What changed in this filing

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Item 1A. Risk Factors

2026-03-13 compared with 2025-03-14 · 74 added, 47 removed, 203 unchanged (37% of the section changed)

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Strategic, Financial, and Reputational Risks

We have identified a material weakness in our internal control over financial reporting.

Such material weakness could adversely affect our results of operations and financial condition.

In the future, we may identify additional material weaknesses or otherwise fail to maintain an effective system of internal control over financial reporting or adequate disclosure controls and procedures, which may result in material errors in our financial statements or cause us to fail to meet our period reporting obligations.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, evaluating the effectiveness of our internal controls and disclosing any changes or material weaknesses identified through such evaluation.

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

In February 2026, we determined that certain reciprocal network deposits were misclassified as non-interest bearing deposits when they should have been classified as interest bearing deposits.

Additionally, certain expense related thereto was classified as non-interest operating expense when it should have been included in interest expense.

As a result, we determined that there were material errors in the financial statements that required a restatement of our financial statements for the years ended December 31, 2023 and 2024 and for the quarterly periods ended March 31, June 30, and September 30, 2024 and 2025.

Those restatements are included in this Annual Report on Form 10-K.

In addition, management determined that a material weakness existed, and, as a result, that our internal control over financial reporting was not effective as of December 31, 2025 due to control design and implementation deficiencies with respect to the classification of certain reciprocal network deposits.

In response to the identified material weakness noted above, management has begun a remediation plan to enhance its internal control over financial reporting to:

• Enhance risk assessment procedures over deposit networks to identify whether additional control activities are needed to conform to our accounting policies;

• Increase involvement of technical accounting resources for complex areas at initial onboarding and for periodic review;

• Require formal documentation of technical conclusion and evidence of supervisory oversight for third party networks.

While the enhanced procedures are expected to be effective mitigants, some elements of our remediation plan are not yet complete.

Management believes the remediation plan, once fully implemented, will eliminate the identified material weakness, but no assurance can be given that the remediation plan will be fully effective until it is implemented in its entirety.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud.

Any failure to implement

required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations.

If we are not able to comply with the requirements of the Sarbanes-Oxley Act or if we are unable to maintain effective internal control over financial reporting, we may not be able to produce timely and accurate financial statements or guarantee that information required to be disclosed by us in the reports that we file with the SEC, is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.

Any failure of our internal control over financial reporting or disclosure controls and procedures could cause our investors to lose confidence in our publicly reported information, lead to litigation by holders of our securities, cause the market price of our stock to decline, expose us to sanctions or investigations by the SEC or other regulatory authorities, or impact our results of operations.

Growth Strategy or Potential Mergers and Acquisitions May Produce Unfavorable Outcomes

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Some of our non-bank competitors and peer-to-peer lenders may not be subject to the same extensive regulations as we are, giving them greater flexibility in competing for business.

We anticipate intense competition will continue for the coming year due to the market disruptions in banking in 2023, the continued consolidation of many financial institutions and more changes in legislation, regulation and technology.

and regional banks much larger than our size have entered our market through acquisitions and they may be able to benefit from economies of scale through their wider branch networks, more prominent national advertising campaigns, lower cost of borrowing, capital market access and sophisticated technology infrastructures.

We anticipate intense competition will continue for the coming year due to the continued consolidation of many financial institutions and more changes in legislation, regulation and technology.

National and regional banks much larger than our size have entered our market through acquisitions and they may be able to benefit from economies of scale through their wider branch networks, more prominent national advertising campaigns, lower cost of borrowing, capital market access and sophisticated technology infrastructures.

Further, intense competition for creditworthy borrowers could lead to pressure for loan rate concessions and affect our ability to generate profitable loans.

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Further, our customers may withdraw deposits to pursue alternative investment opportunities.

Technology and other changes have made it more convenient for bank customers to transfer funds into alternative investments or other deposit platforms such as online virtual banks and non-bank service providers.

Technology and other changes have made it more convenient for bank customers to transfer funds into alternative investments or other deposit platforms such as online banks and non-bank service providers.

Efforts and initiatives we may undertake to retain and increase deposits, including deposit pricing, can increase our costs.

Based on our current strong liquidity position, our adjustment to deposit pricing has lagged the market in a rising interest rate environment.

If our customers move money into higher yielding deposits or alternative investments, we may lose a relatively inexpensive source of funds, thus increasing our funding costs through more expensive wholesale funding sources, such as FHLB borrowings.

While we have a relatively low cost of deposits, if our customers move money into higher yielding deposits or alternative investments, we may lose a relatively inexpensive source of funds, thus increasing our funding costs through more expensive wholesale funding sources, such as FHLB borrowings.

Financial Challenges at Other Banking Institutions Could Lead to Depositor Concerns That Spread Within the Banking Industry Causing Disruptive Deposit Outflows and Other Destabilizing Results That Could Adversely Affect Our Liquidity, Business, Financial Condition and Results of Operations

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Excluding zero balance accounts, 62% of deposit balances were held in business accounts with average balances of $141 thousand per account, with the remaining 38% in consumer accounts with average balances of $40 thousand per account as of December 31, 2025.

Although we maintain strong liquidity for the normal operations of the Bank, model various stress scenarios, and maintain significant contingent liquidity sources, general depositor concerns given the recent high profile bank closures could lead to deposit outflows from our Bank.

Our funding costs increased significantly in 2023 and could increase again if our deposits decline and we replace them with more expensive sources of funding, such as FHLB and FRB borrowings, and/or brokered deposits, if customers shift their deposits into higher cost products, or if we raise interest rates to avoid losing deposits.

If our deposits decline and we replace them with more expensive sources of funding, such as FHLB and FRB borrowings, and/or brokered deposits, if customers shift their deposits into higher cost products, or if we raise interest rates to avoid losing deposits, our financial condition and results of operations could be negatively affected.

In addition, adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources, constraining our financial flexibility, and ability to originate loans, invest in securities, and distribute dividends to our shareholders.

In addition, such a lack of liquidity could result in the sale of securities in an unrealized loss position and/or alter our ability to hold our held-to-maturity securities to their maturity dates.

In addition, such a lack of liquidity could result in the sale of securities in an unrealized loss position.

All of these factors could have a material adverse impact on our asset growth, liquidity, business, financial condition, and results of operations.

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Our success depends in large part on our ability to attract qualified personnel and to retain key employees, as well as the prompt replacement of retiring executives.

The loss of key personnel and/or our inability to secure qualified

candidates to replace retiring executives could have an unfavorable effect on our business due to the required skills and knowledge of our market and years of industry experience.

The loss of key personnel and/or our inability to secure qualified candidates to replace retiring executives could have an unfavorable effect on our business due to the required skills and knowledge of our market and years of industry experience.

Bancorp Relies on Dividends from the Bank to Pay Cash Dividends to its Shareholders as Well as to Meet Other Financial Obligations

Bancorp is a separate legal entity from its subsidiary, the Bank.

Bancorp receives substantially its entire cash stream from the Bank in the form of dividends, which is Bancorp's principal source of funds to pay cash dividends to Bancorp's common shareholders, repurchase shares, and cover operational expenses of the holding company.

Bancorp receives substantially its entire cash stream from the Bank in the form of dividends, which is Bancorp's principal source of funds to meet Bancorp's debt service requirements, pay cash dividends to Bancorp's common shareholders, repurchase shares, and cover

operational expenses of the holding company.

In addition to the Bank dividends, the Bancorp received proceeds from the issuance of subordinated notes in 2025.

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

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If we were to conclude that a future write-down of goodwill or other intangible assets is necessary, we would record the appropriate charge, which could have a material adverse effect on our business, financial condition and results of operations.

If we are not able to successfully keep pace with technological changes in the industry, our business could be hurt.

The financial services industry is constantly undergoing technological change, with the frequent introduction of new technology-driven products and services including new payment solutions and the use of agentic artificial intelligence (“AI”).

The effective use of technology increases efficiency and enables financial institutions to better serve clients and reduce costs, including mitigating fraud risks.

Our future success depends, in part, upon our ability to respond to the needs of our clients by using technology to provide desired products and services and create additional operating efficiencies.

Some of our competitors have substantially greater resources to invest in technological improvements.

We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our clients.

Failure to keep pace with technological change in the financial services industry could have a material adverse impact on our business and, in turn, on our financial condition and results of operations.

We are subject to risks associated with the adoption of new technologies such as AI.

The Company or its third-party vendors, clients or counterparties may develop or incorporate AI technology, including agentic AI, in certain business processes, services or products.

The legal and regulatory environment relating to AI is uncertain and rapidly evolving, and includes regulation targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment and other laws applicable to the use of AI.

These evolving laws and regulations could require changes in the Company’s or third parties’ implementation of AI technology and increase the Company’s compliance costs and risk of non-compliance.

The Company’s deployment of artificial intelligence at this time is generally limited to internally focused, assistive productivity tools such as Microsoft Copilot.

The Company continues to evaluate additional AI capabilities, including agentic AI, in limited capacities, and the associated risks, including potential errors or inaccuracies in work product, data privacy and confidentiality, intellectual property considerations, potential bias, and cybersecurity.

Market, Interest Rate, and Liquidity Risks

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Liquidity is essential to our business and our ability to fund our operations, effectively manage the repayment and maturity schedules of our loans and investment securities, distribute dividends to our shareholders, and fulfill our debt obligations or deposit withdrawal demands.

Our most important source of funding consists of deposits, which is affected by external factors outside the Bank's control as well as customers' perceptions, business operations, and investment goals.

Our most important source of funding consists of deposits, which is affected by external factors outside the Bank's control as well as customers' perceptions, business operations,

and investment goals.

If customers move money out of bank deposits and into other investments, then we would lose a relatively low-cost source of funds, increasing our funding costs and reducing our net interest income and net income.

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Unlike larger national or other regional banks that are more geographically diversified, we provide banking and financial services to customers primarily in Northern California with particular focus on the local markets in the San Francisco Bay and Greater Sacramento regions.

The local economic conditions in these areas have a significant impact on the demand for our products and services as well as the ability of our customers to repay loans, the value of the

collateral securing loans and the stability of our deposits as our primary funding source.

The local economic conditions in these areas have a significant impact on the demand for our products and services as well as the ability of our customers to repay loans, the value of the collateral securing loans and the stability of our deposits as our primary funding source.

Economic pressure on consumers and uncertainty regarding the economy and local business climate may result in changes in consumer and business spending, borrowing and saving habits, which may affect the demand for loans and other products and services we offer.

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The FOMC began increasing rates in March 2022, totaling seven rate increases in 2022 and four additional rate increases in 2023, and ended the year of 2023 at a federal funds target rate range between 5.25% and 5.50%.

Rising interest rates and first quarter 2023 disruptions in the banking industry resulted in rapid increases in the cost of funds through rising deposit costs and increased borrowings, putting pressure on net interest margin starting in the second quarter of 2023.

Primarily due to declining inflation, the Federal Reserve lowered the target for the federal funds rate by 100 basis points, to a range of 4.25% to 4.50% in the later months of 2024.

Rising interest rates and first quarter 2023 disruptions in the banking

industry resulted in rapid increases in the cost of funds through rising deposit costs and increased borrowings, putting pressure on net interest margin starting in the second quarter of 2023.

The FOMC lowered the target for the federal funds rate by 100 basis points, to a range of 4.25% to 4.50% in the later months of 2024.

The FOMC resumed decreasing rates in September 2025, and made a total of three rate decreases in 2025 ending the year at a range of 3.50% to 3.75%.

See the Net Interest Income section of Management's Discussion and Analysis of Financial Condition and Results of O perations in ITEM 7 and Quantitative and Qualitative Disclosures about Market Risk in ITEM 7A of this report for further discussion related to interest rate sensitivity and our management of interest rate risk.

Rising Interest Rates Have Decreased the Value of the Company’s Held-To-Maturity and Available-for-Sale Securities Portfolio, and the Company Would Realize Losses if It Were Required to Sell Such Securities to Meet Liquidity Needs

An Increase in Interest Rates Could Decrease the Value of the Company’s Available-for-Sale Securities Portfolio, and the Company Would Realize Losses if It Were Required to Sell Such Securities to Meet Liquidity Needs

Because of inflationary pressures and the resulting rapid increases in the federal funds target rate since March 2022, the market value of previously issued government and other fixed income securities has declined significantly.

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banks’ securities portfolios and unrealized losses on available-for-sale securities reflected in the Company’s accumulated other comprehensive income (loss).

We maintain an investment securities portfolio to provide liquidity and to generate earnings on funds

that have not been loaned to customers while managing our liquidity and interest rate position, seeking a reasonable yield balanced with risk exposure.

While it is neither our intention to sell securities at a net loss in the normal course of business, nor were we required to, we strategically sold securities in the third and fourth quarters of 2023 and the second quarter of 2024, to reposition the balance sheet to bolster net interest margin.

We maintain an investment securities portfolio to provide liquidity and to generate earnings on funds that have not been loaned to customers while managing our liquidity and interest rate position, seeking a reasonable yield balanced with risk exposure.

While it is neither our intention to sell securities at a net loss in the normal course of business, nor were we required to, we strategically sold securities in the third and fourth quarters of 2023, the second quarter of 2024, and the second and fourth quarters of 2025, to reposition the balance sheet to bolster net interest margin.

If the Company were to sell additional securities in an unrealized loss position, it may incur losses that could impair the Company’s capital, financial condition, and results of operations and may require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability and potentially causing shareholder dilution.

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As our customers' businesses grow, the dollar value of their daily activities may also grow leading to larger fluctuations in daily balances.

Any long-term decline in deposit funding would adversely affect our liquidity.

While we manage our liquidity with consideration given to deposit concentration and volatility, any long-term decline in deposit funding would adversely affect our liquidity.

For additional information on our management of deposit volatility, refer to the Liquidity section of ITEM 7, Management's Discussion and Analysis, of this report.

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The Trading Volume of Bancorp's Common Stock May Be Less than That of Other, Larger Financial Services Companies

Our common stock is listed on the Nasdaq Capital Market exchange.

Our common stock is listed on the Nasdaq Global Select Market exchange.

Our trading volume is less than that of nationwide or larger regional financial institutions.

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

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

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

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

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

significantly increase our allowance for credit losses on loans, each of which could adversely affect our net income.

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

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Concentration of our lending activities in the California real estate sector could negatively affect our results of operations if adverse changes in our lending area occur.

As of December 31, 2024, approximately 90% of our loans had real estate as a primary or secondary component of collateral, which were comprised of 72% commercial real estate and 28% residential real estate.

As of December 31, 2025, approximately 90% of our loans had real estate as a primary or secondary component of collateral, which were comprised of 72% commercial real estate, 27% residential real estate and 1% land.

Real estate valuations are influenced by demand, and demand is driven by economic factors such as employment rates and interest rates.

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The CRE Concentration Guidance does not limit banks’ levels of commercial real estate lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their commercial real estate concentrations.

As of December 31, 2024 and 2023, using regulatory definitions in the CRE Concentration Guidance, our CRE loans represente d 389% and 371%, respectively, of our total risk-based capital.

We manage our CRE concentrations and

discuss them as necessary with the banking regulatory agencies and believe that our underwriting policies, management information systems, independent credit administration process, and monitoring of real estate loan concentrations are currently sufficient to address the CRE Concentration Guidance.

As of December 31, 2025 and 2024, using regulatory definitions in the CRE Concentration Guidance, our CRE loans repr esented 350% and 311%, respectively, of our total risk-based capital.

We manage our CRE concentrations and discuss them as necessary with the banking regulatory agencies and believe that our underwriting policies, management information systems, independent credit administration process, and monitoring of real estate loan concentrations are currently sufficient to address the CRE Concentration Guidance.

Accounting Estimates and Risk Management Processes Rely on Analytical and Forecasting Models

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government ceases to provide support to the conservatorship.

GSE debt is sponsored but not guaranteed by the federal government and carries implicit backing, whereas government agencies such as Government National Mortgage Association ("GNMA") are divisions of the government whose securities are backed by the full faith and credit of the U.S.

GSE debt is sponsored but not guaranteed by the federal government and carries

implicit backing, whereas government agencies such as Government National Mortgage Association ("GNMA") are divisions of the government whose securities are backed by the full faith and credit of the U.S.

Although Congress has taken steps to improve regulation and consumer protection related to the housing finance system (e.g., the Dodd-Frank Act), FNMA and FHLMC have entered their 18th year of U.S.

government conservatorship via the Federal Housing Finance Agency ("FHFA").

government conservatorship in 2025 via the Federal Housing Finance Agency ("FHFA").

While proposals to end the conservatorship have considered solutions such as an initial public offering, at the date of this report, its future and ultimate impact on the financial markets and our investments in GSEs are uncertain.

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We work diligently to implement layered security measures that intend to make our communications and information systems resilient and safe to conduct business.

With the advent of artificial intelligence (AI), cyber threats such as social engineering, ransomware, and phishing are more sophisticated and prevalent now than ever before.

With the advent of AI, cyber threats such as social engineering, ransomware, and phishing are more sophisticated and prevalent now than ever before.

These incidents include intentional and unintentional events that may present threats designed to disrupt operations, corrupt data, release sensitive information, or cause denial-of-service attacks.

A cybersecurity breach of systems operated by the Bank, merchants, vendors, customers, or externally publicized breaches of other financial

institutions may significantly harm our reputation, result in a loss of customer business, subject us to regulatory scrutiny, or expose us to civil litigation and financial liability.

A cybersecurity breach of systems operated by the Bank, merchants, vendors, customers, or externally publicized breaches of other financial institutions may significantly harm our reputation, result in a loss of customer business, subject us to regulatory scrutiny, or expose us to civil litigation and financial liability.

While we have systems and procedures designed to prevent security breaches, we cannot be certain that advances in cyberthreats, criminal capabilities, network break-ins, or inappropriate access will not compromise or breach the technology protecting our networks or proprietary client information.

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For additional information on cybersecurity management and governance, refer to ITEM-1C, Cybersecurity, in this report.

The Financial Services Industry is Undergoing Rapid Technological Changes and, As a Result, We Have a Continuing Need to Stay Current with Those Changes to Compete Effectively and Increase Our Efficiencies.

We May Not Have the Resources to Implement New Technology to Stay Current with These Changes

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

In addition to providing better client service, the effective use of technology increases efficiency and reduces operational costs.

Our future success will depend in part on our ability to use technology to provide products and services that will satisfy client demands securely and cost-effectively.

In connection with implementing new technology enhancements and/or products, we may experience operational challenges (e.g., human error, system error, incompatibility), which could result in us not fully realizing the anticipated benefits from such new technology or require us to incur significant costs to remedy any such challenges in a timely manner.

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

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A number of factors can affect credit losses, including the extent of damage to the collateral, the extent of damage not covered by insurance, the extent to which unemployment and other economic conditions caused by the natural disaster adversely affect the ability of borrowers to repay their loans, and the cost of collection and foreclosure to us.

Additionally, there could be increased insurance premiums and deductibles, or a decrease in the availability of coverage, due to severe weather-related losses.

Additionally, there could be increased insurance premiums and deductibles, or a decrease in the availability of coverage, due to severe

weather-related losses.

The ultimate outcome on our business of a natural disaster, whether or not caused by climate change, is difficult to predict but could have a material adverse effect on financial condition, results of operations or profitability.

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For example, we outsource core processing to Fidelity Information Services ("FIS") and wire processing to Finastra, which are leading financial services solution providers that allow us access to competitive technology offerings without having to invest in their development.

Our ability to operate, as well as our financial condition and results of operations, could be negatively affected in the event of an interruption of an information

system, an undetected error, a cyber-breach, or in the event of a natural disaster whereby certain vendors are unable to maintain business continuity.

Our ability to operate, as well as our financial condition and results of operations, could be negatively affected in the event of an interruption of an information system, an undetected error, a cyber-breach, or in the event of a natural disaster whereby certain vendors are unable to maintain business continuity.

Regulatory and Compliance Risks

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While deregulation may reduce compliance costs and regulatory burdens, it may also increase competition and risk-taking in the financial services sector, potentially leading to greater market volatility and financial instability.

We cannot, however, accurately predict the full effects of recent or future legislation or the various other governmental, regulatory, monetary, and fiscal initiatives which have been and may be enacted on the financial markets, the Company, and the Bank.

We cannot, however, accurately predict the full effects of recent or

future legislation or the various other governmental, regulatory, monetary, and fiscal initiatives which have been and may be enacted on the financial markets, the Company, and the Bank.

We continue to monitor regulatory developments and adjust our strategies accordingly.

However, the inherent unpredictability of the current regulatory environment poses a risk to our business that could have material adverse effects on our financial condition and results of operations.

Any Regulatory Examination Scrutiny or New Regulatory Requirements Arising From the Recent Events in the Banking Industry Could Increase the Company’s Expenses and Affect the Company’s Operations

negative developments in the banking industry, all of which may increase the Company’s costs of doing business and reduce its profitability.

Any Regulatory Examination Scrutiny or New Regulatory Requirements Applicable to the Banking Industry Could Increase the Company’s Expenses and Affect the Company’s Operations

The Company could be subject to increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Bank, designed to address the recent negative developments in the banking industry, all of which may increase the Company’s costs of doing business and reduce its profitability.

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