure in management’s analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations.

We have significant deferred tax assets and we cannot assure that it will be fully realized.

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Realization of a deferred tax asset requires us to apply significant judgment and is inherently speculative because it requires estimates that cannot be made with certainty.

At December 31, 2021, we had net deferred tax assets of $8.4 million.

As of December 31, 2022, we had net deferred tax assets of $14.3 million.

If we were to determine at some point in the future that we will not achieve sufficient future taxable income to realize our net deferred tax asset, we would be required, under U.S.

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Any of the above could cause investors to lose confidence in our reported financial information or our common stock listing on NASDAQ Global Market to be suspended or terminated, which could have a negative effect on the trading price of our common stock.

In addition, we could become subject to investigations by the NASDAQ Global Market, the SEC, the Board of Governors of the Federal Reserve System, the FDIC, the DFPI or other regulatory authorities, which could require additional financial and management resources.

In addition, we could become subject to investigations by the SEC, the Board of Governors of the Federal Reserve System, the FDIC, the DFPI or other regulatory authorities, which could require additional financial and management resources.

These events could have a material adverse effect on our business, financial condition and results of operations.

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We operate in a highly regulated environment and are subject to supervision and regulation by a number of governmental regulatory agencies, including the Federal Reserve, the FDIC and the DFPI.

Regulations adopted by these agencies, which are generally intended to provide protection for depositors and customers rather than for the benefit of shareholders, govern a comprehensive range of matters relating to ownership and control of our shares, our acquisition of other companies and businesses, permissible activities , maintenance of adequate capital levels, and other aspects of our

Regulations adopted by these agencies, which are generally intended to provide protection for depositors and customers rather than for the benefit of shareholders, govern a comprehensive range of matters relating to ownership and control of our shares, our acquisition of other companies and businesses, permissible activities, maintenance of adequate capital levels, and other aspects of our operations.

These bank regulators possess broad authority to prevent or remedy unsafe or unsound practices or violations of law.

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Congress that could further substantially increase regulation of the financial services industry, impose restrictions on the operations and general ability of firms within the industry to conduct business consistent with historical practices, including in the areas of compensation, interest rates, financial product offerings and disclosures, and have an effect on bankruptcy proceedings with respect to consumer residential real estate mortgages, among other things.

Federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied.

Federal and state regulatory agencies also frequently adopt changes

to their regulations or change the manner in which existing regulations are applied.

Presently, in addition to refining existing regulations implemented after the 2007-2008 financial crisis, the banking regulators are also focusing their attention on certain policy areas, such as climate risk, digital currencies, and technological innovation.

This new focus may require us to invest significant management attention and resources to evaluate and make any changes required by the legislation and accompanying rules.

Certain aspects of current or proposed regulatory or legislative changes, including to laws applicable to the financial industry and further changes to the U.S.

corporate tax code, if enacted or adopted, may impact the profitability of our business activities, require more oversight or change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads, and could expose us to additional costs, including increased compliance costs.

Future regulatory or legislative changes, including to laws applicable to the financial industry and the U.S.

corporate tax code, may impact the profitability of our business activities, require more oversight or change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads, and could expose us to additional costs, including increased compliance costs.

These changes also may require us to invest significant management attention and resources to make any necessary changes to operations to comply, and could have a material adverse effect on our business, financial condition and results of operations.

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If, as a result of an examination, a banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate.

These actions include the power to enjoin “unsafe or unsound” practices, to require correction of any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil money penalties, to fine or remove officers and directors.

If it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, the regulatory agencies may terminate our deposit insurance and place us into receivership or conservatorship.

These actions include the power to (i) enjoin “unsafe or unsound” practices, (ii) require correction of any conditions resulting from any violation or practice, (iii) issue an administrative order that can be judicially enforced, (iv) direct an increase in our capital, (v) restrict our growth, (vi) assess civil money penalties, and (vii) fine or remove officers and directors.

If it is determined that such conditions cannot be corrected or there is an imminent risk of loss to depositors, the regulatory agencies may terminate our deposit insurance and place us into receivership or conservatorship.

Any regulatory action against us could have an adverse effect on our business, financial condition and results of operations.

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Department of Justice and other federal agencies, including the FDIC and the CFPB, are responsible for enforcing these laws and regulations.

A successful challenge to an institution’s performance under the Community Reinvestment Act, fair lending and other compliance laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity and

restrictions on expansion.

Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.

The costs of defending, and any adverse outcome from, any such challenge could damage our reputation or could have a material adverse effect on our business, financial condition and results of operations.

