What changed in this filing

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Item 1. Business

2025-03-18 compared with 2024-03-25 · 211 added, 205 removed, 629 unchanged (40% of the section changed)

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1401 Dolliver Street

Loan Production Office

915 Highland Point Dr., Ste.

Reedley Office

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Complementing the Bank’s stand-alone offices are specialized lending units which include our Commercial and Industrial, Mortgage Warehouse, and Real Estate lending divisions.

Our Commercial team focuses on a variety of commercial lending including agricultural loans.

We also have ATMs at all but one of our branch locations and nine non-branch locations.

Furthermore, the Bank is a member of the Allpoint network, which provides our deposit customers with surcharge-free access to over 55,000 ATMs across the United States, Puerto Rico, Mexico, Canada, Australia and the United Kingdom, and customers have access to electronic point-of-sale payment alternatives nationwide via the Pulse network.

We have ATMs at all but one of our branch locations and at seven non-branch locations.

Customers also have access to electronic point-of-sale payment alternatives nationwide via the Pulse network.

We provide multiple account access options to meet both new and existing customer needs:

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We offer a variety of other banking products and services to complement and support our lending and deposit products, including remote deposit capture and payroll services for business customers.

Our chief products and services relate to extending loans and accepting deposits.

Our lending activities cover real estate, commercial (including small business), mortgage warehouse, agricultural, and consumer loans.

The bulk of our real estate loans are secured by commercial real estate, which includes both owner-occupied and non-owner occupied properties including office, retail, and hotel/motels, but we also offer commercial construction loans, multifamily and agricultural credit facilities among other types of real estate loans.

Our chief products and services relate to making loans and accepting deposits.

Lending activities cover real estate, commercial (including small business), mortgage warehouse, agricultural, and consumer loans.

The bulk of our real estate loans are secured by commercial real estate, both owner-occupied and non owner-occupied , including office, retail, and hotel/motels;

however, we also offer other types of real estate loans such as commercial construction loans, multifamily and agricultural.

As noted above, gross loans totaled $2.3 billion at December 31, 2024 and the percentage of our total loan portfolio for each of the principal types of credit we extend was as follows:

(i) loans secured by real estate (78.2%);

(ii)other commercial loans, including agricultural production and SBA loans (7.5%);

(iii) mortgage warehouse loans (5.6%);

(ii) mortgage warehouse loans (14.0%);

other commercial loans, including agricultural production and SBA loans (7.6%);

(iii) other commercial loans, including agricultural production and SBA loans (7.6%);

and (iv) consumer loans (0.1%).

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The Bank’s deposit accounts are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to maximum insurable amounts.

We attract deposits throughout our market area via referrals from existing customers and, direct-mail campaigns by offering a customer-oriented product mix, competitive pricing, convenient locations, drive-through banking, and multiple delivery channels.

We attract deposits throughout our market area via referrals from existing customers and, direct-mail campaigns due to our customer-oriented product mix, competitive pricing, convenient locations, drive-through banking, and multiple delivery channels.

We strive to retain our deposit customers by providing a consistently high level of service.

At December 31, 2024, the Company had 119,388 deposit accounts down from 120,701 at December 31, 2023.

Total deposits of $2.8 billion at December 31, 2023 remained unchanged from December 31, 2022.

Total deposits were $2.9 billion at December 31, 2024, up 5%, or $0.1 million from December 31, 2023.

Our officers and employees are continually searching for ways to increase public convenience, enhance customer access to payment systems, and enable us to improve our competitive position with the development of new products and services.

The cost to the Bank for these development, operations, and marketing activities cannot be calculated

with any degree of certainty.

We hold no patents or licenses (other than licenses required by bank regulatory agencies), franchises, or concessions.

The cost to the Bank for these development, operations, and marketing activities cannot be calculated with any degree of certainty.

We hold no patents or licenses (other than licenses required by bank regulatory agencies), franchises, or

We are not dependent on a single customer or group of related customers for a material portion of our core deposits.

Loan categories that could be considered to be concentrations include commercial real estate loans (63.4%);

with the most concentrated segments in retail (15.0%), office space (9.6%) and loans in the hotel industry (8.3%).

Our efforts to comply with government and regulatory mandates on consumer protection and privacy, anti-money laundering, and other initiatives have resulted in significant ongoing expense to the Bank, including compliance staffing costs and other expenses associated with compliance-related software.

The one loan category that could be considered to be a concentration is commercial real estate loans (58.3%), with segments in retail (12.7%), office space (6.7%) and loans in the hotel industry (8.4%).

Our efforts to comply with government and regulatory mandates related to consumer protection and privacy, anti-money laundering, and other areas of focus have resulted in significant ongoing expense to the Bank, including compliance staffing costs and other expenses associated with compliance-related software.

However, as far as can be determined there has been no material effect upon our capital expenditures, earnings, or competitive position as a result of environmental regulation at the federal, state, or local level.

The Company is not involved with chemicals or toxins that might have an adverse effect on the environment, thus its primary exposure to environmental legislation is through lending activities.

The Company is not involved with chemicals or toxins that might have an adverse effect on the environment;

thus, its primary exposure to environmental legislation is through lending activities.

The Company’s lending procedures include steps to identify and monitor this exposure in an effort to avoid any related loss or liability.

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Based on June 30, 2024, FDIC combined market share data for the 25 cities within which the Company currently maintains branches, the largest portion of deposits belongs to Wells Fargo Bank with (19.6%) of total combined deposits, followed by Bank of America (16.8%), JPMorgan Chase (16.2%), and U.S.

Bank of the Sierra ranked fifth on the 2023 market share list with 5.1% of total deposits.

In Tulare County, however, where the Bank was originally formed, we ranked first for deposit market share with 21.6% of total deposits at June 30, 2023 and had the largest number of branch locations (13), including our online branch.

Bank of the Sierra ranked 5th with 5.4% of total deposits.

In the Bank’s primary market and headquarter location of Tulare County, however, we ranked first for deposit market share with 22.6% of total deposits at June 30, 2024 and had the largest number of branch locations (13), including our online branch.

The larger banks noted above have, among other advantages, the ability to finance wide-ranging advertising campaigns and allocate their resources to regions of highest yield and demand.

They can also offer certain services we do not provide directly, although wet may offer these indirectly through correspondent institutions, and by virtue of their greater capitalization those banks have legal lending limits substantially higher than ours.

For loan customers whose needs exceed our legal lending limits, we may arrange for the sale, or participation, of some of the balances to financial institutions that are not within our geographic footprint.

For loan customers whose needs exceed our legal lending limits, we may arrange for the sale, or participation, of some of the balances to financial institutions outside our geographic footprint.

In addition to other banks our competitors include savings institutions, credit unions, and numerous non-banking institutions such as finance companies, leasing companies, insurance companies, brokerage firms, asset management groups, mortgage banking firms and internet companies.

Innovative technologies have lowered traditional barriers of entry and enabled many of these companies to offer products and services previously considered traditional banking offerings, and we have witnessed increased competition from companies that circumvent the banking system by facilitating payments via the internet, mobile devices, prepaid cards, and other means.

Strong competition for deposits and loans among financial institutions and non-banks including financial technology firms, affects financial product interest rates and terms offered to customers.

Innovative technologies have lower barriers to entry than banks, yet many of these companies offer products and services previously considered traditional banking offerings.

As a result, we have witnessed increased competition from companies that circumvent the banking system by facilitating payments via the internet, mobile devices, prepaid cards, and other means.

Strong competition for deposits and loans among financial institutions and non-banks affects financial product interest rates and terms offered to customers.

Mergers between financial institutions have created additional pressures within the financial services industry to streamline operations, reduce expenses, and increase revenues to remain competitive.

Competition is also impacted by federal and state interstate banking laws

which permit banking organizations to expand into other states.

The relatively large California market has been particularly attractive to out-of-state institutions.

Competition is also impacted by federal and state interstate banking laws which permit banking organizations to expand into other states.

The relatively large California market has been attractive to out-of-state institutions.

For years we have countered rising competition by offering a broad array of products with flexibility in structure and terms that cannot always be matched by our competitors.

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As of December 31, 2024, the Company had 446 full-time and 42 part-time employees.

On a full-time equivalent (“FTE”) basis staffing stood at 485 at December 31, 2023, down from 491 at December 31, 2022.

On a full-time equivalent (“FTE”) basis staffing stood at 485 at December 31, 2024, unchanged from December 31, 2023.

At December 31, 2024, the population of our workforce was as follows:

American Indian/Alaskan Native

Black or African American

Hispanic or Latino

Native Hawaiian or Other Pacific Islander

Two or more races

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In addition, flexible working arrangements have been found to create efficiencies while promoting employee health and safety.

The Company maintains a Safety program and policy and complies with all federal and state laws related to employee safety.

At December 31, 2024, the Company had 54 employees working remotely and 154 working in hybrid arrangements.

The Company has long been committed to comprehensive and competitive compensation and benefits programs as we recognizes we operate in intensely competitive environments for talent.

