What changed in this filing

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Item 1A. Risk Factors

2025-03-14 compared with 2024-03-15 · 216 added, 187 removed, 202 unchanged (67% of the section changed)

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All our branches and most of our deposit clients are located in these five states.

A return of recessionary conditions or adverse economic conditions in the markets we serve may reduce our rate of growth, affect our customers’ ability to repay loans and adversely impact our business, financial condition, and results of operations.

Further, because a high concentration of our client base is in the San Francisco Bay area, the deterioration of businesses in this market, or one or more businesses with a large employee base in this market, could have a material adverse effect on our business, financial condition and results of operations.

General economic conditions, including inflation, unemployment and money supply fluctuations, also may adversely affect our profitability.

Weakness in the global economy and global supply chain issues have adversely affected many businesses operating in our markets that are dependent upon international trade.

Changes in agreements or relationships between the United States and other countries may further affect these businesses.

Adverse economic conditions in our market areas could impact our growth rate, reduce our customers’ ability to repay loans, and adversely impact our business, financial condition, and results of operations.

Broader economic factors such as inflation, unemployment and money supply fluctuations also may adversely affect our profitability.

Further, trade

wars, tariffs, or shifts in trade policies between the United States and other nations could disrupt supply chains, increase costs for businesses, and reduce export opportunities for our customers.

These developments may, in turn, negatively impact these businesses and, by extension, our operations and financial performance.

In addition, adverse weather conditions as well as decreases in market prices for agricultural products grown in our markets can adversely affect agricultural businesses in our markets.

A downturn in economic conditions in the market areas we serve, in particular the San Francisco Bay Area, Southern California, Denver, Colorado, Seattle, Washington, Central New Mexico and the agricultural region of the California Central Valley, whether due to inflation, recessionary trends, geopolitical conflicts, adverse weather, or other factors, could have a material adverse effect on our business, financial condition, and results of operations, including but not limited to:

A downturn in economic conditions in the market areas we serve, in particular the San Francisco Bay Area, Southern California, Denver, Colorado, Seattle, Washington, Central New Mexico and the agricultural region of the California Central Valley, be it due to inflation, recessionary trends, geopolitical conflicts, adverse weather, or other factors, could have a material adverse effect on our business, financial condition, and results of operations, including but not limited to:

● Reduced demand for our products and services , potentially leading to a decline in our overall loans or assets.

● Elevated levels of loan delinquencies, problematic assets , and foreclosures .

● Elevated levels of loan delinquencies, problem assets , and foreclosures .

● An increase in our allowance for credit losses on loans.

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● Reduction in our low-cost or noninterest -bearing deposits.

A decline in local or regional economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are geographically diverse.

Many of the loans in our portfolio are secured by real estate or fixtures attached to real estate.

Any deterioration in the real estate markets associated with the collateral securing mortgage loans could significantly impact borrowers' repayment capabilities and the value of collateral.

Real estate values are affected by various other factors, including economic conditions, regulatory changes, and natural disasters such as earthquakes, floods, fires and mudslides.

If we are required to liquidate a significant amount of collateral during a period of reduced real estate values, our financial condition and profitability could be adversely affected.

External economic factors, such as changes in monetary policy and inflation and deflation, may have an adverse effect on our business, financial condition and results of operations.

A decline in local or regional economic conditions may have a greater effect on our earnings and capital compared to larger financial institutions with more geographically diverse real estate loan portfolios.

Because a significant portion of our loan portfolio is secured by real estate, deterioration in real estate markets could impair borrowers’ ability to repay loans and reduce the value of the underlying collateral.

Real estate values are influenced by a range of factors, including economic conditions, government policies, natural disasters (e.g., earthquakes, flooding and tornadoes), and trade-related pressures affecting construction costs or material availability.

Liquidating significant collateral during a period of depressed real estate values could negatively impact our financial condition and profitability.

Monetary policy, inflation, deflation, and other external economic factors could adversely impact our financial performance and operations.

Our financial condition and results of operations are affected by credit policies of monetary authorities, particularly the Federal Reserve.

Actions by monetary and fiscal authorities, including the Federal Reserve, could lead to inflation, deflation, or other economic phenomena that could adversely affect our financial performance.

Inflation has risen sharply since the end of 2021 and throughout 2022 at levels not seen for over 40 years.

Inflationary pressures, while easing recently, remained elevated throughout the first half of 2023.

Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economies of scale to mitigate cost pressures compared to larger businesses.

Consequently, the ability of our business clients to repay their loans may deteriorate quickly, which would adversely impact our results of operations and financial condition.

Furthermore, a prolonged period of inflation could cause wages and other costs to the Company to increase, which could adversely affect our results of operations and financial condition.

Virtually all of our assets and liabilities are monetary in nature.

As a result, interest rates tend to have a more significant impact on our performance than general levels of inflation or deflation.

Interest rates do not necessarily move in the same direction or by the same magnitude as the prices of goods and services.

tariffs on imported goods could exacerbate inflationary pressures by increasing the cost of goods and materials for businesses and consumers.

This may particularly affect small to medium-sized businesses, as they are less able to leverage economies of scale to mitigate cost pressures compared to larger businesses.

Consequently, our business clients may experience increased financial strain, reducing their ability to repay loans and adversely impacting our results of operations and financial condition.

Furthermore, a prolonged period of inflation could cause wages and other costs to us to increase, which could adversely affect our results of operations and financial condition.

Virtually all of our assets and liabilities are monetary in nature and, as a result, market interest rates tend to have a more significant impact on our performance than general levels of inflation or deflation.

However, interest rates do not necessarily move in the same direction or magnitude as the prices of goods and services, creating additional uncertainty in the economic environment.

Risks Related to Our Lending Activities

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We do not record interest income on nonaccrual loans or foreclosed assets, and nonaccrual loans and foreclosed assets increase our loan administration costs.

Upon foreclosure or similar proceedings, we record the repossessed asset at the estimated fair value, less costs to sell, which may result in a write-down or loss.

A significant increase in the level of nonperforming assets from current levels would also increase our risk profile and may impact the capital levels our regulators believe are appropriate in light of the increased risk profile.

Upon foreclosure or similar proceedings, we record the repossessed asset at its estimated fair value, less costs to sell, which may result in a write-down or loss.

the increased risk profile.

While we attempt to reduce problem assets through collection efforts, asset sales and workouts and restructurings, decreases in the value of the underlying collateral, or in the borrower’s performance or financial condition, could adversely affect our business, results of operations and financial condition.

