What changed in this filing

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Item 1A. Risk Factors

2024-03-12 compared with 2023-04-07 · 123 added, 173 removed, 328 unchanged (47% of the section changed)

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Net interest income is the difference between the amounts received by us on our interest-earning assets and the interest paid by us on our interest-bearing liabilities.

When interest rates rise, the rate of interest we pay on our assets, such as loans, rises more quickly than the rate of interest that we receive on our interest-bearing liabilities, such as deposits, which may cause our profits to increase.

When interest rates decrease, the rate of interest we pay on our assets, such as loans, declines more quickly than the rate of interest that we receive on our interest-bearing liabilities, such as deposits, which may cause our profits to decrease.

When interest rates rise, the rate of interest we receive on our assets, such as loans, rises more quickly than the rate of interest that we pay on our interest-bearing liabilities, such as deposits, which may cause our profits to increase.

When interest rates decrease, the rate of interest we receive on our assets, such as loans, declines more quickly than the rate of interest that we pay on our interest-bearing liabilities, such as deposits, which may cause our profits to decrease.

The impact on earnings is more adverse when the slope of the yield curve flattens, that is, when short-term interest rates increase more than long-term interest rates or when long-term interest rates decrease more than short-term interest rates.

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

Rising interest rates will result in a decline in value of the fixed-rate debt securities we hold in our investment securities portfolio.

The unrealized losses resulting from holding these securities would be recognized in accumulated other comprehensive income (loss) and reduce total shareholders’

Rising interest rates will result in a decline in the value of the fixed-rate debt securities we hold in our investment securities portfolio.

The unrealized losses resulting from holding these securities would be recognized in accumulated other comprehensive income (loss) and reduce total shareholders’ equity.

Unrealized losses do not negatively impact our regulatory capital ratios;

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

As of December 31, 2022, the fair value of our securities portfolio was approximately $262.4 million.

As of December 31, 2023, the fair value of our securities portfolio was approximately $324.2 million.

Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities.

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Any of the foregoing factors could cause other-than-temporary impairment in future periods and result in realized losses.

The process for determining whether impairment is other-than-temporary usually requires difficult, subjective judgments about the future financial performance of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security.

The process for determining whether impairment is other-than-temporary usually requires difficult, subjective judgments about the future financial performance of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security.

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 an adverse effect on our financial condition and results of operations.

At December 31, 2022, $256.8 million of our securities were classified as available-for-sale with an aggregate net unrealized loss of $31.3 million.

We increase or decrease shareholders’

equity by the amount of change from the unrealized gain or loss (the difference between the estimated fair value and the amortized cost) of our available-for-sale securities portfolio, net of the related tax, under the category of accumulated other comprehensive income (loss).

Therefore, a decline in the estimated fair value of this portfolio will result in a decline in reported shareholders’

equity, book value per common share, and tangible book value per common share.

At December 31, 2023, $319.0 million of our securities were classified as available-for-sale with an aggregate net unrealized loss of $28.1 million.

We increase or decrease shareholders’ equity by the amount of change from the unrealized gain or loss (the difference between the estimated fair value and the amortized cost) of our available-for-sale securities portfolio, net of the related tax, under the category of accumulated other comprehensive income (loss).

Therefore, a decline in the estimated fair value of this portfolio will result in a decline in reported shareholders’ equity, book value per common share, and tangible book value per common share.

This decrease will occur even though the securities are not sold.

For example, at December 31, 2022, our total shareholders’

equity was $17.9 million lower than at December 31, 2021, largely due to a decline in the estimated fair value of our available-for-sale securities portfolio during 2022.

In the case of debt securities, if these securities are never sold and there are no credit impairments, the decrease will be recovered over the life of the securities.

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A decline in general business and economic conditions and any regulatory responses to such conditions could have a material adverse effect on our business, financial position, results of operations and growth prospects.

Our business and operations are sensitive to general business and economic conditions in the United States, generally, and particularly in the states of California, Nevada, Illinois, New Jersey, Hawaii and New York, and the Los Angeles, New York City, Chicago, Las Vegas and Honolulu metropolitan areas.

Unfavorable or uncertain economic and market conditions could lead to credit quality concerns related to repayment ability and collateral protection as well as reduced demand for the products and services we offer.

In the recent year there has been a gradual decline in the U.S.

economy as evidenced by a decline in the housing market, higher unemployment and lower prices in the equities markets;

economy as evidenced by a decline in the housing market, higher unemployment and lower prices in the equities markets;

however, economic growth has been uneven, and opinions vary on the strength and direction of the economy.

Uncertainties also have arisen regarding the potential for a reversal or renegotiation of international trade agreements, as the current U.S.

administration has with China, the European Union and the United Kingdom. In addition, concerns about the performance of international economies, especially in Europe and emerging markets, and economic conditions in Asia, particularly the economies of China and Taiwan, can impact the economy and financial markets here in the United States.

administration has with China, the European Union and the United Kingdom.

In addition, concerns about the performance of international economies, especially in Europe and emerging markets, and economic conditions in Asia, particularly the economies of China and Taiwan, can impact the economy and financial markets in the U.S.

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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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, results of operations and growth prospects.

Unprecedented financial and monetary steps by U.S.

governmental bodies in response to the COVID-19 pandemic in 2020 and 2021, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the American Rescue Plan Act, injected nearly $5 trillion of financial relief and economic stimulus into the U.S.

In addition, the Federal Reserve reduced the target range for the federal funds rate to 0 to 25 basis points from March 2020 through 2021, purchased Treasury securities, and took other actions to support the flow of credit to households and businesses.

In the wake of actions by government authorities and other parties to mitigate health risks, and fiscal and monetary policy measures used to mitigate the adverse effects of the COVID-19 pandemic on individual households and businesses, a number of macroeconomic challenges emerged, including inflation, supply chain issues, labor market disruptions, and other economic and market issues.

In the wake of actions by government authorities and other parties to mitigate health risks associated with the COVID-19 pandemic, and fiscal and monetary policy measures used to mitigate the adverse effects of the pandemic on individual households and businesses, a number of macroeconomic challenges emerged, including, without limitation, inflation, supply chain issues and labor market disruptions.

Ongoing elevated inflation poses risk to the economy overall, and could indirectly pose challenges to our clients and to our business.