On January 1, 2022, the Company increased its minimum wage to $20 per hour in an effort to attract and retain skilled and highly trained employees.

The Company has long been committed to comprehensive and competitive compensation and benefits programs as we operate in intensely competitive environments for talent.

We continue to offer entry-level employees a minimum wage higher than the California minimum wage in an effort to attract, train, and retain skilled employees.

Community banking is often considered a relationship banking model rather than a purely transactional banking model.

Therefore, our employees are critical to the Company’s ability to develop and grow relationships with its clients.

Therefore, our employees are critical to the Company’s ability to develop and grow relationships with our clients.

Recruiting talent within the Company’s footprint has always been a fundamental strategy whenever possible and is facilitated by actively participating in and holding community job fairs.

Furthering our philosophy to attract and retain a pool of talented and motivated employees who will continue to advance the purpose and contribute to the Company’s overall success, compensation and benefits programs include:

an equity-based compensation plan, health/dental/vision insurances, supplemental insurance, life insurance, 401(K) plan, benefits under the Family Medical Leave Act, workers’ compensation, paid vacation and sick days, holiday pay, training/education, and leave for bereavement, military service and jury duty.

health/dental/vision insurance, including an employee assistance program that supports mental health;

supplemental insurance;

life insurance;

a 401(k) plan with eligibility for a Company match, benefits under the Family Medical Leave Act;

workers’ compensation;

paid vacation and sick days;

training/education;

and leave for bereavement, military service and jury duty.

The Company invests in its employees’ future by sponsoring and prioritizing continued education throughout its employee ranks.

The Company requires certain of its employees and directors to participate in educational activities and training curriculum to stay current on industry-related topics, including compliance, human resource, cyber and other enterprise risks.

In addition, we provide opportunities for employees to improve or maintain their skills in their current position as well as to enhance skills for future opportunities.

The Company's employees are notified periodically of available internal course offerings and educational seminars run by outside parties, including but not limited to the American Bankers Association and Bankers Compliance Group.

Employees are also encouraged to

continue their higher education at accredited colleges and universities and may receive assistance from the Company for their participation.

In order to develop a workforce that aligns with the Company’s corporate values, we regularly sponsors local community events so our employees can better integrate themselves in our communities.

Through community outreach activities, the Company seeks to foster employee well-being and personal and professional development.

The Company’s employees’ desire for active community involvement enables the Company to sponsor a number of local community events and initiatives, including holiday toy and food drives, and tree plantings in fire damaged areas of the National Forest in partnership with One Tree Planted and the Sequoia conservancy in Sequoia National Park.

Website Access

Copies of our Annual Report on 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through our website (www.sierrabancorp.com) as soon as reasonably practicable after we have filed the material with, or furnished it to, the United States Securities and Exchange Commission (“SEC”).

Employees are also encouraged to continue their higher education at accredited colleges and universities and may receive assistance from the Company for their participation.

In order to develop a workforce that aligns with the Company’s corporate values, we regularly sponsor local community events so our employees can better integrate themselves in our communities.

Each year, the Company supports our local communities through employee volunteerism and donation support.

Company employees logged nearly 2,000 volunteer hours in 2024.

Donations through our Sierra Grant program totaled $600,000 in 2024, raising our total donations since the program’s inception 20 years ago to more than $4.6 million.

As part of our commitment to environmental responsibility, we partnered with Southern California Edison to install 48 electric vehicle charging stations, which are free for public use.

Further, in areas of California affected by wildfires, our tree-planting efforts continue to expand.

In 2024, we reached a new program milestone, having planted a total of 21,000 trees since our partnership with One Tree Planted began just a few years ago.

Copies of our Annual Report on 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”) are available free of charge through our website (www.sierrabancorp.com) as soon as reasonably practicable after we have filed the material with, or furnished it to, the United States Securities and Exchange Commission (“SEC”).

Copies can also be obtained by accessing the SEC’s website (www.sec.gov).

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

As a bank holding company, the Company is regulated under the Bank Holding Company Act of 1956 (the “BHC Act”), and is subject to supervision, regulation and inspection by the Federal Reserve Board.

As a bank holding company, the Company is regulated under the Bank Holding Company Act of 1956 (the “BHC Act”), and is subject to supervision, regulation, and inspection by the Federal Reserve Board (“FRB”).

The Company is also subject to certain provisions of the California Financial Code which are applicable to bank holding companies.

In addition, the Company is under the jurisdiction of the SEC and is subject to the disclosure and regulatory requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934, each administered by the SEC.

In addition, the Company is under the jurisdiction of the SEC and is subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended (“Securities Act”), and the Exchange Act, each administered by the SEC.

The Company’s common stock is listed on the Nasdaq Global Select market (“Nasdaq”) with “BSRR” as its trading symbol, and the Company is subject to the rules of Nasdaq for listed companies.

The Company is a bank holding company within the meaning of the BHC Act and is registered as such with the Federal Reserve Board.

A bank holding company is required to file annual reports and other information with the Federal Reserve regarding its business operations and those of its subsidiaries.

In general, the BHC Act limits the business of bank holding companies to banking, managing or controlling banks and other activities that the Federal Reserve has determined to be so closely related to banking as to be a proper incident thereto, including securities brokerage services, investment advisory services, fiduciary services, and management advisory and data processing services, among others.

A bank holding company that also qualifies as and elects to become a “financial holding company” may engage in a broader range of activities that are financial in nature or complementary to a financial activity (as determined by the Federal Reserve or Treasury regulations), such as securities underwriting and dealing, insurance underwriting and agency, and making merchant banking investments.

The Company is a bank holding company within the meaning of the BHC Act and is registered as such with the FRB.

A bank holding company is required to file annual reports and other information with the FRB regarding its business operations and those of its subsidiaries.

In general, the BHC Act limits the business of bank holding companies to banking, managing or controlling banks, and other activities the FRB has determined to be so closely related to banking as to be a proper incident thereto, including securities brokerage services, investment advisory services, fiduciary services, and management advisory and data processing services, among others.

A bank holding company that also qualifies as and elects to become a “financial holding company” may engage in a broader range of activities that are financial in nature or complementary to a financial activity (as determined by the FRB or Treasury regulations), such as securities underwriting and dealing, insurance underwriting and agency, and making merchant banking investments.

The Company has not elected to become a financial holding company but may do so at some point in the future if deemed appropriate in view of opportunities or circumstances at the time.

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Acquisitions by the Bank are subject instead to the Bank Merger Act, which requires the prior approval of an acquiring bank’s primary federal regulator for any merger with or acquisition of another bank.

Acquisitions by both the Company and the Bank also require the prior

approval of the California Department of Financial Protection and Innovation (the “DFPI”) pursuant to the California Financial Code.

Acquisitions by both the Company and the Bank also require the prior approval of the California Department of Financial Protection and Innovation (the “DFPI”) pursuant to the California Financial Code.

Notably, in September 2024, the FDIC adopted a final statement of policy regarding its review of Bank Merger Act applications for FDIC-supervised institutions, including the Bank.

The policy statement provides heightened expectations around the existing statutory factors the FDIC is required to consider in evaluating Bank Merger Act applications.

September 2024, the DOJ withdrew its 1995 Bank Merger Guidelines and issued the 2024 Banking Addendum, clarifying that it will assess competition considerations in connection with bank and bank holding company mergers using its 2023 Merger Guidelines and the 2024 Banking Addendum.

An analysis under the 2023 Merger Guidelines and 2024 Banking Addendum may include consideration of theories of harm and relevant markets not considered under the 1995 Bank Merger Guidelines, which focused primarily on concentrations of deposits and branches.

The Company and the Bank are deemed to be “affiliates” of each other and thus are subject to Sections 23A and 23B of the Federal Reserve Act as well as related Federal Reserve Regulation W which impose both quantitative and qualitative restrictions and limitations on transactions between affiliates.

The Bank is also subject to laws and regulations requiring that all extensions of credit to our executive officers, directors, principal shareholders and related parties must, among other things, be made on substantially the same terms and follow credit underwriting procedures no less stringent than those prevailing at the time for comparable transactions with persons not related to the Bank.

Under certain conditions, the Federal Reserve has the authority to restrict the payment of cash dividends by a bank holding company as an unsafe and unsound banking practice and may require a bank holding company to obtain the approval of the Federal Reserve prior to purchasing or redeeming its own equity securities.

The Federal Reserve also has the authority to regulate the debt of bank holding companies.

The Bank is also subject to laws and regulations requiring all extensions of credit to our executive officers, directors, principal shareholders and related parties be, among other things, made on substantially the same terms and follow credit underwriting procedures no less stringent than those prevailing at the time for comparable transactions with persons not related to the Bank.

Under certain conditions, the FRB has the authority to restrict the payment of cash dividends by a bank holding company as an unsafe and unsound banking practice and may require a bank holding company to obtain the approval of the FRB prior to purchasing or redeeming its own equity securities.