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The $1.7 billion of commercial real estate loans includes $225.2 million of multifamily loans and $1.5 million of commercial construction and land loans.

Commercial loans typically involve higher principal amounts than other types of loans, with some of our commercial borrowers have more than one loan outstanding with us.

Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one-to-four family residential mortgage loan.

Because payments on such loans are often dependent on the cash flow of the commercial venture and the successful operation or development of the property/business involved, repayment of such loans is often more sensitive than other types of loans to adverse conditions in the real estate market or the general business climate and economy.

Repayments of loans secured by non-owner occupied properties rely heavily on tenant rent payments, and any downturn in the real estate market or economic conditions heightens our risk.

In addition, many of our commercial real estate loans are not fully amortizing and require large balloon payments upon maturity.

Such balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or nonpayment.

Meanwhile, our commercial business loans are primarily made based on the cash flow of the borrower and secondarily on the underlying collateral provided by the borrower.

A borrower’s cash flow may prove to be unpredictable, and collateral securing these loans may fluctuate in value.

Most often, this collateral includes accounts receivable, inventory, equipment or real estate.

of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its clients.

Other collateral securing commercial business loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business.

An increase in specific reserves and charge offs related to our commercial and industrial loan portfolio could have a material adverse effect on our business, financial condition, results of operations and future prospects.

In recent years, commercial real estate markets have been experiencing substantial growth, and increased competitive pressures have contributed significantly to historically low capitalization rates and rising property values.

Further, commercial real estate markets have been particularly impacted by the economic disruption resulting from the COVID-19 pandemic.

The COVID-19 pandemic has also been a catalyst for the evolution of various remote work options which could impact the long-term performance of some types of properties within our commercial real estate portfolio.

Accordingly, the federal banking regulatory agencies have expressed concerns about weaknesses in the current commercial real estate market.

Failures in our risk management policies, procedures and controls could adversely affect our ability to manage this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio, which could have a material adverse effect on our business, financial condition and results of operations.

Construction loans are based upon estimates of costs and values associated with the complete project.

Commercial loans typically involve larger principal amounts than other types of loans, and some of our commercial borrowers have more than one loan outstanding with us.

Consequently, an adverse development related to a single loan or credit relationship poses a significantly greater risk of loss compared to one-to-four family residential mortgage loans.

Repayment of commercial loans often depends on the cash flow generated by the business or property involved, making them more sensitive to adverse conditions in the real estate market, business climate, or economy.

For loans secured by non-owner-occupied properties, repayments rely heavily on tenant rent payments, and downturns in the real estate market or economic conditions heighten repayment risks.

In addition, many of our commercial real estate loans are not fully amortizing and require large balloon payments upon maturity, which may compel the borrower to sell or refinance the property, increasing the risk of default.

Commercial business loans are typically made based on the cash flow of the borrower and secondarily on the underlying collateral provided by the borrower.

A borrower’s cash flow can be unpredictable, and collateral securing these loans may fluctuate in value.

For loans secured by accounts receivable, repayment is often dependent on the borrower’s ability to collect from clients, while other forms of collateral may be difficult to appraise, illiquid, or affected by business success.

Increases in reserves and charge-offs related to our commercial and industrial loan portfolio could materially impact our business, financial condition, operations, and future prospects.

In recent years, the commercial real estate market has experienced substantial growth, with increased competition contributing to historically low capitalization rates and rising property values.

However, the economic disruption caused by the COVID-19 pandemic significantly impacted this market.

The pandemic also accelerated the adoption of remote work, which has led many companies to re-evaluate their long-term real estate needs.

While some businesses are returning to traditional office environments, others are downsizing or shifting to hybrid models, creating uncertainty in demand for office spaces and other commercial properties.

This trend could result in prolonged vacancies, declining rental income, and reduced property values, adversely affecting the performance of our commercial real estate loan portfolio.

Federal banking regulators also have raised concerns about weaknesses in the commercial real estate market.

Failures in our risk management policies and controls could lead to higher delinquencies and losses, adversely affecting our business, financial condition, and results of operations.

Construction loans are based upon estimates of costs and values associated with the completed project.

These estimates may be inaccurate, and we may be exposed to significant losses on loans for these projects.

Construction and land development loans totaled $9.6 million, or 0.5% of total loans as of December 31, 2023, of which $1.6 million were commercial real estate construction loans and $8.0 million were residential real estate construction loans.

Construction and land development loans totaled $1.5 million, or 0.1% of total loans as of December 31, 2024, nearly all of which were commercial real estate construction loans.

These loans involve additional risks because funds are advanced based on the project’s uncertain value prior to its completion, and costs may exceed realizable values in declining real estate markets.

Because of the uncertainties inherent in estimating construction costs and the realizable market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to accurately evaluate the total funds required to complete a project and the related loan-to-value ratio.

Higher than anticipated building costs may cause actual results to vary significantly from those estimated.

Further, this type of lending often involves larger loan principal amounts and might be concentrated among a limited number of builders.

Higher than anticipated construction costs may cause actual results to vary significantly from those estimated.

Further, this type of lending often involves larger loan principal amounts and might be

concentrated among a limited number of builders.

A downturn in the commercial real estate market could increase delinquencies, defaults, foreclosures, and significantly impair the value of our collateral, hindering our ability to sell the collateral upon foreclosure.

Dealing with builders who have multiple loans with us exposes us to heightened risks where adverse developments in one credit relationship could substantially increase our risk exposure.

During the term of some of our construction loans, borrowers are not required to make payments as accumulated interest is added to the principal through an interest reserve.

Therefore, repayment is contingent, in part, on the project's success and the borrower's ability to sell or lease the property, rather than solely on the borrower's repayment capacity.

Overstating the completed project's value, a decline in market values, or rental rate drops might leave us with insufficient security for loan repayment post-construction.

Monitoring the building process involves additional costs, including on-site inspections and cost comparisons.

Properties under construction are often difficult to sell and typically must be completed in order to be successfully sold, complicating the handling of problem construction loans.

If we foreclose on a defaulted construction loan prior to or at project completion, we might not recover the entire unpaid balance, accrued interest, and foreclosure and holding costs.

Further, additional funding may be needed to complete the project and we may have to hold the property for an unspecified period of time while we attempt to dispose of it.

Our construction loans include those with a sales contract or permanent loan in place for the finished homes and those for which purchasers for the finished homes may not be identified either during or following the construction period, known as speculative construction loans.

Speculative construction loans pose additional risks, especially regarding finding end-purchasers for finished projects.

We also offer loans on land under development or held for future construction.