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Rising inflation can also increase input and inventory costs for our customers, forcing them to raise their prices or lower their profitability.

Supply chain disruption, also leading to inflation, can delay our customers’

shipping ability, or timing on receiving inputs for their production or inventory.

Supply chain disruption, also leading to inflation, can delay our customers’ shipping ability, or timing on receiving inputs for their production or inventory.

Inflation can lead to higher wages for our business customers, increasing costs.

All of these inflationary risks for our business customer base can be financially detrimental, leading to increased likelihood that the customer may default on a loan.

In addition, sustained inflationary pressure has led the Federal Reserve’s Federal Open Market Committee to raise interest rates rapidly, which has increased our interest rate risk.

To the extent such conditions exist or worsen, we could experience adverse effects on our business, financial condition, and results of operations.

Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including military actions between Russia and Ukraine, terrorism, or other geopolitical events.

Recent and future bank failures may adversely affect the national, regional, and local business environment, results of operations, and capital.

Recent and future bank failures may have a profound impact on the national, regional, and local business environment in which the Bank operates.

These impacts can range from business disruptions to adversely affecting their customers and customers withdrawing their deposits from the Bank.

Management currently does expect that one result of the events in connection with the closure of Silicon Valley Bank in California and Signature Bank in New York by regulators is that FDIC assessments will more likely than not increase as a cost of doing business to the Bank.

These possible impacts may adversely affect the Bank’s future operating results, including net income, and negatively impact capital.

While the Bank currently does not expect the Government takeovers of Silicon Valley Bank and Signature Bank to have such a negative effect, the Bank continues to monitor the ongoing events concerning these two banks and any future banks failures if and when they may occur.

The continuing COVID-19 pandemic could adversely affect our business and our customers, counterparties, employees, and third-party service providers.

The spread of COVID-19 created a global public health crisis that has impacted household, business, economic, and market conditions, While economic activity improved significantly from 2020 lows, the pace of economic recovery remains uneven across some industries and geographies, and some industries have been impacted more severely than others by specific variants and by supply chain and/or labor supply disruptions caused by the pandemic.

Additionally, our operations have been impacted by the need to close certain offices and limit how customers conduct business through our branch network.

Many of our employees continue to work under a hybrid model that includes working remotely, which exposes us to increased cybersecurity risks such as phishing, malware, and other similar attacks, all of which could expose us to liability and could seriously disrupt our business operations.

Although the primary effects of the COVID-19 pandemic have subsided, our business may continue to experience materially adverse impacts as a result of macroeconomic challenges related to the pandemic, including supply-demand imbalances, volatile energy prices, tightening monetary policy and inflation.

The extent of the continuing impact of COVID-19 and any future outbreaks or other public health crises on our business, results of operations and financial condition will depend on future developments, which are highly uncertain and difficult to predict.

Financial markets may be adversely affected by the current or anticipated impact of military conflict, other geopolitical risk, and trade tensions.

Military conflicts include military actions between Russia and Ukraine, Israel and Hamas, overall tension and conflict in the Middle East, and terrorism.

Geopolitical risk is generally rising, with shipping incidents in the Red Sea causing losses and disruption to commercial shipping routes.

In addition, trade tensions between the U.S.

and China, the two largest global economies, increases economic uncertainty.

W hile customer confidence in the banking system has improved considerably since the first half of 2023, risk related to disintermediation and uninsured deposits remain, and could continue to have a material effect on the Company’s operations and/or stock price.

Several high-profile bank failures in the first half of 2023 generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks.

The industry has stabilized since these failures and the customer confidence in the safety and soundness of smaller regional banks has improved considerably.

Nevertheless, risks remain that customers may choose to invest in higher yielding and higher-rated short-term fixed income securities or maintain deposits with larger more systematically important financial institutions, all of which could materially and adversely impact our liquidity, loan funding capacity, net interest margin, capital, and results of operations.

In addition, the banking operating environments and public trading prices of banking institutions can be highly correlated, in particular during times of stress, which could adversely impact the trading prices of our common stock and potentially, our results of operations.

Separately, banking regulators have announced a more stringent supervisory posture after the bank failures.

Health crises have in the past, and could in the future, materially and adversely affect our business and our customers, counterparties, employees, and third-party service providers.

Pandemics, epidemics, or other health crises, including COVID-19, have had and could have repercussions that could impact household, business, economic, and market conditions.

These events have caused and could in the future, cause us to implement measures to combat such health crises, including restrictions impacting individual, including our current and potential investors and customers, and the manner in which business continues to operate.

Additionally, our operations may be impacted by the need to close certain offices and limit how customers conduct business through our branch network.

Pandemics, epidemics, or other health crises could impact our business, capital, liquidity, financial position, results of operations, and business prospects due to the potential effect on our customers, employees, and third-party service providers.

In addition, health crises can lead to lingering impacts on economies and markets, for example, the unprecedented extent of economic stimulus during the COVID-19 pandemic that caused and/or exacerbated inflationary pressures.

We are subject to liquidity risk, which could adversely affect our financial condition and results of operations.

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Our business depends on our ability to attract and retain Asian-American immigrants as clients .

Our business is based on successfully attracting and retaining Asian-American immigrants as clients for both our non-qualified residential mortgage loans and deposits.

A significant portion of our business is based on successfully attracting and retaining Asian-American immigrants as clients for both our non-qualified residential mortgage loans and deposits.

We may be limited in our ability to attract Asian-American clients to the extent the U.S.

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Changes to U.S.

immigration policies as proposed by the current administration that restrain the flow of immigrants may inhibit our ability to meet our goals and budgets for non-qualified SFR mortgage loans and deposits, which may adversely affect our net interest income and net income.

immigration policies that restrain the flow of immigrants may inhibit our ability to meet our goals and budgets for non-qualified SFR mortgage loans and deposits, which may adversely affect our net interest income and net income.

Risks Related to Our Loans

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If we foreclose on and take title to such properties, we may be liable for remediation costs, as well as for personal injury and property damage.

Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property.

Many of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans.

At December 31, 2022, we had $1.8 billion of commercial loans, consisting of $1.3 billion of CRE loans, $201.2 million of C&I loans for which real estate is not the primary source of collateral and $276.9 million of C&D loans.

