OP Bancorp (OPBK) risk factors, FY2024 10-K

Risks Related to Our Business

1. 01Interruptions, cyber-attacks, fraudulent activity or other security breaches could have a material adverse effect on our business
2. 02We may not keep pace with the rapid technological developments in the financial services industry. Fraudulent and other illegal activity involving our products, services and systems could adversely affect our financial position and results of operations
3. 03Adverse conditions in Asia and elsewhere could adversely affect our business
4. 04Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations
5. 05Fluctuations in interest rates may reduce net interest income and otherwise negatively impact our financial condition and results of operations
6. 06We could recognize losses on securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate
7. 07Liquidity risks could affect operations and adversely affect our business, financial condition, and results of operations
8. 08A decline in general business and economic conditions and any regulatory responses to such conditions could have a material adverse effect on our business, financial position and results of operations

Risks Related to Our Loans

1. 09Because a significant portion of our loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses
2. 10Many of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans
3. 11The 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
4. 12Our single family residential loan product consists primarily of non-qualified single family home mortgage loans which may be considered less liquid and more risky
5. 13Increased scrutiny by regulators of commercial real estate concentrations could restrict our activities and impose financial requirements or limits on the conduct of our business
6. 14Our 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
7. 15We may suffer losses in our loan portfolio despite our underwriting practices
8. 16Lack of seasoning of our loan portfolio could increase risk of credit defaults in the future

Risks Related to our SBA Loan Program

1. 17The recognition of gains on the sale of SBA loans and servicing asset valuations reflect certain assumptions
2. 18The 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

Risks Related to Our Deposits

1. 19Our deposit portfolio includes significant concentrations and a large percentage of our deposits is attributable to a relatively small number of clients
2. 20Intense competition among U.S. banks for customer deposits, may increase our cost of retaining current deposits or procuring new deposits, and may otherwise negatively affect our ability to grow our deposit base

Risks Related to our Management

1. 21We are highly dependent on our management team, and the loss of our senior executive officers or other key employees could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects

Risks Related to our Credit Quality

1. 22Our business depends on our ability to successfully manage credit risk
2. 23As of December 31, 2024, our nonperforming loans (which consist of nonaccrual loans, loans past due 90 days or more and still accruing interest and loans modified under troubled debt restructurings) totaled $7.8 million, or 0.40% of our gross loans, and 0.33% of total assets
3. 24Current U.S. generally accepted accounting principles (“GAAP”) requires credit loss recognition using a methodology that estimates current expected credit losses for the life of the loan and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates
4. 25Environmental liabilities could materially and adversely affect our business and financial condition

Risks Related to our Growth Strategy

1. 26We may not be able to continue growing our business, particularly if we cannot increase loans and deposits through organic growth
2. 27There is risk related to acquisitions
3. 28As we expand our business outside of California markets, we will encounter risks that could adversely affect us
4. 29We must effectively manage our branch growth strategy
5. 30New lines of business or new products and services may subject us to additional risks

Risks Related to Our Capital

1. 31We are subject to more stringent capital requirements
2. 32We are committed to contribute 10% of our consolidated after tax net income to the Open Stewardship Foundation
3. 33We face strong competition from financial services companies and other companies that offer commercial banking services, which could harm our business
4. 34Our modest size makes it more difficult for us to compete
5. 35We focus on marketing our services to a limited segment of the population and any adverse change impacting such segment is likely to have an adverse impact on us
6. 36We 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
7. 37The 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
8. 38We may be adversely affected by the soundness of other financial institutions
9. 39Severe weather, natural disasters, pandemics, acts of war or terrorism and other external events could significantly impact our business
10. 40Climate change could have a material negative impact on the Company and our customers

Risks Related to Our Reputation and Operations

1. 41Our ability to maintain our reputation is critical to the success of our business, and the failure to do so may materially adversely affect our business and the value of our common stock
2. 42Our risk management framework may not be effective in mitigating risks and/or losses to us
3. 43Interruptions, cyberattacks, fraudulent activity or other security breaches may have a material adverse effect on our business
4. 44Our cybersecurity investments may create unforeseen implementation challenges that confer unexpected disruptions, unbudgeted costs, or delays in adaptation to crucial threats
5. 45Our relatively small size requires us to be heavily reliant upon third-party vendors for cybersecurity expertise. Those vendors may themselves be subject to vulnerabilities, and their failures may be harmful to our business
6. 46Cybersecurity incidents, failures or lapses could give rise to regulatory harms to the Company or the Bank
7. 47System failure or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities
8. 48Our operations could be interrupted if our third-party service providers experience difficulty, terminate their services or fail to comply with banking regulations
9. 49We 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
10. 50Employee misconduct could expose us to significant legal liability and reputational harm
11. 51Our accounting estimates and risk management processes rely on analytical and forecasting models
12. 52We have significant deferred tax assets and we cannot assure that it will be fully realized
13. 53Changes in accounting standards could materially impact our financial statements
14. 54Failure to maintain effective internal controls over financial reporting could have a material adverse effect on our business and stock price
15. 55We are subject to extensive government regulation that could limit or restrict our activities, which in turn may adversely impact our ability to increase our assets and earnings
16. 56Federal and state regulators periodically examine our business, and we may be required to remediate adverse examination findings
17. 57We face a risk of noncompliance and enforcement action with the BSA and other anti-money laundering statutes and regulations
18. 58Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information

Risks Related to Our Common Stock

1. 59The trading volume in our common stock is less than that of other larger financial services companies
2. 60The trading price of our common stock could be volatile
3. 61An investment in our common stock is not an insured deposit
4. 62If equity research analysts do not publish research or reports about our business, or if they do publish such reports but issue unfavorable commentary or downgrade our common stock, the price and trading volume of our common stock could decline
5. 63Our 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
6. 64We have limited the circumstances in which our directors will be liable for monetary damages
7. 65Future equity issuances could result in dilution, which could cause our common stock price to decline
8. 66We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock
9. 67Provisions 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
10. 68The 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
11. 69We are a smaller reporting company and the reduced regulatory and reporting requirements applicable to smaller reporting companies may make our common stock less attractive to investors