These loans carry additional risks due to longer development periods, vulnerability to real estate value declines, economic fluctuations delaying projects, political changes affecting land use, and the collateral's illiquid nature.

During this extended financing-to-completion period, the collateral often generates no cash flow.

Builders with multiple loans heighten these risks, as adverse developments in one credit relationship can increase overall exposure.

During the term of some of our construction loans, borrowers do not make payments, as accumulated interest is added to the principal through an interest reserve.

Consequently, repayment often depends on the project's success and the borrower's ability to sell or lease the property rather than solely on repayment capacity.

Overstating project value, declining market conditions, or falling rental rates could result in insufficient collateral to secure loan repayment post-construction.

Additionally, monitoring the building process requires on-site inspections and cost comparisons, adding to administrative costs.

Properties under construction are generally difficult to sell and often must be completed before a successful sale can occur, complicating the management of problem loans.

If we foreclose on a defaulted construction loan during or before project completion, we might not recover the unpaid balance, accrued interest, or foreclosure costs.

Further, completing unfinished projects may require additional funding, and we may need to hold properties for extended periods before disposing of them.

Our construction loans include speculative construction loans—projects without identified end-purchasers—which pose heightened risks due to market uncertainties.

We also provide loans for land under development or held for future construction.

These loans carry additional risks, including longer development timelines, exposure to real estate value declines, economic fluctuations, political changes affecting land use, and the collateral's illiquid nature.

During these extended periods, the collateral typically generates no cash flow.

Our business may be adversely affected by credit risk associated with residential property.

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In addition, at December 31, 2024, our home equity loans and lines of credit totaled $5.1 million.

A portion of our one-to-four family residential real estate loan portfolio consists of jumbo loans that do not conform to secondary market mortgage requirements, and therefore are not immediately sellable to Fannie Mae or Freddie Mac because such loans exceed the maximum balance allowable for sale.

Jumbo one-to-four family residential loans may expose us to increased risk because of their larger balances and because they cannot be immediately sold to government sponsored enterprises.

In addition, one-to-four family residential loans are generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict.

A decline in residential real estate values resulting from a downturn in the housing market in our market areas may reduce the value of the real estate collateral securing these types of loans and increase our risk of loss if borrowers default on their loans.

Recessionary conditions or declines in the volume of real estate sales and/or the sales prices coupled with elevated unemployment rates may result in higher than expected loan delinquencies or problem assets, and a decline in demand for our products and services.

These potential negative events may cause us to incur losses and adversely affect our business, financial condition and results of operations.

A portion of our one-to-four family residential loan portfolio consists of jumbo loans, which exceed the maximum balance allowed for sale to Fannie Mae or Freddie Mac and therefore cannot be sold to these government-sponsored enterprises.

These jumbo loans carry increased risk due to their larger balances and limited liquidity.

In addition, one-to-four family residential loans are generally sensitive to regional and local economic conditions that affect borrowers’ ability to meet their loan payment obligations, making loss levels difficult to predict.

A downturn in the housing market in our areas may reduce the value of the real estate collateral securing these loans, increasing the risk of loss in the event of borrower defaults.

Recessionary conditions, decreased real estate sales volumes or prices, and elevated unemployment rates could lead to higher delinquencies, problem assets, and reduced demand for our products and services.

These adverse conditions could result in losses and negatively impact our business, financial condition, and results of operations.

Agricultural lending and volatility in government regulations may adversely affect our financial condition and results of operations.

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Consequently, agricultural loans may involve a greater degree of risk than other types of loans, particularly in the case of loans that are unsecured or secured by rapidly depreciating assets such as farm equipment (some of which is highly specialized with a limited or no market for resale), or assets such as livestock or crops.

In such cases, any repossessed collateral for a defaulted agricultural operating loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation or because the assessed value of the collateral exceeds the eventual realization value.

In such cases, any repossessed collateral for a defaulted agricultural operating loan may not provide an adequate source of repayment of

the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation or because the assessed value of the collateral exceeds the eventual realization value.

The success of our SBA lending program is dependent upon the continued availability of SBA loan programs, our status as a preferred lender under the SBA loan programs and our ability to comply with applicable SBA lending requirements.

As an SBA Preferred Lender, we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not SBA Preferred Lenders.

The SBA periodically reviews the lending operations of participating lenders to assess, among other things, whether the lender exhibits prudent risk management.

When weaknesses are identified, the SBA may request corrective actions or impose other restrictions, including revocation of the lender’s Preferred Lender status.

If we lose our status as a Preferred Lender, we may be unable to compete effectively with other SBA Preferred Lenders, which could have a material adverse effect on our financial results.

Any changes to the SBA program, including changes to the level of guaranty provided by the federal government on SBA loans or changes to the level of funds appropriated by the federal government to the various SBA programs, may also have an adverse effect on our business, results of operations and financial condition.

As an SBA Preferred Lender, we streamline the SBA loan process for clients by bypassing the lengthy approval procedures required for non-Preferred Lenders.

The SBA periodically reviews participating lenders to evaluate risk management practices.

If deficiencies are identified, the SBA may request corrective actions, impose restrictions, or revoke a lender’s Preferred Lender status.

Losing this status could impair our ability to compete with other Preferred Lenders and materially affect our financial results.

Additionally, changes to the SBA program, such as adjustments to federal guaranty levels or funding allocations, could adversely impact our business, results of operations, and financial condition.

Historically, we have sold the guaranteed portion of our SBA 7(a) loans in the secondary market.

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For the year ended December 31, 2024, we sold a total of $2.2 million in SBA loans (guaranteed portion) for a net gain of $199,000.

There can be no assurance that we will be able to continue originating these loans, that a secondary market will continue to exist or that we will continue to realize premiums upon the sale of the guaranteed portion of these loans.

When we sell the guaranteed portion of our SBA 7(a) loans, we incur credit risk on the retained, non-guaranteed portion of the loans.

In order for a borrower to be eligible to receive an SBA loan, the lender must establish that the borrower would not be able to secure a bank loan without the credit enhancements provided by a guaranty under the SBA program.

Accordingly, the SBA loans in our portfolio generally have weaker credit characteristics than the rest of our portfolio, and may be at greater risk of default in the event of deterioration in economic conditions or the borrower’s financial condition.

In the event of a loss resulting from default and a determination by the SBA that there is a deficiency in the manner in which the loan was originated, funded or serviced by us, the SBA may require us to repurchase the previously sold portion of the loan, deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of the principal loss related to the deficiency from us.

Management has estimated losses inherent in the outstanding guaranteed portion of SBA loans and recorded a recourse reserve at a level determined to be appropriate.