C&I loans represented 6.0% of our total loan portfolio at December 31, 2022.

At December 31, 2023, we had $1.5 billion of commercial loans, consisting of $1.17 billion of CRE loans, $130.1 million of C&I loans for which real estate is not the primary source of collateral and $181.5 million of C&D loans.

C&I loans represented 4.3% of our total loan portfolio at December 31, 2023.

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

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Accordingly, a downturn in the real estate market and a challenging business and economic environment may increase our risk related to commercial loans, particularly commercial real estate loans.

Unlike residential mortgage loans, which generally are made on the basis of the borrowers’

ability to make repayment from their employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial loans typically are made on the basis of the borrowers’

ability to make repayment from the cash flow of the commercial venture.

Unlike residential mortgage loans, which generally are made on the basis of the borrowers’ ability to make repayment from their employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial loans typically are made on the basis of the borrowers’ ability to make repayment from the cash flow of the commercial venture.

Our C&I loans are primarily made based on the identified cash flow of the borrower and secondarily on the collateral underlying the loans.

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Inventory and equipment may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.

If the cash flow from business operations is reduced, the borrower’s ability to repay the loan may be impaired.

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 impact on our financial condition and results of operations.

We have a concentration in commercial real estate, which could cause our regulators to restrict our ability to grow.

As a part of their regulatory oversight, the federal regulators have issued the CRE Concentration Guidance on sound risk management practices with respect to a financial institution’s concentrations in commercial real estate lending activities.

These guidelines were issued in response to the agencies’

concerns that rising CRE concentrations might expose institutions to unanticipated earnings and capital volatility in the event of adverse changes in the commercial real estate market.

The CRE Concentration Guidance identifies certain concentration levels that, if exceeded, will expose the institution to additional supervisory analysis with regard to the institution’s CRE concentration risk.

These guidelines were issued in response to the agencies’ concerns that rising CRE concentrations might expose institutions to unanticipated earnings and capital volatility in the event of adverse changes in the commercial real estate market.

The CRE Concentration Guidance is designed to promote appropriate levels of capital and sound loan and risk management practices for institutions with a concentration of CRE loans.

In general, the CRE Concentration Guidance establishes the following supervisory criteria as preliminary indications of possible CRE concentration risk:

(1) the institution’s total construction, land development and other land loans represent 100% or more of total risk-based capital;

or (2) total CRE loans as defined in the regulatory guidelines represent 300% or more of total risk-based capital, and the institution’s CRE loan portfolio has increased by 50% or more during the prior 36-month period.

(1) the institution’s total construction, land development and other land loans represent 100% or more of total risk-based capital;

or (2) total CRE loans as defined in the regulatory guidelines represent 300% or more of total risk-based capital, and the institution’s CRE loan portfolio has increased by 50% or more during the prior 36-month period.

Pursuant to the CRE Concentration Guidelines, loans secured by owner occupied commercial real estate are not included for purposes of CRE Concentration calculation.

We believe that the CRE Concentration Guidance is applicable to us.

As of December 31, 2022, our CRE loans represented 215% of our Bank total risk-based capital, as compared to 251% and 211% as of December 31, 2021 and 2020, respectively.

As of December 31, 2023, our CRE loans represented 183% of our Bank total risk-based capital, as compared to 215% and 251% as of December 31, 2022 and 2021, respectively.

We actively work to manage our CRE concentration and we have discussed the CRE Concentration Guidance with the FDIC and believe that our underwriting policies, management information systems, independent credit administration process, and monitoring of real estate loan concentrations are currently sufficient to address the CRE Concentration Guidance.

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Our SFR loan product consists primarily of non-qualified SFR mortgage loans, which may be considered less liquid and more risky.

As of December 31, 2022, our SFR mortgage loan portfolio amounted to $1.5 billion or 43.9% of our held for investment loan portfolio.

As of December 31, 2023, our SFR mortgage loan portfolio amounted to $1.49 billion or 49.1% of our held for investment loan portfolio.

As of that dat e, 96.7% of our SFR mortgage loans consisted of non-qualified mortgage loans, which are considered to have a higher degree of risk and are less liquid than qualified mortgage loans.

We offer two SFR mortgage products, a low loan-to-value, alternative document hybrid non-qualified SFR mortgage loan, or non-qualified SFR mortgage loan, and a qualified SFR mortgage loan. As of December 31, 2022, our non-qualified SFR mortgage loans had an average loan-to-value of 58.0% and an average FICO score of 763.

As of December 31, 2022, 3.7% of our total SFR mortgage loan portfolio was originated to foreign nationals.

We offer two SFR mortgage products, a low loan-to-value, alternative document hybrid non-qualified SFR mortgage loan, or non-qualified SFR mortgage loan, and a qualified SFR mortgage loan.

As of December 31, 2023, our non-qualified SFR mortgage loans had an average loan-to-value of 57.3% and an average FICO score of 763.

As of December 31, 2023, 3.3% of our total SFR mortgage loan portfolio were loans originated to foreign nationals.

The non-qualified single-family residential mortgage loans that we originate are designed to assist Asian-Americans who have recently immigrated to the United States 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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Such non-qualified loans may be considered more risky than qualified mortgage loans although we attempt to address this enhanced risk through our underwriting process, including requiring larger down payments and, in some cases, interest reserves.

We also have a concentration in our SFR secondary sale market, as a substantial portion of our non-qualified mortgage loans have been historically sold to two banks;

We also have a concentration in our SFR secondary sale market, as a substantial portion of our non-qualified mortgage loans have been historically sold to two banks;

although, we are currently selling SFR mortgage loans to three banks.

Although, we are taking steps to reduce our dependence on these banks, and we are attempting to expand the number of banks that we sell our non-qualified SFR mortgages, we may not be successful expanding our sales market for our non-qualified mortgage loans.

Although, we are taking steps to reduce our dependence on these banks by expanding the number of banks that we sell our non-qualified SFR mortgages to, we may not be successful expanding our sales market for our non-qualified mortgage loans.

These loans also present pricing risk as rates change, and our sale premiums cannot be guaranteed.

Further, the criteria for our loans to be purchased by other banks may change from time to time, which could result in a lower volume of corresponding loan originations.

Mortgage production historically, including refinancing activity, declines in rising interest rate environments such as the current environment in which we have experienced increasing rates over the last year.