The FRB also has the authority to regulate the debt of bank holding companies.

A bank holding company is required to act as a source of financial and managerial strength for its subsidiary banks and must commit resources as necessary to support such subsidiaries.

The Federal Reserve may require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of the holding company’s payment of dividends to the shareholders in such circumstances.

The FRB may require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of the holding company’s payment of dividends to the shareholders in such circumstances.

Regulation of the Bank Generally

As a state-chartered bank, the Bank is subject to broad federal regulation and oversight extending to all its operations by the FDIC and to state regulation by the DFPI.

The Bank is also subject to certain regulations of the Federal Reserve Board.

The Bank is also subject to certain regulations of the FRB.

Capital Simplification for Qualifying Community Banking Organization

The federal banking agencies published a final rule on November 13, 2019, that provided a simplified measure of capital adequacy for qualifying community banking organizations.

A qualifying community banking organization that opts into the community bank leverage ratio framework and maintains a leverage ratio greater than nine percent will be considered to have met the minimum capital requirements for the well capitalized category under the Prompt Corrective Action framework, and any other capital or leverage requirements to which the qualifying banking organization is subject (see below for further discussion of the requirements for well capitalized and the Prompt Corrective Action framework).

(See below for further discussion of the requirements for well capitalized and the Prompt Corrective Action framework.)

A qualifying community banking organization with a leverage ratio of greater than nine percent may opt into the community bank leverage ratio framework if it has average consolidated total assets of less than $10 billion, has off-balance-sheet exposures, which are not unconditionally cancelable, of 25% or less of total consolidated assets, and has total trading assets and trading liabilities of five percent or less of total consolidated assets.

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Capital Adequacy Requirements

The Company and the Bank are subject to the regulations of the Federal Reserve Board and the FDIC, respectively, governing capital adequacy.

The Company and the Bank are subject to the regulations of the FRB and the FDIC, respectively, governing capital adequacy.

These agencies have adopted risk-based capital guidelines to provide a systematic analytical framework that imposes regulatory capital requirements based on differences in risk profiles among banking organizations, considers off-balance sheet exposures in evaluating capital adequacy, and minimizes disincentives to holding liquid, low-risk assets.

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A bank may be treated as though it were in the next lower capital category if, after notice and the opportunity for a hearing, the appropriate federal agency finds an unsafe or unsound condition or practice merits a downgrade, but no bank may be treated as “critically undercapitalized” unless its actual tangible equity to assets ratio warrants such treatment.

The community bank leverage ratio removes the requirement for qualifying banking organizations to calculate and report risk-based capital but rather only requires a Tier 1 to average assets (leverage) ratio.

Qualifying banking

organizations that elect to use the community bank leverage ratio framework and that maintain a leverage ratio of greater than required minimums will be considered to have satisfied the generally applicable risk based and leverage capital requirements in the agencies' capital rules (generally applicable rule) and, if applicable, will be considered to have met the well capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act.

Under the interim final rules the community bank leverage ratio minimum requirement is 8% as of December 31, 2020, 8.5% for calendar year 2021, and 9% for calendar year 2022 and beyond.

The interim rule allows for a two-quarter grace period to correct a ratio that falls below the required amount, provided that the bank maintains a leverage ratio of 7% as of December 31, 2020, 7.5% for calendar year 2021, and 8% for calendar year 2022 and beyond.

Under the final rule, an eligible banking organization can opt out of the CBLR framework and revert back to the risk-weighting framework without restriction.

The community bank leverage ratio (“CBLR”) removes the requirement for qualifying banking organizations to calculate and report risk-based capital and instead requires only a Tier 1 to average assets (leverage) ratio.

Qualifying banking organizations that elect to use the CBLR framework and that maintain a leverage ratio of greater than required minimums will be considered to have satisfied the generally applicable risk based and leverage capital requirements in the agencies' capital rules (generally applicable rule) and, if applicable, will be considered to have met the well capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act.

An eligible banking organization can opt out of the CBLR framework and revert back to the risk-weighting framework without restriction.

Under the final rules, the CBLR minimum requirement is 9% for calendar year 2022 and beyond.

As of December 31, 2024 and 2023, both the Company and the Bank qualified as well capitalized for regulatory capital purposes, utilizing the Capital Simplification for Qualifying Community Bank Organization.

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Most provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), enacted in 2010, are now effective and have been fully implemented.

In the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress directed the Bureau to adopt regulations governing the collection of small business lending data.

One area of Dodd-Frank that remains pending is the effective date of the regulation governing the collection of small business lending data for institutions represented by one of the plaintiffs challenging the rule in the Fifth Circuit Court of Appeals.

This includes the Bank due to its American Bankers Association membership.

Section 1071 of the Dodd-Frank Act amended the Equal Credit Opportunity Act (ECOA) to require financial institutions to compile, maintain, and submit to the Bureau certain data on applications for credit for women-owned, minority-owned, and small businesses.

Congress enacted section 1071 for the purpose of facilitating enforcement of fair lending laws and enabling communities, governmental entities, and creditors to identify business and community development needs and opportunities for

women-owned, minority-owned, and small businesses.

Consistent with section 1071, covered financial institutions are required to collect and report to the CFPB data on applications for credit for small businesses, including those that are owned by women or minorities.

Congress enacted section 1071 for the purpose of facilitating enforcement of fair lending laws and enabling communities,

governmental entities, and creditors to identify business and community development needs and opportunities for women-owned, minority-owned, and small businesses.

Consistent with section 1071, covered financial institutions will be required to collect and report data on applications for credit for small businesses, including those owned by women or minorities, to the CFPB.

The rule also addresses an approach to privacy interests and the publication of section 1071 data;

shielding certain demographic data from underwriters and other persons.

Some aspects of Dodd-Frank are still subject to rulemaking, making it difficult to anticipate the ultimate financial impact on the Company, its customers or the financial services industry more generally.

However, many provisions of Dodd-Frank are already affecting our operations and expenses, including but not limited to changes in FDIC assessments, the permitted payment of interest on demand deposits, and enhanced compliance requirements.

Some of the rules and regulations promulgated or yet to be promulgated under Dodd-Frank will apply directly only to institutions much larger than ours, but could indirectly impact smaller banks, either due to competitive influences or because certain required practices for larger institutions may subsequently become expected “best practices” for smaller institutions.

We could see continued attention and resources devoted by the Company to ensure compliance with the statutory and regulatory requirements engendered by Dodd-Frank.

The Company is continuing to monitor challenges to this rule by various trade groups and other interested parties.

Deposit Insurance

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On October 18, 2022, the FDIC adopted a final rule to increase the base deposit insurance rate uniformly by 2 basis points, beginning with the first quarterly assessment period of 2023.

The FDIC also concurrently maintained the Designated Reserve Ratio (DRR) for the DIF at 2.00% for 2023.

The FDIC also concurrently maintained the DRR for the DIF at 2.00% for 2023.

The increase in assessment rate is intended to increase the likelihood that the reserve ratio of the DIF reaches the statutory minimum of 1.35% by the statutory deadline of September 30, 2028.

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Community Reinvestment Act

The Bank is subject to certain requirements and reporting obligations involving Community Reinvestment Act (“CRA”) activities.

The Bank is subject to the Community Reinvestment Act (“CRA”), which imposescertain requirements and reporting obligations..

The CRA generally requires federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low-and moderate-income (“LMI”) neighborhoods.

The CRA further requires the agencies to consider a financial institution’s efforts in meeting its community credit needs when evaluating applications for, among other things, domestic branches, mergers or acquisitions, or the formation of holding companies.

Regulatory agencies must consider a financial institution’s efforts in meeting its community credit needs when evaluating applications for, among other things, domestic branches, mergers or acquisitions, or the formation of holding companies.

In measuring a bank’s compliance with its CRA obligations, the regulators utilize a performance-based evaluation system under which CRA ratings are determined by the bank’s actual lending, service, and investment performance, rather than on the extent to which the institution conducts needs assessments, documents community outreach activities, or complies with other procedural requirements.

In connection with its assessment of CRA performance, the FDIC assigns a rating of “outstanding,” “satisfactory,” “needs to improve” or “substantial noncompliance.” The Bank most recently received a “satisfactory” CRA assessment rating in August 2022.

On October 24, 2023, the Federal Reserve Board along with the FDIC and OCC issued a final rule amending the three-decade-old CRA regulations.

On October 24, 2023, the FRB along with the FDIC and OCC issued a final rule amending the three-decade-old CRA regulation.

The final rule updates the CRA regulations to achieve the following goals:

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and tailor CRA evaluations and data collection to bank size and type.

The final rule’s effective date is April 1, 2024, except for amendment nos.

26, 49 and 71, which are effective on various dates from April 1, 2024, through January 1, 2031.

The Company is continuing to monitor challenges to the CRA regulations by various trade groups and other interested parties.

In March 2024, the agencies issued an interim final rule to extend the applicability date for certain provisions of the final rule from April 1, 2024, to January 1, 2026.

The Bank continues to monitor challenges to the CRA regulations by various trade groups and other interested parties.

Privacy and Data Security

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The Financial Modernization Act generally prohibits disclosure of consumer information to non-affiliated third parties unless the consumer has been given the opportunity to object and has not objected to such disclosure.

The statute also directed federal regulators, including the Federal Reserve and the FDIC, to establish standards for the security of consumer information, and requires financial institutions to disclose their privacy policies to consumers annually.

The statute also directed federal regulators, including the FRB and the FDIC, to establish standards for the security of consumer information, and requires financial institutions to disclose their privacy policies to consumers annually.

In June 2018, the California Consumer Privacy Act (“CCPA”) was signed into law, creating new privacy rights for Californians and significant new data protection obligations for businesses.

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The rule also requires bank service providers to notify each affected banking organization if that bank service provider experiences a computer-security incident that has caused, or is reasonably likely to cause, a material service disruption or degradation for four or more hours.

The rule became effective on April 1, 2022, with a compliance date of May 1, 2022.

On January 3, 2023, the federal banking agencies issued a joint statement on crypto-asset risks to banking organizations following events which exposed vulnerabilities in the crypto-asset sector, including the risk of fraud and scams, legal uncertainties, significant volatility, and contagion risk.

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Attorney General determines that immediate disclosure would pose a substantial risk to national security or public safety.

The Electronic Funds Transfer Act, as implemented by the Federal Reserve’s Regulation E, governs transfers initiated through automated teller machines (“ATMs”), point-of-sale terminals, and other electronic banking services.

The Electronic Funds Transfer Act, as implemented by the FRB’s Regulation E, governs transfers initiated through ATMs, point-of-sale terminals, and other electronic banking services.

Regulation E prohibits financial institutions from assessing an overdraft fee for paying ATM and one-time point-of-sale debit card transactions unless the customer affirmatively opts into the overdraft service for those types of transactions.

The opt-in provision establishes requirements for clear disclosure of fees and terms of overdraft services for ATM and one-time debit card transactions.

The rule does not apply to other types of transactions, such as check automated clearinghouse (“ACH”) and recurring debit card transactions.

In November 2010 the FDIC issued its Overdraft Payment Supervisory Guidance on automated overdraft payment programs, to ensure that a bank mitigates the risks associated with offering automated overdraft payment programs and complies with all consumer protection laws and regulations.

Additionally in August 2022 the FDIC issued guidance on assessing multiple re-presentment NSF fees of the same unpaid transaction.

Other regulatory issuances include the FDIC’s Overdraft Payment Supervisory Guidance, which ois designed to ensure banks appropriately mitigate risks associated with offering automated overdraft payment programs and comply with all consumer protection laws and regulations.

Additionally, the FDIC issued guidance on assessing multiple re-presentment nonsufficient fund fees (NSF) of the same unpaid transaction.

This guidance included their supervisory approach when a violation of law is identified, as well as expectations for full corrective action.

In 2022, the Company proactively issued $0.7 million in restitution payments to customers charged nonsufficient fund fees in the past five years for representments.

As of the third quarter of 2022, the Company no longer charged customers for nonsufficient fund (NSF) fees.

The Company also increased the discretionary overdraft privilege amount for both commercial and consumer customers, but limited the number of daily overdraft fees to four per day (previously five per day) and no longer charged a fee for continuous overdrafts (previously a $35 charge after the 10 th consecutive day an account is in an overdraft position).

These changes to our NSF fees, overdraft fees and discretionary overdraft privilege program did not expected have a material impact on deposit fee income.

The Company continuously evaluates its overdraft practices and monitors potential and final legislative and regulatory changes, as well as regulatory guidance related to overdrafts.

As of the third quarter of 2022, the Bank no longer charges customers for

The Bank also increased the discretionary overdraft privilege amount for both commercial and consumer customers but limited the number of daily overdraft fees to four per day (previously five per day) and no longer charges a fee for continuous overdrafts (previously a $35 charge after the 10 th consecutive day an account is in an overdraft position).

These changes to our NSF fees, overdraft fees and discretionary overdraft privilege program did not have a material impact on deposit fee income.

On December 12, 2024, the Consumer Financial Protection Bureau (“CFPB”) issued a final rule that treats covered overdraft services offered by banks with more than $10 billion in assets as credit, bringing them under the Truth in Lending Act and Regulation Z.

Banks subject to this final rule may choose to charge $5 for overdrafts, or charge a fee that covers no more than the costs or losses of overdrafts.

If a bank chooses to continue to offer profit-generating overdraft loans under the final rule, they must comply with applicable lending laws, including disclosing any applicable interest rate.

This rule was immediately challenged by various national and state banking associations.

Although the Bank is under $10 billion and not subject to the final rule, the Bank continuously evaluates its overdraft practices and monitors potential and final legislative and regulatory changes, as well as regulatory guidance related to overdrafts.

If the Bank were to be subject to a regulatory cap on overdraft fees or if competitive pressures cause the Bank to significantly lower overdraft fees, it could have a material impact on deposit fee income.

Consumer Financial Protection and Financial Privacy

Dodd-Frank created the Consumer Financial Protection Bureau (the “CFPB”) as an independent entity with broad rulemaking, supervisory and enforcement authority over consumer financial products and services including deposit products, residential mortgages, home-equity loans and credit cards.

Dodd-Frank created the CFPB as an independent entity with broad rulemaking, supervisory and enforcement authority over consumer financial products and services including deposit products, residential mortgages, home-equity loans, and credit cards.

The CFPB’s functions include investigating consumer complaints, conducting market research, rulemaking, supervising and examining bank consumer transactions, and enforcing rules related to consumer financial products and services.

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The CFPB has broad rulemaking authority for a wide range of consumer financial laws that apply to all banks, including, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices.

(i) lack of financial savvy, (ii) inability to protect himself in the selection or use of consumer financial products or services, or (iii) reasonable reliance on a covered entity to act in the consumer’s interests.

Abusive acts or practices are defined as those that materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service or take unreasonable advantage of a consumer’s lack of financial savvy, inability to protect himself in the selection or use of consumer financial products or services, or reasonable reliance on a covered entity to act in the consumer’s interests.

The Bank continues to be subject to numerous other federal and state consumer protection laws that extensively govern its relationship with its customers.

Those laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Right to Financial Privacy Act, the Servicemembers Civil Relief Act, the Americans with Disabilities Act, and respective state-law counterparts to these laws, as well as state usury laws and laws regarding unfair and deceptive acts and practices.

These and other laws require disclosures including the cost of credit and terms of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections, prohibit unfair, deceptive and abusive practices, restrict the Company’s ability to raise interest rates and otherwise subject the Company to substantial regulatory oversight.

On June 9, 2022, the DFPI’s proposed commercial financing disclosure regulations were approved and became effective on December 9, 2022.

The regulations require commercial financing providers to disclose certain information to assist small businesses in making more informed decisions, including the amount of funding the small business will

receive, the Annual Percentage Rate calculated for the transaction, the term, details related to prepayment policies and an average monthly cost.

In addition, as is the case with all financial institutions, the Bank is required to maintain the privacy of its customers’ non-public, personal information.

These and other laws require disclosures including the cost of credit and terms of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections, prohibit unfair, deceptive and abusive practices, restrict the Bank’s ability to raise interest rates and otherwise subject the Bank to substantial regulatory oversight.

As is the case with all financial institutions, the Bank is required to maintain the privacy of its customers’ non-public, personal information.

Such privacy requirements direct financial institutions to:

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The Bank presently does not have any interstate branches.

USA Patriot Act of 2001

USA Patriot Act of 2001 and Anti-Money Laundering Act of 2020

The impact of the USA Patriot Act of 2001 (the “Patriot Act”) on financial institutions has been significant and wide ranging.

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Under the Patriot Act, financial institutions are subject to prohibitions regarding specified financial transactions and account relationships, as well as enhanced due diligence and “know your customer” standards in their dealings with higher risk, including foreign individuals and entities.

The Patriot Act also requires all financial institutions to establish an anti-money laundering programs.

The Bank is committed to maintaining adequate Bank Secrecy Act compliance staff and system resources to conduct the appropriate level of account due diligence, suspicious activity-monitoring, and reporting to fulfill the anti-money laundering requirements of the Patriot Act, as well as regulatory rules guidance issued by Financial Crimes Enforcement Network and federal and state banking regulators.

The Patriot Act also requires all financial institutions to establish anti-money laundering programs.

In 2021, Congress enacted the Anti-Money Laundering Act of 2020 (the “AML Act”), which amends and builds upon the existing anti-money laundering framework.

The Bank actively monitors the Financial Crimes Enforcement Network’s (FinCEN) and the agencies’ issuances of guidance and rules in support of the AML Act to ensure compliance.

The Bank is committed to maintaining adequate Bank Secrecy Act/Anti-Money Laundering compliance staff and system resources to conduct the appropriate level of account due diligence, suspicious activity-monitoring, and reporting to fulfill AML requirements and guidance issued by FinCEN and federal and state banking regulators.

Incentive Compensation

In June 2010, the FRB and the FDIC issued comprehensive final guidance on incentive compensation policies intended to help ensure banking organizations do not undermine their own safety and soundness by encouraging excessive risk-taking.

The guidance, which covers all employees who have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk

management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

The regulatory agencies will review, as part of their regular risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not “large, complex banking organizations.” Where appropriate, the regulatory agencies will take supervisory or enforcement action to address perceived deficiencies in an institution’s incentive compensation arrangements or related risk-management, control, and governance processes.

The Company believes that it is in full compliance with the regulatory guidance on incentive compensation policies.

The regulatory agencies will review, as part of their regular risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, which are not “large, complex banking organizations.” Where appropriate, the regulatory agencies will take supervisory or enforcement action to address perceived deficiencies in an institution’s incentive compensation arrangements or related risk-management, control, and governance processes.

The Company believes it is in full compliance with the regulatory guidance on incentive compensation policies.

In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including the Nasdaq, to implement listing standards that require public companies to adopt policies mandating the recovery or “clawback” of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error was either corrected or left uncorrected in the current period.

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Other legislative and regulatory initiatives which could affect the Company, the Bank and the banking industry in general are pending, and additional initiatives may be proposed or introduced before the United States Congress, the California legislature, and other governmental bodies in the future.

Such proposals, if enacted, may further alter the structure, regulation and competitive relationship among financial institutions, and may subject the Bank to increased

regulation, disclosure and reporting requirements.

Such proposals, if enacted, may further alter the structure, regulation, and competitive relationship among financial institutions, and may subject the Bank to increased regulation, disclosure, and reporting requirements.

In addition, the various banking regulatory agencies often adopt new rules and regulations to implement and enforce existing legislation.

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Future economic conditions cannot be predicted, and recurrent deterioration in the economies of the nation as a whole or in the Company’s markets could have an adverse effect, which could be material, on our business, financial condition, results of operations and future prospects, and could cause the market price of the Company’s stock to decline.

Economic conditions are currently stressed given higher interest rates and persistent inflation, although conditions appear relatively stable in most of our local markets.

Adverse developments, such as, continued inflation, health epidemics or pandemics (or expectations about them) interest rate volatility, international trade disputes, oil price volatility, the level of U.S.

Interest rates have flattened along the curve through 2024, but uncertainty about the magnitude and direction of future rate movements along the curve remains due primarily to inflation and jobs data.

Conditions appear relatively stable in most of our local markets, but potential labor shortages, tariffs, natural disasters, and demand for products produced in our markets could affect local economies.

Adverse developments, such as, continued interest rate volatility, inflation, tariffs, jobs market, health epidemics or pandemics (or expectations about them) interest rate volatility, international trade disputes, oil price volatility, the level of U.S.

debt, including the debt ceiling (and the potential inability to raise the debt ceiling), and global economic conditions, could depress business and/or consumer confidence levels, negatively impact real estate values, and otherwise lead to economic weakness which could have one or more of the following undesirable effects on our business:

● a rapid decrease in low-cost or noninterest bearing deposits;

● a lack of demand for loans or other products and services offered by us;

● a decrease in low-cost or noninterest bearing deposits;

● a slowing of demand for loans or other products and services offered by us;

● an inability to retain and recruit employees due to competition for labor;

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Changes in interest rates could adversely affect our profitability, business, and prospects.

Net interest income, and therefore earnings, can be adversely affected by differences or changes in the interest rates on, or the repricing

frequency of, our financial instruments.

Fluctuations in interest rates can affect the demand of customers for products and services, and an increase in the general level of interest rates may adversely affect the ability of certain borrowers to make variable-rate loan payments.

Net interest income, and therefore earnings, can be adversely affected by differences or changes in the interest rates on, or the repricing frequency

of, our financial instruments.

The speed and absolute level of increase or decrease in interest rates can have a material impact on the net interest income and economic value of equity of the Bank depending on the asset liability profile at any point in time.

In addition, different parts of the yield curve could change by different amounts causing the yield curve to steepen, flatten, or invert.

The continued inversion of the yield curve could further negative impact the Company’s earnings over time.

The continued inversion of the shorter-end of the yield curve along with a relatively flat longer-end of the yield curve could further negative impact the Company’s earnings over time.

Changes in market interest rates could have a material adverse effect on the Company’s asset quality based on borrowers’ ability to repay at higher rates, loan origination volume, financial condition, results of operations, and cash flows.

This interest rate risk can arise from Federal Reserve Board monetary policies, as well as other economic, regulatory and competitive factors that are beyond our control.

Rising interest rates have decreased the value of the Company’s held-to-maturity and available for sale securities portfolio, and certain fixed-rate loans and the Company would realize losses if it were required to sell such securities or loans to meet liquidity needs.

As a result of inflationary pressures and the resulting rapid increases in interest rates over the last year, the trading value of previously issued government and other fixed income securities has declined significantly, as well as the value of certain fixed-rate loans.

Customers with adjustable-rate loans could see payments increase significantly upon repricing which could affect the borrower’s ability to service debt at higher rates.

This interest rate risk can arise from FRB monetary policies, as well as other economic, regulatory, and competitive factors beyond our control.

Rising interest rates since 2022 have decreased the value of the Company’s held-to-maturity and available-for-sale securities portfolio and certain fixed-rate loans and the Company would realize losses if it were required to sell such securities or loans to meet liquidity needs.

As a result of inflationary pressures and the resulting rapid increases in interest rates since 2022, the trading value of previously issued government and other fixed income securities , as well as the value of certain fixed-rate loans, declined significantly..

These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses.

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The markets for agricultural products can be adversely impacted by increased supply from overseas competition, a drop in consumer demand, tariffs, and numerous other factors.

In recent periods in particular, retaliatory tariffs levied by certain countries in response to tariffs imposed by the US Government on imports from those countries have created a high degree of uncertainty and disruption in the agricultural community in California, due to the level of goods that are exported.

In recent periods in particular, retaliatory tariffs levied by certain countries in response to tariffs imposed by the US Government on imports from those countries have created a high degree of uncertainty and disruption in the California agricultural community, due to the level of goods that are exported.

The ripple effect of any resulting drop in commodity prices could lower borrower income and depress collateral values.

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A degenerative cycle of weather has the potential to adversely affect agricultural industries as well as consumer purchasing power and could lead to higher unemployment throughout the San Joaquin Valley.

In recent years, the state of California experienced the worst drought in its recorded history, and it is difficult to predict if the drought will resume and how long it might last.

In recent years, California experienced the worst drought in its recorded history, and it is difficult to predict if the drought will resume and if it does how long it might last.

Another looming issue that could have a major impact on the agricultural industry involves water availability and distribution rights.

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As we have experienced in the past, a drop in oil prices could lead to declines in property values and property taxes, particularly in Kern County, which is home to about three quarters of California’s oil production.

The Company does not have direct exposure to oil producers, and our exposure via loans outstanding to borrowers involved in servicing oil companies totaled only $5.3 million at December 31, 2023.

The Company does not have direct

exposure to oil producers, and our exposure via loans outstanding to borrowers involved in servicing oil companies totaled only $4.0 million at December 31, 2024.

However, if cash flows are disrupted for our energy-related borrowers, or if other borrowers are indirectly impacted and/or non-oil property values decline, our level of nonperforming assets and loan charge-offs could increase.

Furthermore, economic multipliers to a contracting oil industry include the prospects of a depressed residential housing market and a drop in commercial real estate values.

Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer and investor confidence in the banking system .

The recent high-profile bank failures involving Silicon Valley Bank, Signature Bank, and sale of First Republic Bank have generated significant market volatility among publicly traded bank holding companies and, in particular, regional and community banks like the Company.

These market developments have negatively impacted customer confidence in the safety and soundness of regional and community banks.

Negative developments affecting the banking industry, and resulting media coverage, could erode customer and investor confidence in the banking system .

The high-profile bank failures involving Silicon Valley Bank, Signature Bank, and sale of First Republic Bank in 2023 generated significant market volatility among publicly traded bank holding companies and, in particular, regional and community banks like the Company.

These market developments negatively impacted customer confidence in the safety and soundness of regional and community banks.

As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital, and results of operations.

Additionally, these recent events have, and could continue to, adversely impact the market price and volatility of the Company’s common stock independent from the Company’s actual underlying financial performance.

Events similar to this could adversely impact the market price and volatility of the Company’s common stock independent from the Company’s actual underlying financial performance.

We may not be able to continue to attract and retain banking customers, and our efforts to compete may reduce our profitability.

The banking business in our market areas is highly competitive with respect to virtually all products and services, which may limit our ability to attract and retain banking customers.

The banking business in our market areas is highly competitive, which may limit our ability to attract and retain banking customers.

In California generally, and in our service areas specifically, major banks dominate the commercial banking industry.

Such banks have substantially greater lending limits than we have, offer certain services we cannot offer directly, and often operate with economies of scale that result in relatively low operating costs.

We also compete with numerous financial and quasi-financial institutions for deposits and loans, including providers of financial services via the internet.

Such banks have substantially greater lending limits, offer certain services we cannot offer directly, and often operate with economies of scale that result in relatively low operating costs.

We also compete with numerous financial and quasi-financial institutions, including providers of financial services via the internet, for deposits and loans.

Due to deposit declines from a higher rate environment, competition for deposits has become more fierce, and new deposits generally have a higher cost.

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The bank offers accounts to customers that provide multi-million-dollar FDIC insurance using the IntraFi network of banks to offer reciprocal fully FDIC insured accounts through the Insured Cash Sweep (“ICS”) or Certificate of Deposit Account Registry System (“CDARS”).

At December 31, 2023, the Bank estimates it had uninsured deposits of $816 million.

At December 31, 2024, the Bank estimates it had uninsured deposits of $816 million, or 28% of total deposits.

Decreases in deposits may adversely affect our funding costs and net income.

Ultimately, competition can and does increase our cost of funds, reduce loan yields and drive down our net interest margin, thereby reducing profitability.

Ultimately, competition can and does increase our cost of funds, reduces loan yields and drives down our net interest margin, thereby reducing profitability.

Competition can also make it more difficult for us to continue increasing the size of our loan portfolio and deposit base and could cause us to rely more heavily on wholesale borrowings which are generally more expensive than retail deposits.

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In addition to offering a competitive base salary or wage, the company offers comprehensive benefits, including training.

Due to continued turnover, the Company increased its minimum wage to $20 per hour effective January 1, 2022, in an effort to attract and retain employees at all levels.

The Company continues to maintain a minimum wage above the California minimum wage in an effort to attract entry level workers and retain employees at all levels.

In addition, exempt employees of the Company receive a minimum salary of twice the California minimum wage, which is well above the national requirements for such employees.

When coupled with many exempt positions remaining remote and/or hybrid work arrangements, this assists with recruiting talent we would not otherwise be able to attract.

The Company’s employees are critical to the Company’s ability to develop and grow relationships with its clients.

Recruiting talent within the Company’s footprint has always been a fundamental strategy whenever possible but has been recently complemented with offering existing and new employee’s opportunities for remote and/or hybrid work arrangements if possible.

However, we recognize that competition for talent by both banks and non-banks is fierce and that our overall expenses may be negatively affected by higher per employee costs or by higher-cost temporary staff or consultants.

However, we recognize that competition for talent by both banks and non-banks is fierce and that our overall expenses may be negatively affected by higher per employee costs or by

higher-cost temporary staff or consultants.

The competitive market for talent could also result in gaps of experience in certain areas or lower staffing levels which could result in a reduced ability to serve our customers.

The value of the securities in our investment portfolio may be negatively affected by market disruptions, adverse credit events or fluctuations in interest rates, which could have a material adverse impact on capital levels.

Our available-for-sale investment securities are reported at their estimated fair values, and fluctuations in fair

values can result from changes in market interest rates, rating agency actions, issuer defaults, illiquid markets and limited investor demand, among other things.

Our available-for-sale investment securities are reported at their estimated fair values, and fluctuations in fair values can result from changes in market interest rates, rating agency actions, issuer defaults, illiquid markets, and limited investor demand, among other things.

Under current accounting rules we directly increase or decrease accumulated other comprehensive income in shareholders’ equity by the amount of the change in fair value, net of the tax effect.

Because of the size of our fixed income bond portfolio relative to total assets, a relatively large increase in market interest rates, in particular, could result in a material drop in fair values and, by extension, our capital.

For the year ended December 31, 2023, we had total other comprehensive gains of $20.6 million, net of tax, primarily as a result of a decline in unrealized losses in our securities portfolio.

For the year ended December 31, 2024, we had total net other comprehensive gains of $4.7 million, net of tax, primarily as a result of a decline in unrealized losses in our securities portfolio.

The Company has a significant amount of Collateralized Loan Obligations;

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Our loan portfolio is heavily concentrated in real estate loans, particularly commercial real estate.

However, the overall concentration of commercial real estate loans has been reduced significantly since peaking at December 31, 2020.

At December 31, 2024, 78.2% of our loan portfolio consisted of real estate loans, and a sizeable portion of the remaining loan portfolio had real estate collateral as a secondary source of repayment or as an abundance of caution.

Loans on commercial buildings represented approximately 58.2% of all real estate loans, while construction/development and land loans were 0.2%, loans secured by residential properties accounted for 16.4%, and loans secured by farmland were 3.3% of real estate loans.

The Company’s $8.0 million balance of nonperforming assets at December 31, 2023, is mostly comprised of nonperforming secured real estate loans .

The Company’s $19.7 million balance of nonperforming assets at December 31, 2024, is mostly comprised of one nonperforming operating line of credit collateralized with receivables from wine grape production and other assets.

In past recessionary periods, the residential real estate market experienced significant deflation in property values and foreclosures occurred at relatively high rates.

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Similarly, the occurrence of more natural disasters like those California has experienced recently, including fires, flooding, and earthquakes, could impair the value of the collateral we hold for real estate secured loans and negatively impact our results of operations.

Our concentration of commercial real estate, construction and land development, and commercial and industrial loans exposes us to increased lending risks.

Commercial and agricultural real estate, commercial construction and land development, and commercial and industrial loans (including agricultural production loans but excluding mortgage warehouse loans), which comprised approximately 66.9% of our total loan portfolio as of December 31, 2023, expose the Company to a greater risk of loss than residential real estate and consumer loans, which were a smaller percentage of the total loan portfolio.

Further office properties within commercial real estate have been stressed by the surge in interest rates and exacerbated by the increase in vacancies.

Our commercial real estate, including construction and land development exposes us to increased lending risks.

Commercial and agricultural real estate, construction and land development, and multi-family loans comprise approximately 61.9% of our total loan portfolio as of December 31, 2024, exposing the Company to certain risks if not properly managed overall and individually.

Our concentration of commercial real estate loans peaked at December 31, 2020, and the concentration to capital and allowance has declined from 376% to 236% since such date.

In particular, office properties within commercial real estate have been stressed by the surge in interest rates combined with the increase in vacancies.

In the next three years, $62.0 million, or 29.7%, of our office real estate loans have the ability to reprice.

The potential inability of our borrowers

to service debt at higher rates expose us to greater risk of loss than we have seen in the past several years.

Commercial real estate and land development loans typically involve relatively large balances to a borrower or a group of related borrowers, and an adverse development with respect to a larger commercial loan relationship would expose us to greater risk of loss than would issues involving a smaller residential mortgage loan or consumer loan.

Moreover, banking regulators closely scrutinize commercial real estate (“CRE”) loans due to risks relating to the cyclical nature of the real estate market and risks for lenders with high concentrations of such loans.

The potential inability of our borrowers to service debt at higher rates expose us to greater risk of loss.

Moreover, banking regulators generally scrutinize concentrations of commercial real estate loans due to risks relating to the cyclical nature of the real estate market.

The regulators require banks with relatively high levels of CRE loans to implement enhanced underwriting standards, internal controls, risk management policies and portfolio stress testing.

If the CRE concentration risk is not properly managed, it could result in higher allowances for possible loan losses.

Expectations for higher capital levels have also emerged.

Any required increase in our allowance for credit losses on loans could adversely affect our net income, and any requirement that we maintain higher capital levels could adversely impact financial performance measures including earnings per share and return on equity.

If the Company grows commercial real estate loans, it could be limited based on levels of regulatory capital.

Therefore, the ability to grow loans significantly is dependent upon the Company’s ability to diversify its loan portfolio through recruitment of lending teams, hiring of specialized support personnel including underwriters and portfolio managers, and the ability to monitor new risks in the loan portfolio.

The ability to grow commercial real estate loans is dependent upon the Company’s ability to manage concentrations through recruitment of diversified lending teams, hiring of specialized support personnel including underwriters and portfolio managers, and the ability to identify and monitor emerging risks in the loan portfolio.

Repayment of our commercial loans is often dependent on the cash flows of the borrowers, which may be unpredictable, and the collateral securing these loans may fluctuate in value.

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Real estate lending is generally considered to be collateral based lending with loan amounts based on predetermined loan to collateral values, and liquidation of the underlying real estate collateral being viewed as the primary source of repayment in the event of borrower default.

Our commercial loans are primarily extended based on the cash flows of the borrowers, and secondarily on any underlying collateral provided by the borrowers.

A borrower’s cash flows may be unpredictable, and collateral securing those loans may fluctuate in value.

Although commercial loans are often collateralized by equipment, inventory, accounts receivable, or other business assets, the liquidation of such collateral in the event of default is often an insufficient source of repayment for multiple reasons, including uncollectible accounts receivable and obsolete or special-purpose inventories, among others.

Our commercial loans are extended primarily based on the cash flows of the borrowers, and secondarily on any underlying collateral provided by the borrowers.

A borrower’s cash flows may be unpredictable, and collateral securing those loans may fluctuate in value or be subject to other risks such as agricultural production and demand.

Although commercial loans are often collateralized by equipment, inventory, accounts receivable, or other business assets, the liquidation of such collateral in the event of default may be an insufficient source of repayment for multiple reasons, including uncollectible accounts receivable and obsolete or special-purpose inventories, among others.

Nonperforming assets adversely affect our results of operations and financial condition and can take significant time to resolve.

Our nonperforming loans may return to elevated levels, which would negatively impact earnings, possibly in a material way depending on the severity.

Our nonperforming loans may increase, which would negatively impact earnings, possibly in a material way depending on the severity.

We do not record interest income on non-accrual loans, thereby adversely affecting income levels.

Furthermore, when we receive collateral through foreclosures and similar proceedings, we are required to record the collateral at its fair market value less estimated selling costs, which may result in charges against our allowance for credit losses on loans if that value is less than the book value of the related loan.

Additionally, our noninterest expense has risen materially in adverse economic cycles due to the costs of reappraising adversely classified assets, write-downs on foreclosed assets resulting from declining property values, operating costs related to foreclosed assets, legal and other costs associated with loan collections, and various other expenses that would not typically be incurred in a normal operating environment.

Additionally, our noninterest expense has risen materially in past adverse economic cycles due to the costs of reappraising adversely classified assets, write-downs on foreclosed assets resulting from declining property values, operating costs related to foreclosed assets, legal and other costs associated with loan collections, and various other expenses that would not typically be incurred in a normal operating environment.

A relatively high level of nonperforming assets also increases our risk profile and may impact the capital levels our regulators believe is appropriate in light of such risks.

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Deterioration in the value of these problem assets, the underlying collateral, or in the borrowers’ performance or financial condition, could adversely affect our business, results of operations and financial condition.

In addition, the resolution of nonperforming assets requires a significant commitment of time from Bank staff, which can be detrimental to their performance of other responsibilities.

In addition, the resolution of nonperforming assets requires a significant commitment

of time from Bank staff, which can be detrimental to their performance of other responsibilities.

There can be no assurance that we will avoid increases in nonperforming loans in the future.

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● evaluation of qualitative factors not given adequate consideration in the computation of quantitative reserves

As of January 1, 2022, we adopted the provisions of ASU 2016-13 (commonly referred to as “CECL”) with an adjustment to equity, net of taxes for the difference between the allowance for loan losses and the allowance for credit losses.

Therefore, on January 1, 2022, the Company recorded a $10.4 million increase in the allowance for credit losses, which includes a $0.9 million reserve for unfunded commitments as an adjustment to equity, net of deferred taxes.

See Note 2 to the consolidated financial statements under “Recent Accounting Pronouncements” for additional details on ASU 2016-13 and its impact on the Company.

The allowance for credit losses can be affected by changes in economic forecasts, especially national employment rates;

changes in actual loan prepayment speeds, actual levels of charge-offs, changes to the level of nonaccrual loans, and changes to management’s estimate of items not otherwise considered as part of the quantitative calculation of the allowance.

The allowance for credit losses can be affected by changes in economic forecasts, especially national employment rates, gross national product, and housing price indices, changes in estimated loan prepayment speeds, actual levels of charge-offs, changes to the level of nonaccrual loans, and changes to management’s estimate of items not otherwise considered as part of the quantitative calculation of the allowance.

At any given date, we maintain an allowance for credit losses on loans that we believe is adequate to absorb specifically identified expected losses as well as any other losses of principal which is not expected to be collected over the contractual life of the loans, adjusted for expected prepayments.

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We may incur significant losses as a result of ineffective risk management processes and strategies.

We seek to monitor and control our risk exposure through a comprehensive enterprise risk framework.

While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgements that accompany their application may not be effective and may not anticipate every economic and financial outcome in all market environments or the specifics and timing of such outcomes.

We seek to monitor and control our risk exposure through a comprehensive enterprise risk framework administered by our Chief Risk Officer with oversight by our Board of Directors.

This includes establishing the Company’s Risk Appetite, performing an annual Enterprise Risk Assessment, and ongoing monitoring of key risk indicators.

While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, including performing an internal audit of our enterprise risk framework, those techniques and the judgements that accompany their application may not be effective and may not

anticipate all material economic and financial outcome on the Company and its customers, or the specifics and timing of such outcomes.

Section 1.04 Risks Related to our Other Accounting Estimates

We may experience future goodwill impairment.

In accordance with GAAP, we record assets acquired and liabilities assumed at their fair value with the excess of the purchase consideration over the net assets acquired resulting in the recognition of goodwill.

In accordance with U.S.

Generally Accepted Accounting Principles (GAAP), we record assets acquired and liabilities assumed at their fair value with the excess of the purchase consideration over the net assets acquired resulting in the recognition of goodwill.

We perform a goodwill evaluation at least annually to test for potential impairment.

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Model inputs can also include information provided by third parties, such as economic forecasts or macroeconomic variables upon which we rely.

Our reliance on models continues to increase as rules, guidance and expectations change including the additional model used in the determination of our allowance for credit losses, which we implemented when we adopted ASU 2016-13 on January 1, 2022.

Our reliance on models continues to increase as rules, guidance and expectations change including the model used in the determination of our allowance for credit losses.

Section 1.05 Risks Related to our Growth Strategy

Growing by acquisition entails integration and certain other risks, and our financial condition and results of operations could be negatively affected if our expansion efforts are unsuccessful, or we fail to manage our growth effectively.

In addition to organic growth and the establishment of de novo branches, over the past several years we have engaged in expansion through acquisitions of branches and whole institutions.

We may reestablish this growth strategy, within our current footprint and/or via geographic expansion, but there are risks associated with any such expansion.

In addition to organic growth and the establishment of de novo branches, we have also expanded through acquisitions of branches and whole institutions – most recently in 2018.

We desire to reestablish this inorganic growth strategy, within our current footprint and/or via geographic expansion, but there are risks associated with any such expansion.

Those risks include, among others, incorrectly assessing the asset quality of a bank acquired in a particular transaction, encountering greater than anticipated costs in integrating acquired businesses, facing resistance from customers or employees, being unable to profitably deploy assets acquired in the transaction, and regulatory compliance risks.

To the extent we issue capital stock in connection with additional transactions, if any, these transactions and related stock issuances may have a dilutive effect on earnings per share and share ownership.

To the extent we issue capital stock in connection with additional transactions, if any, these transactions and related stock issuances may have a dilutive effect on tangible book value per share.

If our Company’s stock value is valued lower than peers, it could subject us to effectively paying more to acquire another institution or be unable to effectively match a peer offer for such institution.

If the subsidiary’s CRA rating is downgraded to less than satisfactory in the future, it could negatively affect the Company’s acquisition strategy as the CRA requires the banking agencies to consider a financial institution’s efforts in meeting its community credit needs when evaluating applications for, among other things, domestic branches, mergers or acquisitions, or the formation of holding companies.

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There also may be business disruptions that cause us to lose customers or cause customers to remove their accounts from us and move their business to competing financial institutions.

In addition, our ability to

grow may be limited if we cannot make acquisitions.

In addition, our ability to grow may be limited if we cannot make acquisitions.

We compete with other financial institutions with respect to potential acquisitions.

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We are subject to extensive government regulation that could limit or restrict our activities which may include crypto currency and legalized marijuana business activities, which in turn may adversely impact our ability to increase our assets and earnings .

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

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

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

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In addition, changes in regulatory requirements may add costs associated with compliance efforts.

Furthermore, government policy and regulation, particularly as implemented through the Federal Reserve, significantly affect credit conditions.

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.

The Company also anticipates 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.

As a result, the Bank could face increased scrutiny or be viewed as higher risk by regulators and the investor community.

Furthermore, government policy and regulation, particularly as implemented through the FRB, significantly affect credit conditions.

Any increased regulatory examination scrutiny or new regulatory requirements could increase the Company’s expenses and affect the Company’s operations.

Our expenses could increase as a result of increases in FDIC insurance premiums or other regulatory assessments.

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In 2022, the FDIC announced an increase in rates in 2023, resulting in an increase in the Bank’s FDIC insurance assessments.

There can be no assurance that the FDIC will not further increase assessment rates in the future or that the Bank will not be subject to higher assessment rates due to a change in its risk category, either of which could have an adverse effect on the Bank’s earnings.

Previously enacted and potential future regulations could have a significant impact on our business, financial condition and results of operations.

Dodd-Frank, which was enacted in 2010, is having a broad impact on the financial services industry, including significant regulatory and compliance changes.

Many of the requirements called for in Dodd-Frank will be implemented over time, and most will be facilitated by the enactment of regulations over the course of several years.

Given the uncertainty associated with the implementation of Dodd-Frank provisions, the full extent to which they will impact our operations is unclear.

The changes resulting from Dodd-Frank may impact the profitability of business activities, require changes to certain business practices, impose more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business.

In particular, the potential impact of Dodd-Frank on our operations and activities, both currently and prospectively, include, among others:

● an increase in our cost of operations due to greater regulatory oversight, supervision and examination of banks and bank holding companies, and higher deposit insurance premiums;

● the limitation of our ability to expand consumer product and service offerings due to more stringent consumer protection laws and regulations;

● a negative impact on our cost of funds in a rising interest rate environment, since financial institutions can now pay interest on business checking accounts;

● a potential reduction in fee income, due to limits on interchange fees applicable to larger institutions which could ultimately lead to a competitive-driven reduction in the fees we receive;

● a potential increase in competition due to the elimination of the remaining barriers to de novo interstate branching.

Further, we may be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements under the Dodd-Frank Act, which could negatively impact our results of operations and financial condition.

We cannot predict whether there will be additional laws or reforms that would affect the U.S.

financial system or financial institutions, when such changes may be adopted, how such changes may be interpreted and enforced or how such changes may affect us.

However, the costs of complying with any additional laws or regulations could have a material adverse effect on our financial condition and results of operations.

For the year ended 2024 there were no increases in rates;

however, there can be no assurance that the FDIC will not further increase assessment rates in the future or that the Bank will not be subject to higher assessment rates due to a change in its risk category, either of which could have an adverse effect on the Bank’s earnings.

Federal and state regulators periodically examine our business, and we may be required to remediate adverse examination findings.

The Federal Reserve, the FDIC and the DFPI periodically examine our business, including our compliance with laws and regulations.

The FRB, the FDIC, and the DFPI periodically examine our business, including our compliance with laws and regulations.

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

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We derive fee income from charging customers for fees that could be subject to increased scrutiny by the regulators.

There has been increased scrutiny of certain fees, including overdrafts, charged to consumers in recent years.

There has been increased scrutiny of certain fees, including overdrafts, late fees, and interchange fees, charged to consumers and/or businesses in recent years.

Changes to the Company’s overdraft practices due to changes in regulations or rules impact the collection of overdraft or insufficient fund fees could negatively impact the Company’s earnings.

In 2023, the Company recognized $5.3 million of income from overdraft fees which could be impacted due to changes in the way overdraft fees are charged.

In 2024, the Company recognized $5.5 million of income from overdraft fees, which could be impacted due to changes in the amount or method of how overdraft fees are charged.

In addition, the Company has a significant level of income from money service businesses.

Company recognized approximately $1.9 million in service charges and fees related to money service businesses, in addition to analysis fees earned.

Changes in regulatory oversight of money service businesses could negatively impact the number of money service businesses we serve and the related income from such customers.

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Factors that could affect our common stock price in the future include but are not necessarily limited to the following:

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

● actual or anticipated fluctuations in our operating metrics and financial condition;

● changes to shares outstanding, including stock repurchases or stock issuances;

● other changes to tangible book value per share outside of operating earnings, including dividends, stock repurchases, issues of equity-based compensation, and changes to accumulated other comprehensive income;

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

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● regulatory action against us;

● changes in perceptions around capital ratios;

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

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Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of our tangible book value per common share may occur in connection with any future acquisitions.

To the extent we issue capital stock in connection with such transactions, the share ownership of our existing shareholders may be diluted.

To the extent we issue capital stock in connection with such transactions, the share ownership of our existing shareholders may be diluted on the date of such transaction.

The Company relies heavily on the payment of dividends from the Bank.

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All of these junior subordinated debt securities are senior to the shares of our common stock.

As a result, we must make interest payments on the debentures before any dividends can be paid on our common stock, and in the event of our bankruptcy, dissolution or liquidation, the holders of debt securities must be paid in full before any distributions may be made to the holders of our common stock.

common stock.

In addition, we have the right to defer interest payments on the junior subordinated debt securities for up to five years, during which time no dividends may be paid to holders of our common stock.

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no cumulative voting in the election of directors;

and the requirement that our board of directors consider

the potential social and economic effects on our employees, depositors, customers and the communities we serve as well as certain other factors, when evaluating a possible tender offer, merger or other acquisition of the Company.

and the requirement that our Board of Directors consider the potential social and economic effects on our employees, depositors, customers and the communities we serve as well as certain other factors, when evaluating a possible tender offer, merger or other acquisition of the Company.

These provisions make it more difficult for another company to acquire us, which could cause our shareholders to lose an opportunity to be paid a premium for their shares in an acquisition transaction and reduce the current and future market price of our common stock.

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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.

Unauthorized disclosure of sensitive or confidential customer information, whether through a cyber-attack, other breach of our computer systems or any other means, could severely harm our business.

Unauthorized disclosure of sensitive or confidential customer information, whether through a cyberattack, other breach of our computer systems or any other means, could severely harm our business.

In the normal course of business we collect, process, and retain sensitive and confidential customer information.

Despite the security measures we have in place, our facilities and systems may be vulnerable to cyber-attacks, security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events.

Notably, cybersecurity risks for banking organizations have significantly increased in recent years because of new emerging technologies, including artificial intelligence (“AI”), and the use of the internet and telecommunications technologies to conduct financial transactions.

In recent periods there has been a rise in fraudulent electronic activity, security breaches, and cyber-attacks, including in the banking sector.

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The secure maintenance and transmission of confidential information, as well as the secure and reliable execution of transactions over our systems, are essential to protect us and our customers and to maintain our customers’ confidence.

Despite our efforts to identify, contain and mitigate these threats through detection and response mechanisms, product improvement, the use of encryption and authentication technology, and customer and employee education, such attempted fraudulent activities directed against us, our customers, and third party service providers remain a serious issue.

The pervasiveness of cyber security incidents in general and the risks of cyber-crime are complex and continue to evolve.

Despite our efforts to identify, contain and mitigate these threats through detection and response mechanisms, product improvement, the use of encryption and authentication technology, and customer and employee education, fraudulent attempts directed against us, our customers, and third party service providers remain a serious issue.

The pervasiveness of cyber security incidents in general and the risks of cyber-crime are complex and continue to evolve, especially with emerging technologies such as AI, which may enhance the efforts of cyber threat actors.

We also face risks related to cyber-attacks and other security breaches in connection with debit card transactions, which typically involve the transmission of sensitive information regarding our customers through various third parties.

Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the

transactions involve third parties and environments we do not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them.

Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments we do not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them.

We also rely on third party service providers to conduct certain other aspects of our business operations and face similar risks relating to them.

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However, if such failures or interruptions were to occur, they could result in damage to our reputation, a loss of customers, increased regulatory scrutiny, or possible exposure to financial liability, any of which could have a material adverse effect 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 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.

While the Company does not deploy AI at this time for either customer or internal purposes, we continue to evaluate whether to implement AI in certain limited capacities and the risks associated with potential errors, inaccuracies of work product, privacy, intellectual property rights, the potential for bias, and cybersecurity.

We are subject to a variety of operational risks, including reputational risk, legal risk, compliance risk, the risk of fraud or theft by employees or outsiders, and the risk of clerical or record-keeping errors, which may adversely affect our business and results of operations.

If personal, non-public, confidential or proprietary customer information in our possession were to be mishandled or misused, we could suffer significant regulatory consequences, reputational damage and financial loss.

This could occur, for example, if information was erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or where such information is intercepted or otherwise inappropriately taken by third parties.

If personal, non-public, confidential, or proprietary customer information in our possession were to be mishandled or misused, we could suffer significant regulatory consequences, reputational

damage, and financial loss.

This could occur, for example, if information were erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or where such information is intercepted or otherwise inappropriately taken by third parties.

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

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We are further exposed to the risk that our external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their employees) and to the risk that our (or our vendors’) business continuity and data security efforts might prove to be inadequate.

Fraud risk continues to evolve and impact our customers and our Bank.

In particular, check fraud has reemerged as a key source of fraud in addition to debit card fraud, mobile banking fraud, account takeover, invoice fraud, and cyber fraud.

Scams are often harder to detect as fraudsters deploy AI causing many customers to authorize transactions that they believe are legitimate.

Thefts of credentials using social engineering and malicious emails or websites, continues to rise.

Detecting and preventing fraud requires deploying additional resources and technologies, obtaining cooperation from other institutions, active monitoring of payment activities for suspicious activity, and training of employees and customers.

In addition, liability for fraud remains uncertain for particular transactions.

In addition, the Company is named as a defendant in lawsuits from time-to-time.

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The costs of lawsuits, whether merited or not, have a negative impact on the Company’s expenses.

damage and regulatory intervention, which could adversely affect our business, financial condition and results of operations, perhaps materially.

The occurrence of any of these risks could result in a diminished ability to operate our business (for example, by requiring us to expend significant resources to correct the defect), as well as potential liability to clients, reputational damage and regulatory intervention, which could adversely affect our business, financial condition and results of operations, perhaps materially.

We are subject to claims and litigation which could adversely affect our profitability or cause us reputational harm .

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

What changed 10-K/A

Item 1. Business