Significant increases to the recourse reserve may materially decrease our net income, which may adversely affect our business, results of operations and financial condition.

To meet our growth objectives, we may originate or purchase loans outside of our market area which could affect the level of our net interest margin and nonperforming loans.

There can be no assurance that we will be able to continue originating these loans, that a secondary market will continue to exist, or that we will continue to realize premiums on future sales.

Selling the guaranteed portion of SBA loans also exposes us to credit risk on the retained, non-guaranteed portion.

To qualify for an SBA loan, a borrower must demonstrate an inability to secure conventional financing without the SBA guaranty.

Accordingly, SBA loans in our portfolio often have weaker credit characteristic compared to other loans, increasing the risk of default during economic downturns or borrower financial distress.

If a loan defaults and the SBA determines there were deficiencies in how the loan was originated, funded, or serviced, the SBA may deny or reduce its guaranty, require us to repurchase the sold portion, or seek recovery of losses.

We have established a recourse reserve to cover estimated losses on the outstanding guaranteed portion of SBA loans.

Significant increases to this reserve could reduce our net income and adversely affect our business, results of operations, and financial condition.

To meet our growth objectives, we may originate or purchase loans outside our market areas, which could affect the level of our net interest margin and nonperforming loans.

To achieve our desired loan portfolio growth, we have sought and may continue seeking opportunities to originate or purchase loans outside of our market area, whether individually, through participations, or in bulk or “pools.” Prior to purchase, we perform certain due diligence procedures and may re-underwrite these loans to our underwriting standards.

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In determining the amount of the allowance for credit losses on loans, we review loans and our historical loss and delinquency experience and evaluate economic conditions.

Management also recognizes that significant new growth in loan portfolios, new loan products, and the refinancing of existing loans can result in

portfolios comprised of unseasoned loans that may not perform consistent with a historical or projected manner and will increase the risk that our allowance for credit losses on loans may be insufficient to absorb credit losses without significant additional provisions.

Management also recognizes that significant new growth in loan portfolios, new loan products, and the refinancing of existing loans can result in portfolios comprised of unseasoned loans that may not perform consistently with a historical or projected manner and will increase the risk that our allowance for credit losses on loans may be insufficient to absorb credit losses without significant additional provisions.

If our assumptions are incorrect, our allowance for credit losses on loans may not be sufficient to cover actual losses, requiring additional provisions for credit losses on loans to replenish the allowance for credit losses on loans.

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In addition, bank regulatory agencies periodically review our allowance for credit losses on loans.

Based on their assessment, they and may require increased provisions or loan charge-offs.

Based on their assessment, they may require increased provisions or loan charge-offs.

Any increase in the provision for credit losses on loans negatively affects net income and could materially impact our financial condition, results of operations, and capital.

Wildfires present significant risks to our loan portfolio and the adequacy of our allowance for credit losses.

While the recent wildfires in Southern California that began in January 2025 do not appear to have directly impacted our borrowers in any material respects, future wildfires could lead to heightened financial distress.

Borrowers affected by these fires may experience financial hardship, which could decrease their repayment capacity and increase the likelihood of loan defaults.

Damage to or destruction of properties securing loans could lead to a depreciation in collateral values, further increasing the risk of potential losses.

In addition, inadequate insurance coverage or denied claims may hinder recovery efforts and add uncertainty to our ability to accurately estimate credit losses.

Local economic disruptions, including business closures and job losses caused by these disasters, may also affect borrowers' ability to meet their financial obligations, necessitating adjustments to our credit loss assumptions.

Our concentration of loans in wildfire-prone areas further amplifies our exposure, and the growing frequency and intensity of wildfires heightens our long-term credit risks.

This may require increases to our allowance for credit losses in future periods.

While we continue to assess and adjust our allowance to reflect current and anticipated risks, there can be no guarantee it will fully cover actual losses, especially given the ongoing uncertainties and challenges associated with wildfires.

In addition to the lending-related risks discussed above, many of our offices are located, and many of our employees reside, in wildfire-prone areas.

Damage to or destruction of our offices and/or our employees’ homes caused by wildfires could be materially disruptive to our operations.

Risks Related to Market and Interest Rate Changes

Our profitability is vulnerable to interest rate fluctuations.

Our earnings and cash flows are largely dependent upon our net interest income.

Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, and particularly the Federal Reserve.

During 2023, in response to continued inflationary pressures, the Federal Open Market Committee (“FOMC”) of the Federal Reserve Board increased the target range for the federal funds rate 100 basis points to a range of 5.25% to 5.50%.

A sustained and substantial change in market interest rates could significantly impact our financial condition, liquidity, and results of operations.

Furthermore, fluctuations in interest rates could adversely affect the valuation of our assets and liabilities, ultimately affecting our earnings.

We principally manage interest rate risk by managing the volume and mix of our earning assets and funding liabilities.

Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but could also affect (i) our ability to originate and/or sell loans and obtain deposits, (ii) the fair value of our financial assets and liabilities, which could negatively impact shareholders’ equity, and our ability to realize gains from the sale of such assets, (iii) our ability to obtain and retain deposits in competition with other available investment alternatives, (iv) the ability of our borrowers to repay adjustable or variable rate loans, and (v) the average duration of our investment securities portfolio and other interest-earning assets.

In a changing interest rate environment, we may not be able to manage this risk effectively.

If we are unable to manage interest rate risk effectively, our business, financial condition and results of operations could be materially affected.

A sustained increase in market interest rates could adversely affect our earnings.

A significant portion of our loans have fixed interest rates and longer terms than our deposits and borrowings.

As is the case with many banks, we attempt to increase our proportion of deposits comprising either no or relatively low-interest-bearing accounts, which has been challenging over the last couple of years.

Our earnings and cash flows are largely dependent upon our net interest income, which is significantly affected by interest rates.

Interest rates are highly sensitive to factors beyond our control, such as general economic conditions and policies set by governmental and regulatory bodies, particularly the Federal Reserve.

Increases in interest rates could

reduce our net interest income, weaken the housing market by curbing refinancing activity and home purchases, and negatively affect the broader U.S.

economy, potentially leading to slower economic growth or recessionary conditions.

We principally manage interest rate risk by managing our volume and mix of our earning assets and funding liabilities.

If we are unable to manage this risk effectively, our business, financial condition and results of operations could be materially affected.

Our net interest margin, the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities, can be adversely affected by interest rate changes.

While yields on assets and costs of liabilities tend to move in the same direction, they may do so at different speeds, causing the margin to expand or contract.

As our interest-bearing liabilities often have shorter durations than our interest-earning assets, a rise in interest rates may lead to funding costs increasing faster than asset yields, compressing our net interest margin.

Additionally, changes in the slope of the yield curve, such as flattening or inversion, can further pressure our margins as funding costs rise relative to asset yields.

Conversely, falling rates can increase loan prepayments, leading to reinvestment in lower-yielding assets, reducing income.

In a rising rate environment, retaining deposits can become costlier.

At December 31, 2024, our deposit composition included $485.2 million in certificates of deposit maturing within one year and $1.7 billion in noninterest-bearing, NOW checking, savings, and money market accounts.

We would incur a higher cost of funds to retain these deposits in a rising interest rate environment.

Our net interest income could be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than the rates we earn on loans and other investments.

Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations.

Also, our interest rate risk modeling techniques and assumptions likely will not fully predict or capture the impact of actual interest rate changes on our balance sheet or projected operating results.

For further discussion of how changes in interest rates could impact us, see “Item 7.

If deposit and borrowing rates rise faster than loan and investment yields, our net interest income and overall earnings could decline.

A substantial amount of our loans have adjustable interest rates, which may result in a higher incidence of default in a rising interest rate environment.

Additionally, a significant portion of our adjustable-rate loans include interest rate floors that prevent the loan’s contractual interest rate from falling below a specified level.

At December 31, 2024, approximately $1.3 billion, or 67.4% of our loan portfolio consisted of adjustable or floating-rate loans, and approximately $992.5 million, or 75.4%, of those adjustable or floating-rate loans contained interest rate floors.

The presence of interest rate floors can increase income during periods of declining interest rates, as the rates on these loans cannot adjust downward below the floor.

However, this benefit is subject to the risk that borrowers may refinance these loans to take advantage of lower rates.

Furthermore, when loans are at their floor interest rates, our interest income may not rise as quickly as our cost of funds during periods of increasing interest rates, which could materially and adversely affect our results of operations.

While we employ asset and liability management strategies to mitigate interest rate risk, unexpected, substantial, or prolonged rate changes could materially affect our financial condition and results of operations.

Additionally, our interest rate risk models and assumptions may not fully capture the impact of actual rate changes on our balance sheet or projected operating results.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Sensitivity and Market Risk,” of this Form 10-K for a discussion of interest rate risk modeling and the inherent risks in modeling assumptions.

We may incur losses on our securities portfolio as a result of increases in interest rates.

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.

These factors include, but are not limited to, rating agency actions in respect of the securities, defaults by, or other adverse events affecting, the issuer or with respect to the underlying securities, and changes in market interest rates and continued instability in the capital markets.

Any of these factors, among others, could cause other-than-temporary impairments and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could have a material effect on our business, financial condition and results of operations.

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

There can be no assurance that the declines in market value will not result in other-than-temporary impairments of these assets and lead to accounting charges that could have a material adverse effect on our business, financial condition and results of operations.

For the year ended December 31, 2023, we did not incur any other-than-temporary impairments on our securities portfolio.

Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings.

These fluctuations may result from changes in market interest rates, rating agency actions, issuer defaults, issues with underlying securities, lower market prices, or limited investor demand.

Our available-for-sale debt securities in an unrealized loss position are evaluated to determine whether the decline in fair value has resulted from credit losses or other factors.

If a credit loss is identified, an allowance for credit losses is recorded, resulting in a charge against earnings.

Because available-for-sale securities are reported at estimated fair value, changes in interest rates can adversely affect our financial condition.

The fair value of fixed-rate securities generally moves inversely with interest rate changes.

Unrealized gains and losses on these securities are reported as a separate component of AOCI, net of tax.

Decreases in the fair value of securities available-for-sale resulting from increases in interest rates could have an adverse effect on shareholders’ equity.

Additionally, there is no assurance that the declines in market value will not result in credit losses, which would lead to additional provisions for credit losses that could materially affect our net income and capital levels.

Risks Related to our Merger and Acquisition Strategy

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We have completed ten full bank acquisitions since 2010, which has enhanced our growth rate over the years.

Our pursuit of acquisitions may disrupt our business, and any equity that we issue as merger consideration may have the effect of diluting the value of your investment.

Our pursuit of acquisitions may disrupt our business, and any equity that we issue as merger consideration may have the effect of diluting the value of your investment in the Company.

Our acquisition activities strategy involves a number of significant risks, including:

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Furthermore, our unfamiliarity with new markets or lines of business might adversely affect the success of such actions.

External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also affect the ultimate implementation of a new line of business or offerings of new products, product enhancements or services.

enhancements or services.

If any such expansions into new geographic or product markets are not successful, there could be an adverse effect on our financial condition and results of operations.

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If our judgment were incorrect, or if events or circumstances change, and an impairment of goodwill was deemed to exist, we would be required to write down our goodwill, resulting in a charge against operations, which may materially adversely affect our results of operations.

The Company’s reported financial results depend on management’s selection of accounting methods and certain assumptions and estimates, which, if incorrect, could cause unexpected losses in the future.

The Company’s accounting policies and methods are fundamental to how the Company records and reports its financial condition and results of operations.

The Company’s management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with generally accepted accounting principles and reflect management’s judgment regarding the most appropriate manner to report the Company’s financial condition and results of operations.

In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances, yet might result in the Company’s reporting materially different results than would have been reported under a different alternative.

Certain accounting policies, most notably the allowance for credit losses, are critical to presenting the Company’s financial condition and results of operations.

Our reported financial results depend on management’s selection of accounting methods and certain assumptions and estimates, which, if incorrect, could cause unexpected losses in the future.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations.

Management must exercise judgment in selecting and applying many of these accounting policies and methods so that they comply with generally accepted accounting principles and reflect management’s judgment regarding the most appropriate manner to report our financial condition and results of operations.

In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances, yet might result in us reporting materially different results than would have been reported under a different alternative.

Certain accounting policies, most notably the allowance for credit losses, are critical to presenting our financial condition and results of operations.

They require management to make difficult, subjective or complex judgments about matters that are uncertain.

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Our business operations are significantly influenced by the extensive body of accounting regulations in the United States.

Regulatory bodies periodically issue new guidance, altering accounting rules and reporting requirements, which

can substantially affect the preparation and reporting of our financial statements.

These changes might necessitate retrospective application, potentially leading to restatements of prior period financial statements.

One such significant change from 2022 was the implementation of the CECL model, which we adopted on January 1, 2023.