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 $29.7 million of SBA loans for the year ended December 31, 2022.

We sold $12.7  million of the guaranteed portion of our SBA loans for the year ended December 31, 2022.

Consequently, as of December 31, 2022, we held $61.4 million of SBA loans on our balance sheet, $55.3 million of which consisted of the non-guaranteed portion of SBA loans and $6.1 million or 9.9% consisted of the guaranteed portion of SBA loans.

We originated $11.4 million of SBA loans for the year ended December 31, 2023.

We sold $4.1 million of the guaranteed portion of our SBA loans for the year ended December 31, 2023.

Consequently, as of December 31, 2023, we held $52.1 million of SBA loans on our balance sheet, $47.4 million of which consisted of the non-guaranteed portion of SBA loans and $4.7 million or 8.9% consisted of the guaranteed portion of SBA loans.

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.

We attempt to limit this risk by generally requiring such loans be collateralized and limiting the overall amount that can be held on our balance sheet to 75% of our total capital.

We attempt to limit this risk by generally requiring such loans to be collateralized and limiting the overall amount that can be held on our balance sheet to 75% of our total capital.

When we sell the guaranteed portion of SBA loans in the ordinary course of business, we are required to make certain representations and warranties to the purchaser about the SBA loan and the manner in which they were originated.

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government guaranteed loans, in particular those guaranteed by the SBA.

Presently, the SBA guarantees 75% of the principal amount of each qualifying SBA loan originated under the SBA’s 7(a) loan program. There is no assurance that the U.S.

Presently, the SBA guarantees 75% of the principal amount of each qualifying SBA loan originated under the SBA’s 7(a) loan program.

There is no assurance that the U.S.

government will maintain the SBA 7(a) loan program or if it does, that such guaranteed portion will remain at its current level.

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As the funding and sale of the guaranteed portion of SBA 7(a) loans is a major portion of our business and a significant portion of our noninterest income, any significant changes to the funding for the SBA 7(a) loan program may have an unfavorable impact on our prospects, future performance and results of operations.

We may be adversely impacted by the transition from LIBOR as a reference rate.

In 2017, the Financial Conduct Authority announced that after 2021 it will no longer compel banks to submit the rates required to calculate LIBOR.

In November 2020, the administrator of LIBOR announced it will consult on its intention to extend the retirement date of certain offered rates whereby the publication of the one week and two month LIBOR offered rates will cease after December 31, 2021;

but, the publication of the remaining LIBOR offered rates will continue until June 30, 2023.

Given consumer protection, litigation, and reputation risks, the bank regulatory agencies have indicated that entering into new contracts that use LIBOR as a reference rate after December 31, 2021 would create safety and soundness risks and that they will examine bank practices accordingly.

Therefore, the agencies encouraged banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021. Of the Company’s $3.3 billion in total gross loans as of December 31, 2022, approximately 5.1% have a LIBOR based reference rate. In the United States, the Alternative Reference Rate Committee (“ARRC”) has recommended the use of SOFR.

SOFR is different from LIBOR in that it is a backward-looking secured rate rather than a forward-looking unsecured rate.

These differences could lead to a greater disconnect between the Bank's costs to raise funds for SOFR as compared to LIBOR.

For cash products and loans, the ARRC has also recommended Term SOFR, which is a forward-looking SOFR based on SOFR futures and may in part reduce differences between SOFR and LIBOR.

On March 15, 2022, Congress enacted the Adjustable Interest Rate (LIBOR) Act (the “Act”) to address references to LIBOR in contracts that (i) are governed by U.S.

(ii) will not mature before June 30, 2023;

and (iii) lack fallback provisions providing for a clearly defined and practicable replacement for LIBOR.

On December 16, 2022, the Federal Reserve adopted a final rule that implements the Act, replacing references to LIBOR in such contracts with one of five Board-selected benchmark replacements based on SOFR.

We have a significant number of loans, some securities and borrowings, and some deposit products with attributes that are either directly or indirectly dependent on LIBOR.

We have determined an alternative reference rate(s) that we will ultimately use for our financial instruments going forward.

We have organized a multidisciplinary project team to identify operational and contractual best practices, assess our risks, identify the detailed list of all financial instruments impacted, manage the transaction, facilitate communication with our customers and counterparties, and monitor the impacts.

We have drafted and begun including fallback language in our loan agreements. After the LIBOR replacement date of 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 loans, subordinated notes and subordinated debentures.

The transition from LIBOR could create considerable costs and additional risk.

The uncertainty as to the nature and effect of the discontinuance of LIBOR may adversely affect the value of, the return on or the expenses associated with our financial assets and liabilities that are based on or are linked to LIBOR, may require extensive changes to the contracts that govern these LIBOR-based products as well as our systems and processes, and could impact our pricing and interest rate risk models, our loan product structures, our funding costs, our valuation tools and result in increased compliance and operational costs.

In addition, the market may transition away from LIBOR to an alternative reference rate could prompt inquires or other actions from regulators in respect of our preparation and readiness for the replacement of LIBOR with an alternative reference rate, and result in disputes, litigation or other actions with counterparties regarding the interpretation and enforceability of certain fallback language in LIBOR-based financial instruments.

Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation.

There are also operational issues which may create a delay in the transition to SOFR or other substitute indices, leading to uncertainty across the industry.

The implementation of a substitute index or indices for the calculation of interest rates under our loan agreements with our borrowers may result in significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept the substitute index or indices, and may result in disputes or litigation with customers over the appropriateness or comparability to LIBOR of the substitute index or indices, which could have an adverse effect on our results of operations. While adoption of the Act offers some safe harbor provisions regarding such litigation, the transition from LIBOR nevertheless may create considerable costs and involves additional risks.

 The discontinuance of LIBOR and related uncertainty may adversely affect the market value of, the return on, or the expenses associated with our financial assets and liabilities that are based on or linked to LIBOR.

In addition, the market transition away from LIBOR could prompt inquiries or other actions from regulators in respect of our preparation and readiness for the replacement of LIBOR with an alternative reference rate.

Although we are currently unable to assess the ultimate impact of the transition from LIBOR, the failure to adequately manage the transition could have a material adverse effect on our business, financial condition, and results of operations.

Real estate construction loans are based upon estimates of costs and values associated with the complete project.

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Such properties may not be sold or leased so as to generate the cash flow anticipated by the borrower.

ability to repay their obligations to us and the value of our security interest in collateral, and thereby adversely affect our results of operations and financial results.

A general decline in real estate sales and prices across the United States or locally in the relevant real estate market, a decline in demand for residential real estate, economic weakness, higher interest rates, high rates of unemployment, and reduced availability of mortgage credit, are some of the factors that can adversely affect the borrowers’ ability to repay their obligations to us and the value of our security interest in collateral, and thereby adversely affect our results of operations and financial results.

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.

As of December 31, 2022, our nonperforming loans (which consist of nonaccrual loans and loans modified under troubled debt restructurings) totaled $23.5 million (1) , or 0.71% (1) , of our held for investment (HFI) loan portfolio, and our nonperforming assets (which include nonperforming loans plus OREO) totaled $24.1 (1)  million, or 0.61% (1) , of total assets.

In addition, we had $15.2 million in accruing loans that were 30-89 days delinquent as of December 31, 2022.

In 2022, we foreclosed on a Chicago loan acquired in connection with a previous merger and added an additional OREO consisting of a 1-4 family residence for $284,000.

Our nonperforming assets adversely affect our net income in various ways.

As of December 31, 2023, our nonperforming loans (which consist of nonaccrual loans and modified loans) totaled $31.6 million, or 1.04%, of our held for investment (HFI) loan portfolio, and our nonperforming assets totaled $31.6 million, or 0.79%, of total assets.

In addition, we had $16.8 million in accruing loans that were 30-89 days delinquent as of December 31, 2023.

Our nonperforming assets (which consist of nonperforming loans and other real estate owned) adversely affect our net income in various ways.

We do not record interest income on nonaccrual loans or OREO, thereby adversely affecting our net income and returns on assets and equity, increasing our loan administration costs and adversely affecting our efficiency ratio.

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If we experience increases in nonperforming loans and nonperforming assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which could have an adverse effect on our net income and related ratios, such as return on assets and equity.

Nonperforming loans, nonperforming assets, nonperforming loans to total loans and nonperforming assets to total assets were updated from the amounts reported in the fourth quarter earnings release published on January 23, 2023

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

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

The Company is a California state chartered bank with operations in California, Hawaii, Illinois, New York, New Jersey, and Nevada.

The Bank is a California state chartered bank with operations in California, Hawaii, Illinois, New York, New Jersey, and Nevada.

We have no overseas operations, including in China and the Far East.

However, as an Asian-American business bank our client base may have customer and operational contact in the Far East, which could be adversely affected by the current coronavirus outbreak.

The Company is monitoring this situation for its impact on our clients.

Risks Related to Our Deposits

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As a commercial bank, we provide services to a number of clients whose deposit levels vary considerably and have a significant amount of seasonality.

At December 31, 2022, 135 clients maintained balances (aggregating all related accounts, including multiple business entities and personal funds of business owners) in excess of $2.0 million. This amounted to $1.3 billion or approximately 43.5% of the Bank’s total deposits as of December 31, 2022.

At December 31, 2023, 148 clients maintained balances (aggregating all related accounts, including multiple business entities and personal funds of business owners) in excess of $2.0 million per client.

This amounted to $844.4 million, or approximately 26.6%, of the Bank’s total deposits as of December 31, 2023.

In addition, our ten largest depositor relationships accounted for approximately 7.8% of our deposits at December 31, 2023.

Our largest depositor relationship accounted for approximately 1.4% of our deposits at December 31, 2023.

These deposits can and do fluctuate substantially. The loss of any combination of these depositors, or a significant decline in the deposit balances due to ordinary course fluctuations related to these customers’

businesses, would adversely affect our liquidity and require us to raise deposit rates to attract new deposits, purchase federal funds or borrow funds on a short-term basis to replace such deposits.

These deposits can and do fluctuate substantially.

The loss of any combination of these depositors, or a significant decline in the deposit balances due to ordinary course fluctuations related to these customers’ businesses, would adversely affect our liquidity and require us to raise deposit rates to attract new deposits, purchase federal funds or borrow funds on a short-term basis to replace such deposits.

Depending on the interest rate environment and competitive factors, low cost deposits may need to be replaced with higher cost funding, resulting in a decrease in net interest income and net income.

While these events could have a material impact on the Bank’s results, the Bank expects, in the ordinary course of business, that these deposits will fluctuate and believes it is capable of mitigating this risk, as well as the risk of losing one of these depositors, through additional liquidity, and business generation in the future.

During 2023, noninterest-bearing deposits decreased by $259.1 million due to the Bank's customers pursuing higher rates offered by the Bank's time deposits, interest-bearing non-maturity deposits increased by $17.4 million, and time deposits increased by $438.8 million.

However, should a significant number of these customers leave the Bank, it could have a material adverse impact on the Bank.

The Bank has depositor relationships with digital currency businesses, and the loss of these deposits as well as changes in the digital currency industry or the digital currency businesses that we have depositor relationships with, may adversely affect our growth and profitability or damage our reputation.

As of December 31, 2022, the Bank held approximately $52.0 million in deposits from digital currency businesses compared to $503.7 million in deposits as of December 31, 2021.

As a portion of our business provides banking services to digital currency businesses and their customers, changes in the regulatory environment, the overall acceptance of digital currencies and the price levels of digital currencies in general, could, individually or in the aggregate, have a material adverse effect on our profitability, financial condition and growth of our business, or damage our reputation.

Digital currency businesses filing for bankruptcy or if we become subject to any regulatory actions related to the provision of our banking services to digital currency businesses and their customers may also adversely affect our growth and profitability or damage our reputation.

Further, a decision by the customers to withdraw deposits or move deposits to our competitors could result in changes in our deposit base and could result in a decrease in our cash and cash equivalents and a sale of securities which would negatively impact our net interest income.

Risk Related to our Allowance for Credit Losses (“ACL”)

Risk Related to our Allowance for Credit Losses (“ACL”)

If we do not effectively manage our credit risk, we may experience increased levels of delinquencies, nonperforming loans and charge-offs, which could require increases in our provision for loan losses.

As of January 1, 2022, we adopted ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,”

commonly referenced as the CECL model, which changes how we estimate credit losses and increased the required level of our allowance for credit losses.

As of January 1, 2022, we adopted ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the CECL model, which changes how we estimate credit losses and increased the required level of our ACL.

There are risks inherent in making any loan, including risks inherent in dealing with individual borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and cash flows available to service debt and risks resulting from changes in economic and market conditions.

We cannot guarantee that our credit underwriting and monitoring procedures will reduce these credit risks, and they cannot be expected to completely eliminate our credit risks.

If the overall economic climate in the United States, generally, or our market areas, specifically, declines, our borrowers may experience difficulties in repaying their loans, and the level of nonperforming loans, charge-offs and delinquencies could rise and require further increases in the provision for loan losses, which would cause our net income, return on equity and capital to decrease.

If the overall economic climate in the U.S., generally, or our market areas, specifically, declines, our borrowers may experience difficulties in repaying their loans, and the level of nonperforming loans, charge-offs and delinquencies could rise and require further increases in the provision for loan losses, which would cause our net income, return on equity and capital to decrease.

Our ACL may prove to be insufficient to absorb potential credit losses in our loan portfolio.

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The allowance contains provisions for expected credit losses that have been identified relating to specific borrowing relationships, as well as expected credit losses inherent in the loan portfolio and credit undertakings that are not specifically identified.

Additions to the ACL, which are charged to earnings through the provision for credit losses, are determined based on a variety of factors, including an analysis of the loan portfolio, historical loss experience, reasonable and supportable forecast and an evaluation of current economic conditions in our market areas.

The actual amount of credit losses is affected by changes in economic, operating and other conditions within our markets, which may be beyond our control, and such losses may exceed current estimates.

Additions to the ACL, which are charged to earnings through the provision for credit losses, are determined based on a variety of factors, including an analysis of the loan portfolio, historical loss experience, reasonable and supportable forecasts and an evaluation of current economic conditions in our market areas.

The actual amount of credit losses is affected by changes in economic, operating and other conditions within our markets, which may be beyond our control, and such losses may exceed current estimates.

We estimate credit losses using the CECL model, which incorporates the use of and is more reliant on reasonable and supportable forecasts of economic conditions, including, but not limited to:

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Because the CECL methodology is more dependent on future economic forecasts, assumptions, and models than the previous accounting standards, it may result in increases and add volatility to our ACL and future provisions for loan losses.

The forecasts, assumptions, and models required by CECL are based upon third-party forecasts, subject to management’s review and adjustment in light of information currently available.

As of December 31, 2023, our ACL as a percentage of total loans was 1.38% and as a percentage of total nonperforming loans was 132.5%.

Although management believes that the ACL is adequate to absorb losses on any existing loans that may become uncollectible, we may be required to take additional provisions for credit losses in the future to further supplement the ACL, either due to management’s decision to do so or because our banking regulators require us to do so.

Although management believes that the ACL is adequate to absorb losses on any existing loans that may become uncollectible, we may be required to take additional provisions for credit losses in the future to further supplement the ACL, either due to management’s decision to do so or because our banking regulators require us to do so.

Our bank regulatory agencies will periodically review our ACL and the value attributed to nonaccrual loans or to real estate acquired through foreclosure and may require us to adjust our determination of the value for these items.

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Since late 2010, we have been pursuing a strategy of leveraging our human and financial capital by acquiring other financial institutions in our target markets.

We have completed several acquisitions in recent years and we may continue pursuing this strategy.

We have completed several acquisitions in recent years and we may continue pursuing this strategy.

Our acquisition activities could require us to use a substantial amount of cash, other liquid assets, and/or incur debt.

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There are risks associated with an acquisition strategy, including the following:

We may incur time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in management’s attention being diverted from the operation of our existing business.

We may encounter insufficient revenue and/or greater than anticipated costs in integrating acquired businesses.

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Any such adjustments are reflected in our results of operations in the periods in which they become known.

As of December 31, 2022, our goodwill totaled $71.5 million, which includes goodwill in the amount of $2.3 million resulting from the acquisition of the Hawaii Branch from BOTO in January 2022.

We evaluated our goodwill and intangibles in the first, second and fourth quarter of 2020, and the fourth quarters of 2021 and 2022.

The impairment evaluation did not identify an impairment of goodwill or the core deposit intangible in those quarters of 2020, 2021 and 2022.

As of December 31, 2023, our goodwill totaled $71.5 million.

We evaluated our goodwill and core deposit intangibles in the fourth quarter of 2022 and the third and fourth quarter of 2023.

The impairment evaluation did not identify an impairment of goodwill or the core deposit intangibles in those quarters of 2022 and 2023.

There can be no assurance that our future evaluations of goodwill will not result in findings of impairment and related write-downs, which may have a material adverse effect on our financial condition and results of operations.

We may not be able to continue growing our business, particularly if we cannot make acquisitions or increase loans and deposits through organic growth, either because of an inability to find suitable acquisition candidates, constrained capital resources or otherwise.

We have grown our consolidated assets from $300.5 million as of December 31, 2010 to $3.9 billion as of December 31, 2022, and our deposits from $236.4 million as of December 31, 2010 to $3.0 billion as of December 31, 2022.

We have grown our consolidated assets from $300.5 million as of December 31, 2010 to $4.0 billion as of December 31, 2023, and our deposits from $236.4 million as of December 31, 2010 to $3.2 billion as of December 31, 2023.

Some of this growth has resulted from several acquisitions that we have completed since 2010.

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It also will depend, in part, upon our ability to attract deposits and lessen our dependence on larger deposit accounts, identify favorable loan 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.

Paydowns on our acquired loan portfolio will result in reduced total loan yield, net interest income and net income if not replaced with other high-yielding loans.

Our total loan yield and net interest margin has been positively affected by the accretion of purchased loan discounts relating to loans acquired in prior acquisitions.

As our acquired loan portfolio is paid down, we expect downward pressure on our total loan yield and net interest income to the extent that the run-off is not replaced with other high-yielding loans.

The accretable yield represents the excess of the net present value of expected future cash flows over the acquisition date fair value and includes both the expected coupon of the loan and the discount accretion.

For example, the total loan yield for the years ended December 31, 2022 and 2021 was 5.52% and 5.12%, respectively, and the yield generated using only the expected coupon would have been 5.51% and 5.08%, during the same respective periods.