The federal government is increasingly seeking significant monetary damages and penalties against mortgage lenders and servicers under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) and the False Claims Act (“FCA”) for making false statements and seeking reimbursement for ineligible costs and expenses.

The federal government has initiated a number of actions against mortgage lenders and servicers alleging violations of FIRREA and the FCA.

Some of the actions against lenders allege that the lenders sold defective loans to Fannie Mae and Freddie Mac, while representing that the loans complied with their underwriting guidelines.

The federal government has also brought actions against lenders asserting that they submitted claims for loans insured by the Fair Housing Administration, or FHA, that the lender falsely certified to U.S.

Department of Housing and Urban Development met FHA underwriting requirements that resulted in FHA paying out millions of dollars in insurance claims to cover the defaulted loans.

Other allegations involve the Home Affordable Modification Program (“HAMP”), which is a federal program established to help eligible homeowners impacted by financial hardship by offering them loan modifications on their mortgages.

HAMP requires participating mortgage servicers to file annual certifications that they have been truthful and accurate in their HAMP-related activities, including reports they submitted to the government in which they acknowledged that providing false or fraudulent information may violate the FCA.

Actions have also been filed against certain banks alleging they improperly denied borrowers access to HAMP services, and submitted fraudulent certifications and accepted financial incentives for HAMP participation.

Because these actions carry the possibility for treble damages, many have resulted in settlements totaling in the hundreds of millions of dollars, as well as required lenders and servicers to make significant changes in their practices.

Regulatory agencies and consumer advocacy groups are becoming more aggressive in asserting claims that the practices of lenders and loan servicers result in a disparate impact on protected classes.

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Various federal regulatory agencies and departments, including the U.S.

Department of Justice and the CFPB, take the position that these laws apply not only to intentional discrimination, but also to neutral practices that have a disparate impact on a group that shares a characteristic that a creditor may not consider in making credit decisions protected classes (i.e., creditor or servicing practices that have a disproportionate negative affect on a protected class of individuals).

Department of Justice and the CFPB, take the position that these laws apply not only to intentional discrimination, but also to neutral practices that have a disparate impact on a group that shares a characteristic that a creditor may not consider in making credit decisions (i.e., creditor or servicing practices that have a disproportionate negative effect on a protected class of individuals).

These regulatory agencies, as well as consumer advocacy groups and plaintiffs’ attorneys, are focusing greater attention on “disparate impact” claims.

Regulatory agencies and private plaintiffs are expected to apply the “disparate impact” theory it to both the Fair Housing Act and ECOA in the context of mortgage lending and servicing.

Regulatory agencies and private plaintiffs are expected to apply the “disparate impact” theory to both the Fair Housing Act and ECOA in the context of mortgage lending and servicing,

among others.

To the extent that the “disparate impact” theory continues to apply, it may significantly increase our administrative burdens, compliance requirements and potential liability for failures to comply.

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Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach.

Moreover, legislators and regulators in the United States are increasingly adopting or revising privacy, information security and data protection laws that potentially could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer or employee information.

Moreover, state and federal legislators and regulators in the United States are increasingly adopting or revising data privacy, information security and data protection laws that potentially could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer or employee information.

Compliance with current or future privacy, data protection and information security laws (including those regarding security breach notification) affecting customer or employee data to which we are subject could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could have a material adverse effect on our business, financial condition and results of operations.

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Although our common stock is listed for trading on the Nasdaq Global Market its trading volume is generally less than that of other, larger financial services companies, and investors are not assured that a liquid market will exist at any given time for our common stock.

A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace at any given time of willing buyers and sellers of our common stock.

A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace at any given time of willing buyers and sellers of our common

This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control.

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Our dividend policy and/or share repurchase program may change without notice, and our future ability to pay dividends or repurchase or redeem shares is subject to restrictions.

Our board of directors declared quarterly cash dividends in 2019 and we increased our quarterly cash dividend to $0.07 per share from $0.05 per share in January 2020 and further increased to $0.10 per share in October 2021.

In addition, in January 2019, August 2019, February 2020, and September 2020, our board of directors approved stock repurchase programs that authorized the repurchase of up to 400,000, 475,000, 500,000, and 500,000 shares of common stock, respectively.

Since 2019, our board of directors have declared quarterly cash dividends on our common stock and have approved stock repurchase programs that authorized the repurchase of up to 1,870,000 shares of common stock.

As of December 31, 2022, we repurchased an aggregate of 1.6 million shares at an average price of $8.58 per share.