Under the CECL model, financial assets carried at amortized cost, such as loans and held-to-maturity debt securities, are presented at the net amount expected to be collected.

This forward-looking approach in estimating expected credit losses contrasts starkly with the former GAAP's "incurred loss" model, delaying recognition until a loss is probable.

CECL mandates considering historical experience, current conditions, and reasonable forecasts affecting collectability, leading to periodic adjustments of financial asset values.

However, this forward-looking methodology, reliant on macroeconomic variables, introduces the potential for increased earnings volatility due to unexpected changes in these indicators between periods.

An additional consequence of CECL is an accounting asymmetry between loan-related income, recognized periodically based on the effective interest method, and credit losses, recognized upfront at origination.

This asymmetry might create the perception of reduced profitability during loan expansion periods due to the immediate recognition of expected credit losses.

Conversely, periods with stable or declining loan levels might seem relatively more profitable as income accrues gradually for loans where losses had been previously recognized.

As a result of the change in methodology from the incurred loss method to the CECL model, on January 1, 2023, the Company recognized an increase in the allowance for credit loss on loans totaling $1.5 million and an increase to the allowance for credit losses on unfunded commitments of $45,000, as a cumulative effect adjustment from change in accounting policies, with a corresponding after-tax decrease to opening retained earnings of $491,000.

Regulatory bodies regularly issue new guidance, altering accounting rules and reporting requirements, which can substantially affect the preparation and presentation of our financial statements.

These changes may require retrospective application, potentially leading to restatements of prior period financial statements.

One significant change impacting our operations is the Current Expected Credit Loss (CECL) model, which we adopted on January 1, 2023.

Under CECL, financial assets carried at amortized cost, such as loans and held-to-maturity debt securities, are presented at the net amount expected to be collected.

This forward-looking approach estimates expected credit losses by considering historical experience, current conditions, and reasonable forecasts affecting collectability.

The model contrasts with the previous "incurred loss" methodology under GAAP, which recognized losses only when they were probable.

While CECL improves the timeliness of recognizing credit losses, its reliance on macroeconomic forecasts introduces potential earnings volatility due to unexpected changes in economic indicators.

Additionally, CECL creates an accounting asymmetry:

loan-related income is recognized periodically using the effective interest method, while expected credit losses are recognized upfront at origination.

This asymmetry may give the impression of reduced profitability during periods of loan growth due to the immediate recognition of expected losses, and relatively higher profitability during periods of stable or declining loan volumes, as income continues to accrue for loans with previously recognized losses.

Risks Related to Cybersecurity, Third Parties and Technology

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In addition, we outsource certain aspects of our data processing and other operational functions to certain third-party providers.

While we select third-party

vendors carefully, we do not control their actions.

While we select third-party vendors carefully, we do not control their actions.

If our third-party providers encounter difficulties, including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher transaction volumes, cyber-attacks or security breaches or if we otherwise have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our ability to deliver products and services to our clients and otherwise conduct business operations could be adversely impacted.

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Any of these occurrences could have a material adverse effect on our financial condition and results of operations.

Our current and future uses of Artificial Intelligence (AI) and other emerging technologies may create additional risks.

The increasing adoption of AI in financial services presents significant opportunities but also introduces a range of risks that could impact our operations, regulatory compliance, and customer trust.

AI introduces model risk, where flawed algorithms or biased data could result in inaccurate credit decisions, compliance violations, or discriminatory outcomes in lending or customer service.

Cybersecurity threats, such as data breaches, adversarial attacks, and data

poisoning, pose significant challenges, particularly as these systems handle large volumes of sensitive customer information.

Additionally, the opaque nature of some AI models, often referred to as "black-box" systems, raises regulatory compliance concerns, as regulators increasingly require transparency and explainability in AI-driven decision-making.

Operational risks also arise from potential system failures, over-reliance on AI, and integration challenges with existing infrastructure.

Disruptions in AI systems could impact critical functions such as fraud detection, transaction monitoring, and customer support.

Ethical and reputational risks, including unintended consequences or perceived unfairness in AI-driven decisions, may erode customer trust and expose us to regulatory scrutiny.

Mitigating these risks requires a robust governance framework, regularly testing and auditing of AI models, and strong human oversight.

Investments in cybersecurity, data privacy protections, and employee training are critical to managing these risks.

We are subject to certain risks in connection with our data management or aggregation.

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Nationally, reported incidents of fraud and other financial crimes have increased.

We are not aware that we have experienced any material misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information as a result of a cyber-security breach or other act, however, some of our clients may have been affected by these breaches, which could increase their risks of identity theft, credit card fraud and other fraudulent activity that could involve their accounts with us.

however, some of our clients may have been affected by these breaches, which could increase their risks of identity theft, credit card fraud and other fraudulent activity that could involve their accounts with us.

While we have policies and procedures designed to prevent such losses, there can be no assurance that such losses will not occur.

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The particular focus of the guidance is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be at greater risk to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution).

The purpose of the guidance is to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations.

The purpose of the guidance is to assist banks in developing risk management practices and capital levels commensurate with the level and nature of their real estate concentrations.

The guidance states that management should employ heightened risk management practices, including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing.

We have concluded that we have a concentration in commercial real estate lending under the foregoing standards because our balance in commercial real estate loans at December 31, 2023 represents more than 300% of total capital.

Owner-occupied commercial real estate totaled 110.2% of total capital, while non-owner occupied commercial real estate totals an additional 253.3% of total capital.

As of December 31, 2024, the Bank’s aggregate recorded loan balances for construction, land development and land loans were 2.0% of total regulatory capital, while the Bank’s commercial real estate loans as calculated in accordance with regulatory guidance were 320.2% of total regulatory capital.

As a result, we have concluded that we have a concentration in commercial real estate lending under the foregoing standards.

While we believe we have implemented policies and procedures with respect to our commercial real estate loan portfolio consistent with this guidance, bank regulators could require us to implement additional policies and procedures consistent with their interpretation of the guidance that may result in additional costs to us.

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Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions and limit our ability to get regulatory approval of acquisitions.

The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities.

The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent themselves from being used for money laundering and terrorist activities.

If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S.

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Failure to comply with these regulations could result in fines or sanctions and limit our ability to get regulatory approval of acquisitions.

While we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective in preventing violations of these laws and regulations.

If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include the denial of regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans.

Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us.

Any of these results could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

While we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective.

of our business plan, including our acquisition plans.

Additionally, any perceived or actual failure to prevent money laundering or terrorist financing activities could significantly damage our reputation.

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

If our enterprise risk management framework is not effective at mitigating risk and loss to us, we could suffer unexpected losses.

Our enterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is critical to optimizing stockholder value.

Our enterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is critical to optimizing shareholder value.

We have established processes and procedures intended to identify, measure, monitor, report, analyze and control the types of risk to which we are subject.

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Climate change and related legislative and regulatory initiatives may materially affect the Company’s business and results of operations.

The effects of climate change continue to create an alarming level of concern for the state of the global environment.

As a result, the global business community has increased its political and social awareness surrounding the issue, and the United States has entered into international agreements in an attempt to reduce global temperatures, such as reentering the Paris Agreement.

Further, the U.S.

Congress, state legislatures and federal and state regulatory agencies continue to propose numerous initiatives to supplement the global effort to combat climate change.

Similar and even more expansive initiatives are expected under the current administration, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change.

The lack of empirical data surrounding the credit and other financial risks posed by climate change render it difficult, or even impossible, to predict how specifically climate change may impact our financial condition and results of operations;

however, the physical effects of climate change may also directly impact us.

Specifically, unpredictable and more frequent weather disasters may adversely impact the real property, and/or the value of the real property, securing the loans in our portfolios.

Additionally, if insurance obtained by our borrowers is insufficient to cover any losses sustained to the collateral, or if insurance coverage is otherwise unavailable to our borrowers, the collateral securing our loans may be negatively impacted by climate change, natural disasters and related events, which could impact our financial condition and results of operations.

Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on our customers and impact the communities in which we operate.

Overall, climate change, its effects and the resulting, unknown impact could have a material adverse effect on our financial condition and results of operations.

The effects of climate change continue to raise significant concerns about the state of the environment.

However, under the new Trump administration, federal policy may shift to reduce the emphasis on climate change initiatives and environmental regulations.

This could include scaling back federal participation in international agreements, such as the Paris Agreement, and reducing regulatory pressures at the federal level on businesses, including banks, to address climate-related risks.

Legislative and regulatory proposals aimed at combating climate change may face greater scrutiny or diminished priority.

The lack of empirical data regarding the financial and credit risks posed by climate change still makes it difficult to predict its specific impact on our financial condition and results of operations.

However, the physical effects of climate change, such as more frequent and severe weather disasters, could directly affect us.

For instance, such events may damage real property securing loans in our portfolio or reduce the value of that collateral.

If our borrowers' insurance is insufficient to cover these losses or if insurance becomes unavailable, the value of the collateral securing our loans could be negatively affected, potentially impacting our financial condition and results of operations.

Moreover, climate change may adversely affect regional and local economic activity, harming our customers and the communities in which we operate.

Regardless of changes in federal policy, the effects of climate change and their unknown long-term impacts could still have a material adverse effect on our financial condition and results of operations.

Risks Related to Our Business and Industry Generally

We rely on other companies to provide key components of our business infrastructure.

We rely on numerous external vendors to provide us with products and services necessary to maintain our day-to-day operations.

Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements.

The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements because of changes in the vendor’s organizational structure, financial condition, support for existing products and services or strategic focus or for any other reason, could be disruptive to our operations, which in turn could have a material negative impact on our financial condition and results of operations.

We also could be adversely affected to the extent such an agreement is not renewed by the third-party vendor or is renewed on terms less favorable to us.

Additionally, the bank regulatory agencies expect financial institutions to be responsible for all aspects of our vendors’ performance, including aspects which they delegate to third parties.

Disruptions or failures in the physical infrastructure or operating systems that support our business and clients, or cyber-attacks or security breaches of the networks, systems or devices that our clients use to access our products and services could result in client attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of operations or financial condition.

We rely on numerous external vendors to provide products and services necessary for our day-to-day operations.

Accordingly, our operations are exposed to risks associated with vendor performance under service level agreements.

If a vendor fails to meet its contractual obligations due to changes in its organizational structure, financial condition, support for existing products and services, strategic focus, or any other reason, our operations could be disrupted, potentially causing a material adverse impact on our financial condition and results of operations.

Furthermore, we could be adversely affected if a vendor agreement is not renewed or is renewed on terms less favorable to us.

Regulatory agencies also require financial institutions to remain accountable for all aspects of vendor performance, including activities delegated to third parties.

Additionally, disruptions or failures in the physical infrastructure or operating systems supporting our business and customers, or cyber-attacks or security breaches involving networks, systems, or devices used by our customers to access our services, could lead to client attrition, regulatory fines

or penalties, reputational damage, reimbursement or compensation costs, and increased compliance expenses.

Any of these outcomes could materially and adversely affect our financial condition and results of operations.

Ineffective liquidity management could adversely affect our financial results and condition.

Liquidity is essential to our business.

We rely on a number of different sources in order to meet our potential liquidity demands.

Our primary sources of liquidity are increases in deposit accounts, cash flows from loan payments and our securities portfolio.

Borrowings also provide us with a source of funds to meet liquidity demands.

An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity.

Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry or economy in general.

Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the markets in which our loans and deposits are concentrated, negative operating results, or adverse regulatory action against us.

Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry or deterioration in credit markets.

Any decline in available funding in amounts adequate to finance our activities or on terms which are acceptable could adversely impact our ability to originate loans, invest in securities, meet our expenses, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could, in turn, have a material adverse effect on our business, financial condition and results of operations.

Maintaining sufficient liquidity is essential for the operation of our business.

We require sufficient liquidity to meet customer loan requests, customer deposit maturities/withdrawals, payments on our debt obligations as they come due, and other cash commitments under both normal operating conditions and other unpredictable circumstances causing industry or general financial market stress.

Our access to funding sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry or economy generally.

Factors that could detrimentally impact our access to liquidity sources include a downturn in the geographic markets in which our loans and operations are concentrated or difficult credit markets.

Our access to deposits may also be affected by the liquidity needs of our depositors.

In particular, a majority of our liabilities are checking accounts and other liquid deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial majority of our assets are loans, which cannot be called or sold in the same time frame.

Although we have historically been able to replace maturing deposits and advances as necessary, we might not be able to replace such funds in the future, especially if a large number of our depositors seek to withdraw their accounts, regardless of the reason.

A failure to maintain adequate liquidity could materially and adversely affect our business, financial condition and results of operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity” of this Form 10-K.

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As of December 31, 2024, our ten largest depositors, none of which include brokered deposits, accounted for $304.5 million in deposits, or approximately 13.6% of total deposits.

Several of our large depositors are locals of labor unions or have business, family, or other relationships with each other, which creates a risk that any one client’s withdrawal of its deposits could lead to a loss of other deposits from clients within the relationship.

Several of our large depositors are local unions of labor unions or have business, family, or other relationships with each other, which creates a risk that any one client’s withdrawal of its deposits could lead to a loss of other deposits from clients within the relationship.

At December 31, 2024, $641.5 million, or 30.1%, of our total deposits were comprised of deposits from labor unions, representing 732 different local unions with an average deposit balance per local union of approximately $770,000.

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In addition, these deposits are primarily demand deposit accounts or short-term deposits and therefore may be more sensitive to changes in interest rates.

If we are forced to pay higher rates on these

deposits to retain the funds, or if we are unable to retain the funds and are forced to turn to borrowings and other funding sources for our lending and investment activities, the interest expense associated with such borrowings or other funding sources may be higher than the rates we are paying on these deposits, which could adversely affect our net margin and net income.

We may also be forced, as a result of any material withdrawal of deposits, to rely more heavily on other;

potentially more expensive and less stable funding sources.

If we are forced to pay higher rates on these deposits to retain the funds, or if we are unable to retain the funds and are forced to turn to borrowings and other funding sources for our lending and investment activities, the interest expense associated with such borrowings or other funding sources may be higher than the rates we are paying on these deposits, which could adversely affect our net margin and net income.

We may also be forced, as a result of any material withdrawal of deposits, to rely more heavily on other, potentially more expensive and less stable funding sources.

Consequently, the occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations.

Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed, or the cost of that capital may be very high.

We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations.

At some point, we may need to raise additional capital or issue additional debt to support our growth or replenish future losses.

Our ability to raise additional capital or issue additional debt 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.

Such borrowings or additional capital, if sought, may not be available to us or, if available, may not be on favorable terms.

Accordingly, we cannot make assurances that we will be able to raise additional capital or issue additional debt if needed on terms that are acceptable to us, or at all.

If we cannot raise additional capital or issue additional debt when needed, our ability to further expand our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected.

In addition, any additional capital we obtain may dilute the interests of existing holders of our common stock.

Further, if we are unable to raise additional capital when required by our bank regulators, we may be subject to adverse regulatory action.

Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed, or the cost of that capital may be exceedingly high.

We are required by regulatory authorities to maintain adequate levels of capital to support our operations.

We anticipate that our capital resources will satisfy our capital requirements for the foreseeable future.

Nonetheless, we may at some point need to raise additional capital to support continued growth or be required by our regulators to increase our capital resources.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial condition and performance.

Accordingly, we may not be able to raise additional capital, if needed, on terms that are acceptable to us.

If we cannot raise additional capital when needed, our operations could be materially impaired and our financial condition and

liquidity could be materially and adversely affected.

In addition, if we are unable to raise additional capital when required by our banking regulators, we may be subject to additional adverse regulatory action.

Our liquidity is dependent on dividends from the Bank.

The Company is a legal entity separate and distinct from the Bank.

A substantial portion of our cash flow, including cash flow to pay principal and interest on any debt we may incur, including the Notes, comes from dividends the Company receives from the Bank.

Various federal and state laws and regulations limit the amount of dividends that the Bank may pay to the Company.

Because our ability to receive dividends or loans from the Bank is restricted, our ability to pay dividends to our shareholders may also be restricted.

Also, the Company’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.

In the event the Bank is unable to pay dividends to us, we may not be able to service any debt we may incur, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

BayCom is a legal entity separate and distinct from the Bank.

A substantial portion of BayCom’s cash flow, including cash flow to pay principal and interest on any debt it may incur, including the Notes, comes from dividends BayCom receives from the Bank.

Various federal and state laws and regulations limit the amount of dividends that the Bank may pay to BayCom.

Because our ability to receive dividends or loans from the Bank is restricted, our ability to pay dividends to our shareholders and repurchase our stock may also effectively be restricted.

Also, BayCom’s right to participate in the distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.

In the event the Bank is unable to pay dividends to BayCom, we may not be able to service any debt we may incur, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

We rely heavily on our management team and could be adversely affected by the unexpected loss of key officers and relationship managers.

We are led by a management team with substantial experience in the markets we serve and the financial products that we offer.

Our operating strategy focuses on providing products and services through long-term relationship managers.

Accordingly, our success depends in large part on the performance of our key personnel, as well as on our ability to attract, motivate and retain highly qualified senior and middle management.

Competition for employees is intense, and the process of locating key personnel with the combination of skills and attributes required to execute our business plan may be lengthy.

We may not be successful in retaining our key employees and the unexpected loss of services of one or more of our key personnel could have a material adverse effect on our business because of their skills, knowledge of our market and financial products, years of industry experience, long-term client relationships and the difficulty of promptly finding qualified replacement personnel.

If the services of any of our key personnel should become unavailable for any reason, we may not be able to identify and hire qualified persons on terms acceptable to us, which could have an adverse effect on our business, financial condition and results of operations.

Our management team brings substantial experience in the markets we serve and the financial products we offer.

Our operating strategy emphasizes providing products and services through long-term relationship managers.

Consequently, our success relies heavily on the performance of key personnel and our ability to attract, motivate, and retain highly qualified senior and middle management.

Competition for skilled employees in the banking industry is intense, and identifying individuals with the necessary combination of expertise and attributes to execute our business plan can be a lengthy process.

The unexpected loss of one or more key personnel could have a material adverse effect on our business due to their skills, market knowledge, industry experience, and long-term client relationships.

If key personnel become unavailable for any reason, we may face challenges in promptly identifying and hiring suitable replacements on acceptable terms, which could adversely affect our business, financial condition, and results of operations.

I ncreasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.

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Failure to adapt to or comply with regulatory requirements, or investor or stakeholder expectations and standards, could negatively impact our reputation, ability to do business with certain partners, and our stock price.

New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.

Recent changes in the regulatory landscape under the new Trump administration have moved toward a reduction in emphasis on certain ESG priorities, particularly around climate change and diversity, equity, and inclusion (“DEI”).

This shift is leading to the rollback of regulations that mandate specific disclosures and operational practices in these areas.

However, some stakeholder groups continue to demand greater transparency and action, resulting in a complex and potentially conflicting environment for companies.

If regulatory enforcement of ESG-related policies becomes less stringent, companies may face reputational risks if their practices are seen as insufficient or inconsistent with broader societal expectations, especially related to DEI and environmental stewardship.

As a result, navigating this evolving regulatory and public opinion landscape may require us to balance compliance with regulatory requirements against maintaining investor, customer, and stakeholder trust.

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