Notwithstanding, if we are unable to replace loans in our existing portfolio with comparable high-yielding loans or a larger volume of loans, our total loan yield, net interest income and net income could be adversely affected.

As we expand our business outside of California markets, we will encounter risks that could adversely affect us.

As we expand our business outside of California markets, we may encounter risks that could adversely affect us.

We primarily operate in California, New York, New Jersey and Illinois markets with a concentration of Asian-American individuals and businesses;

however, one of our strategies is to expand beyond California into other domestic markets that have concentrations of Asian-American individuals and businesses.

We also currently have operations in Las Vegas, Nevada and Honolulu, Hawaii, including operating a branch office, and are currently looking for additional branch expansion opportunities in the San Francisco Bay area and Houston and, secondarily, San Diego and Riverside counties in southern California, and Phoenix.

In the course of this expansion, we will encounter significant risks and uncertainties that could have a material adverse effect on our operations.

We also currently have operations in Las Vegas, Nevada and Honolulu, Hawaii, including operating a branch office, and would consider strategic opportunities for additional branch expansion.

In the course of any expansion, we may encounter significant risks and uncertainties that could have a material adverse effect on our operations.

These risks and uncertainties include increased expenses and operational difficulties arising from, among other things, our ability to attract sufficient business in new markets, to manage operations in noncontiguous market areas, to comply with all of the various local laws and regulations, and to anticipate events or differences in markets in which we have no current experience.

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Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating and reporting on that system of internal control.

In the past, material weaknesses have been identified in our internal controls over financial reporting.

In the past, material weaknesses have been identified in our internal controls over financial reporting.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

Following identification of the material weakness, we implemented a number of controls and procedures designed to improve our control environment, which we believe will be sufficient to remediate our previously identified material weakness.

Following identification of the material weaknesses, we implemented a number of controls and procedures designed to improve our control environment, which we believe will be sufficient to remediate our previously identified material weakness.

Our actions to maintain effective controls and remedy any weakness or deficiency may not be sufficient to result in an effective internal control environment and any future failure to maintain effective internal control over financial reporting could impair the reliability of our financial statements, which in turn could harm our business, impair investor confidence in the accuracy and completeness of our financial reports, impair our access to the capital markets, cause the price of our common stock to decline and subject us to increased regulatory scrutiny and/or penalties, and higher risk of shareholder litigation.

The Bank is operating under enhanced regulatory supervision that could materially and adversely affect our business.

As previously disclosed in the Company's Current Report on Form 8-K filed with the SEC on October 31, 2023, effective on October 25, 2023, the Bank entered into a Stipulation to the Issuance of a Consent Order with its bank regulatory agencies, the FDIC and DFPI, consenting to the issuance of a consent order (the “Consent Order”) relating to weaknesses in the Bank’s Anti-Money Laundering/Countering the Financing of Terrorism (“AML/CFT”) compliance program.

Under the terms of the Consent Order, the Bank is required to make certain enhancements and take certain actions, which include, but are not limited to:

(i) enhancing personnel with oversight responsibilities with respect to the Bank’s AML/CFT compliance program, (ii) enhancing existing AML/CFT policies and practices, internal controls, customer due diligence, and training programs, and (iii) establishing an independent testing program to analyze and assess the Bank’s BSA Department.

The Consent Order also requires the Bank to correct certain alleged violations of the AML/CFT compliance program, including internal controls, staffing and the timing of the filing of one suspicious activity report.

If the Bank fails to timely and satisfactorily comply with the Consent Order, the Bank may be required to incur additional expenses in order to comply with the Consent Order and may be subject to additional regulatory action, including civil money penalties against the Bank and its officers and directors or enforcement of the Consent Order through court proceedings.

These additional expenses or regulatory actions, including penalties and legal expenses, could have a material and adverse effect on our business, results of operations, financial condition, cash flows and stock price.

We are exposed to risks related to fraud and cyber-attacks.

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If we or a critical third party vendor were to experience a cyber-attack or information security breach, we could suffer damage to our reputation, productivity losses, response costs associated with investigation and resumption of services, and incur substantial additional expenses, including remediation expenses costs associated with client notification and credit monitoring services, increased insurance premiums, regulatory penalties and fines, and costs associated civil litigation, any of which could have a materially adverse effect on our business, financial condition, and results of operations.

In addition, the Company’s clients and vendors rely on technology and systems unmanaged by the Company, such as networking devices, server infrastructure, personal computers, smartphones, tablets, and other mobile devices, to contact and conduct business with the Company.

If the devices of the Company’s clients or vendors become the target of a cyber-attack, or information security breach, it could result in unauthorized access to, misuse of, or loss of confidential client, employee, monetary, or business information.

Threat actors using improperly obtained personal or financial information of consumers can attempt to obtain loans, lines of credit, or other financial products from the Company, or attempt to fraudulently persuade the Company’s employees, clients, or other users of the Company’s systems to disclose confidential information in order to gain improper access to the Company’s information and information systems.

We also face additional costs when our customers become the victims of cyber-attacks.

For example, various retailers have reported that they have been the victims of a cyber-attack in which large amounts of their clients’

data, including debit and credit card information, is obtained.

For example, various retailers have reported that they have been the victims of a cyber-attack in which large amounts of their clients’ data, including debit and credit card information, is obtained.

Our clients may be the victims of phishing scams, providing cyber criminals access to their accounts, or credit or debit card information.

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Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified.

Because of the Company’s large transaction volume and its necessary dependence upon automated systems to record and process these transactions, there is a risk that technical flaws, tampering, or manipulation of those automated systems, arising from events wholly or partially beyond its control, may give rise to disruption of service to customers and to financial loss or liability.

We are exposed to the risk that our business continuity and data security systems prove to be inadequate.

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If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity, and results of operations could be materially and adversely affected.

A natural or man-made disaster or 

recurring energy shortage in our geographic markets , especially in California, could harm our business.

We are based in California and at December 31, 2022, approximately 45.2% of the aggregate outstanding principal of our mortgage loans was secured by real estate located in California.

A natural or man-made disaster or recurring energy shortage in our geographic markets , especially in California, could harm our business.

We are based in California and at December 31, 2023, approximately 50.5% of the aggregate outstanding principal of our total loan portfolio was secured by real estate located in California or business in California.

In addition, the computer systems that operate our Internet websites and some of their back-up systems are located in California.

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A natural or man-made disaster or recurring power outages may also impair the value of our largest class of assets, our loan portfolio, which is comprised substantially of real estate loans.

Uninsured or underinsured disasters may reduce borrowers’

ability to repay mortgage loans.

Uninsured or underinsured disasters may reduce borrowers’ ability to repay mortgage loans.

Disasters may also reduce the value of the real estate securing our loans, impairing our ability to recover on defaulted loans through foreclosure and making it more likely that we would suffer losses on defaulted loans.

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

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;

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.

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In addition, a number of out-of-state financial intermediaries have opened production offices or otherwise solicit deposits in our market areas.

Additionally, we face growing competition from so-called “online businesses”

with few or no physical locations, including online banks, lenders and consumer and commercial lending platforms, as well as automated retirement and investment service providers.

Increased competition in our markets may result in reduced loans, deposits and commissions and brokers’

fees, as well as reduced net interest margin and profitability.

Additionally, we face growing competition from so-called “online businesses” with few or no physical locations, including online banks, lenders and consumer and commercial lending platforms, as well as automated retirement and investment service providers.

Increased competition in our markets may result in reduced loans, deposits and commissions and brokers’ fees, as well as reduced net interest margin and profitability.

Ultimately, we may not be able to compete successfully against current and future competitors.

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These broad market fluctuations could adversely affect the market price of our common stock.

Among the factors that could affect our stock price are: 

actual or anticipated quarterly fluctuations in our operating results and financial condition and prospects;

changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts;

failure to meet analysts’

revenue or earnings estimates;

failure to meet analysts’ revenue or earnings estimates;

speculation in the press or investment community;

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general market conditions and, in particular, developments related to market conditions for the financial services industry;

proposed or adopted regulatory changes or developments;

adverse audit opinion on the effectiveness of our internal controls;

existing or increased regulatory compliance requirements, changes or proposed changes in laws or regulations, or differing interpretations thereof, affecting our business, or enforcement of laws and regulations;

anticipated or pending investigations, proceedings, or litigation that involve or affect us;

successful management of reputational risk;

geopolitical and public health conditions such as acts or threats of terrorism, military conflicts, pandemics and public health issues or crises, such as that related to COVID-19;

domestic and international economic factors, such as interest or foreign exchange rates, stock, commodity, credit, or asset valuations or volatility, unrelated to our performance.

geopolitical and public health conditions such as acts or threats of terrorism, military conflicts, pandemics and public health issues or crises;

domestic and international economic factors, such as interest rates or foreign exchange rates, stock, commodity, credit, or asset valuations or volatility, unrelated to our performance.

The stock market and, in particular, the market for financial institution stocks, has experienced significant volatility.

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In addition, the trading volume in our common stock may fluctuate more than usual and cause significant price variations to occur.

The trading price of the shares of our common stock and the value of our other securities will depend on many factors, which may change from time to time, including, without limitation, our financial condition, performance, creditworthiness and prospects, future sales of our equity or equity related securities, and other factors identified above in “Forward-Looking Statements,”

and in this Item 1A —

“Risk Factors.”

The capital and credit markets can experience volatility and disruption.

Such volatility and disruption can reach unprecedented levels, resulting in downward pressure on stock prices and credit availability for certain issuers without regard to their underlying financial strength.

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We have paid quarterly dividends since our initial public offering in the third quarter of 2017.

We paid $0.33 per share in 2020, $0.51 per share in 2021 and $0.56 per share in 2022.

We paid $0.51 per share in 2021, $0.56 per share in 2022 and $0.64 per share in 2023.

We have no obligation to pay dividends and we may change our dividend policy at any time without notice to our shareholders.

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Such limits are also tied to the earnings of our subsidiaries.

If the Bank does not receive regulatory approval or if our subsidiaries’

earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, our ability to pay our expenses and our business, financial condition or results of operations could be materially and adversely impacted.

If the Bank does not receive regulatory approval or if our subsidiaries’ earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, our ability to pay our expenses and our business, financial condition or results of operations could be materially and adversely impacted.

Shares of certain shareholders may be sold into the public market in the near future.

This could cause the market price of our common stock to decline.

We have outstanding options to purchase 454,610 shares of our common stock as of December 31, 2022 that may be exercised and sold (assuming all vesting requirements are met), and we have the ability to issue options exercisable for up to an additional 1,043,617 shares of common stock pursuant to our 2017 Omnibus Stock Incentive Plan.

We have outstanding options to purchase 397,903 shares of our common stock as of December 31, 2023 that may be exercised and sold (assuming all vesting requirements are met), and we have the ability to issue options exercisable for up to an additional 1,032,173 shares of common stock pursuant to our 2017 Omnibus Stock Incentive Plan.

The sale of any of such shares could cause the market price of our stock to decline, and concerns that those sales may occur could cause the trading price of our common stock to decrease or to be lower than it might otherwise be.

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In addition, amounts accrued may not represent the ultimate loss to us from those legal proceedings.

Thus, our ultimate losses may be higher or lower, and possibly significantly so, than the amounts accrued for loss contingencies arising from legal proceedings, and these losses could have a material and adverse effect on our business, financial condition, results of operations and the value of our common stock. 

Future equity issuances could result in dilution, which could cause our common stock price to decline.

We are generally not restricted from issuing additional shares of our common stock, up to the 100 million shares of common stock and 100 million shares of preferred stock authorized in our articles of incorporation, which in each case could be increased by a vote of a majority of our shares.

We are generally not restricted from issuing additional shares of our common stock, up to the 100 million shares of common stock and 100 million shares of preferred stock authorized in our articles of incorporation, which in each case could be increased by a vote of a majority of our shares.

We may issue additional shares of our common stock in the future pursuant to current or future equity compensation plans, upon conversions of preferred stock or debt, upon exercise of warrants or in connection with future acquisitions or financings.

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Provisions in our charter documents and California law may have an anti-takeover effect, and there are substantial regulatory limitations on changes of control of bank holding companies.

Provisions of our charter documents and the California General Corporation Law (“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.

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.

Unresolved Staff Comments.

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