However, we have no obligation to continue doing so and may change our dividend policy and/or share repurchase program at any time without notice to holders of our common stock.

However, we have no obligation to continue doing so and may change our dividend policy and/or share repurchase program at any time

without notice to holders of our common stock.

Holders of our common stock are only entitled to receive such cash dividends, as our board of directors, in its discretion, may declare out of funds legally available for such payments.

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The Capital Rules also introduced a new capital conservation buffer on top of the minimum risk-based capital ratios.

Failure to maintain a capital conservation buffer above certain levels will result in restrictions on the Bank’s ability

to make dividend payments, repurchases, redemptions or other capital distributions.

Failure to maintain a capital conservation buffer above certain levels will result in restrictions on the Bank’s ability to make dividend payments, repurchases, redemptions or other capital distributions.

These requirements, and any other new regulations or capital distribution constraints, could adversely affect the ability of the Bank to pay dividends to the Company and, in turn, affect our ability to pay dividends on our common stock.

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Our board of directors also has the power, without shareholder approval (subject to Nasdaq shareholder approval rules), to set the terms of any series of preferred stock that may be issued, including voting rights, dividend rights, preferences over our common stock with respect to dividends or in the event of a dissolution, liquidation or winding up and other terms.

In the event that we issue preferred stock in the future that has preference over our common stock with respect to payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of the holders of our common stock or the market price of our common stock could be adversely affected.

common stock, the rights of the holders of our common stock or the market price of our common stock could be adversely affected.

In addition, the ability of our board of directors to issue shares of preferred stock without any action on the part of our shareholders (subject to Nasdaq shareholder approval rules) may impede a takeover of the Company and prevent a transaction perceived to be favorable to our shareholders.

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In addition, these provisions will also render the removal of our board of directors or management more difficult.

Such provisions include a requirement that shareholder approval for any action proposed by the Company must be obtained at a shareholders meeting and may not be obtained by written consent.

Our bylaws provide that shareholders seeking to make nominations of candidates for election as directors, or to bring other business before an annual meeting of the shareholders, must provide timely notice of their intent in writing and follow specific procedural steps in order for nominees or shareholder proposals to be brought before an annual meeting.

Provisions of our charter documents and the California General Corporation Law, or the CGCL, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial by our shareholders.

Furthermore, with certain limited exceptions, federal regulations prohibit a person or company or a group of persons deemed to be “acting in concert” from, directly or indirectly, acquiring more than 10% (5% if the acquirer is a bank holding company) of any class of our voting stock or obtaining the ability to control in any manner the election of a majority of our directors or otherwise direct the management or policies of our company without prior notice or application to and the approval of the Federal Reserve.

Accordingly, prospective investors need to be aware of and comply with these requirements, if applicable, in connection with any purchase of shares of our common stock.

Moreover, the combination of

these provisions effectively inhibits certain mergers or other business combinations, which, in turn, could adversely affect the market price of our common stock.

The California General Corporation Law, or the CGCL, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial by our shareholders.

Under the California Financial Code, no person shall, directly or indirectly, acquire control of a California state bank or its holding company unless the DFPI has approved such acquisition of control.

A person would be deemed to have acquired control of the Company if such person, directly or indirectly, has the power (i) to vote 25% or more of the voting power of the Company or (ii) to direct or cause the direction of the management and policies of the Company.

For purposes of this law, a person who directly or indirectly owns or controls 10% or more of our outstanding common stock would be presumed to control the Company.

Federal regulators generally would prohibit any company that is not engaged in financial activities and activities that are permissible for a bank holding company or a financial holding company from acquiring control of the Company.

“Control” is generally defined as ownership of 25% or more of the voting stock or other exercise of a controlling influence.

In addition, any existing bank holding company would need the prior approval of the Federal Reserve before acquiring 5% or more of our voting stock.

The Change in Bank Control Act of 1978, as amended, prohibits a person or group of persons from acquiring control of a bank holding company unless the Federal Reserve has been notified and has not objected to the transaction.

Under a rebuttable presumption established by the Federal Reserve, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as the Company, could constitute acquisition of control of the bank holding company.

The foregoing provisions of California and federal law could make it more difficult for a third party to acquire a majority of our outstanding voting stock, by discouraging a hostile bid, or delaying, preventing or deterring a merger, acquisition or tender offer in which our shareholders could receive a premium for their shares, or effect a proxy contest for control of our company or other changes in our management.

We are an “emerging growth company,” and the reduced regulatory and reporting requirements applicable to emerging growth companies may make our common stock less attractive to investors.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors