What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2024-03-14 compared with 2023-03-15 · 224 added, 214 removed, 420 unchanged (51% of the section changed)

1 unchanged sentence

The material risks and uncertainties that management believes may affect our business are described below.

making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this 10-K Report.

The risks and uncertainties described

4 unchanged sentences

If this were to happen, the value of our common stock could decline significantly, and you could lose all or part of your investment.

Risks Related to COVID-19 Pandemic

The outbreak of the COVID-19 pandemic in early 2020 caused a significant global economic downturn which adversely affected our business and results of operations.

In late 2021 and early 2022, as vaccination rates increased across the markets we serve and governmental restrictions were eased, economic activity began to improve, and at the current time COVID-19 is not having

any material adverse impact on our business activities and financial results.

However, the COVID-19 virus continues to develop new strains and no assurances can be given that these or other variants of the virus will not lead to future

governmental restrictions on economic activity or have other materially adverse effects on the local and national economy and our business.

Even if the COVID-19 outbreak continues to subside locally and nationally, we may experience material adverse impacts to our business as a result of the continuing global economic impact of the virus.

For additional information regarding the COVID-19 pandemic and its consequences for our business, see “COVID-19 (Coronavirus) Disclosure” above in this Annual Report on Form 10-K.

Risks Relating to the Industry and Geographic Area in Which We Operate and the U.S.

1 unchanged sentence

Our business operations, which

primarily consist of lending money to clients in the form of loans, borrowing money from clients in the form of deposits and investing in securities, are sensitive to general business and economic conditions in the United States.

economy weakens, our growth and profitability from our lending, deposit and investment operations could be constrained.

In addition, economic conditions in foreign countries could affect the stability of global financial markets, which could

The tightening of the Federal Reserve’s monetary policies, including repeated and aggressive increases in target range for the federal funds rate as well as the conclusion of the Federal Reserve’s tapering of asset purchases, together with

ongoing economic and geopolitical instability, increases the risk of an economic recession.

Although forecasts have varied, many economists are projecting that, while indicators of U.S.

economic performance, such as income growth, may be strong

and levels of inflation may continue to decrease, the U.S.

economy may be flat or experience a modest decrease in gross domestic output in 2024 while inflation is expected to remain elevated relative to historic levels in the coming quarters.

economy weakens, our growth and profitability from our lending, deposit and investment operations could be constrained and our asset quality, deposit levels, loan demand and results of operations may be adversely affected.

economic conditions in foreign countries could affect the stability of global financial markets, which could hinder U.S.

economic growth.

Our business is also significantly affected by monetary and related policies of the U.S.

federal government and its agencies.

Changes in any of these policies are influenced by macroeconomic conditions and other

factors that are beyond our control.

Adverse economic conditions and government policy responses to such conditions could have a material adverse effect on our financial condition and operations.

federal government

and its agencies.

Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control.

Adverse economic conditions and government policy responses to such conditions could have a material

adverse effect on our financial condition and operations.

Our clients businesses are also impacted by the strong US dollar and the related impact to commodity prices and exports.

A large portion of our loan portfolio is tied to the real estate market where we operate and we may be negatively impacted by downturns in that market.

9 unchanged sentences

financing of existing properties because repayment depends on the completion of the project and usually on the sale or long term financing of the property.

The COVID-19 pandemic has had, and may continue to have, an impact on the ability of our

clients to complete these projects on time and within budget, particularly with respect to access to materials and labor and costs of the same.

In addition, these loans are often “interest-only loans,” which normally require only the payment of

interest accrued prior to maturity.

In addition, these loans are often “interest-only loans,” which normally require only the

payment of interest accrued prior to maturity.

Interest-only loans carry greater risk than other loans because no principal is paid prior to maturity.

This risk is particularly apparent during periods of rising interest rates and declining real estate

This risk is particularly apparent during periods of rising interest rates and declining real

estate values.

If there is a significant decline in the real estate market due to a material increase in interest rates or for other reasons, many of these loans could default and result in foreclosure.

If we are forced to foreclose on a project prior

to completion, we may not be able to recover the entire unpaid portion of the loan or we may be required to fund additional money to complete the project or hold the property for an indeterminate period.

In addition, real estate exposes us to

incurring costs and liabilities for environmental contamination and remediation.

If we are forced to foreclose on a project

prior to completion, we may not be able to recover the entire unpaid portion of the loan or we may be required to fund additional money to complete the project or hold the property for an indeterminate period.

In addition, real estate exposes us

to incurring costs and liabilities for environmental contamination and remediation.

Any of these outcomes may result in losses and reduce our earnings.

1 unchanged sentence

ADC loans exceed 100% of total risk-based capital, heightened risk management practices should be employed to mitigate risk.

As of December 31, 2022, our ratio for the sum of CRE and ADC loans was 190% and our ratio for ADC loans was 32.27%.

As of December 31, 2023, our ratio of the sum of CRE and ADC loans to total risk-based capital was 182% and our ratio of

ADC loans to total risk-based capital was 36.47%.

Our concentration in ADC loans is cyclical and tends to increase in the second and third quarters of each year as demand for ADC loans increases.

An increase in ADC loan concentration could cause our ratio for ADC loans to increase and even

exceed the FDIC’s guideline.

An increase in ADC loan concentration could cause

our ratio for ADC loans to increase and even exceed the FDIC’s guidance.

We have exceeded these guidance ratios at times in the past and may do so in the future.

We actively monitor and believe that we effectively manage our CRE and ADC loan concentrations.

If we exceed the FDIC’s

guidelines and do not effectively manage the risk of our CRE and ADC loans, we may be subject to regulatory scrutiny, including a requirement to raise additional capital, reduce our loan concentrations, or undertake other remedial actions.

We actively monitor and believe that we effectively manage our CRE and ADC loan

concentrations.

If we exceed the FDIC’s guidance and do not effectively manage the risk of our CRE and ADC loans, we may be subject to regulatory scrutiny, including a requirement to raise additional capital, reduce our loan concentrations, or

undertake other remedial actions.

We could suffer material credit losses if we do not appropriately manage our credit risk.

6 unchanged sentences

Any failure to manage such risks may materially adversely affect our financial condition and results of operations.

The small to medium-sized businesses that we lend to may have fewer resources to weather adverse business and economic developments, which may impair their

ability to repay a loan, and such impairment could adversely affect our operations and financial condition.

Our business strategy targets primarily small to medium-sized businesses, which

frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete, and may experience substantial volatility in operating results, any of

which may impair a client’s ability to repay a loan.

The small to medium-sized businesses, including agricultural businesses, that we lend to may have fewer resources to weather adverse business and economic

developments, which may impair their ability to repay a loan, and such impairment could adversely affect our operations and financial condition.

Our business strategy targets primarily small to

medium-sized businesses, which frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete, and may experience substantial volatility

in operating results, any of which may impair a client’s ability to repay a loan.

The success of a small to medium-sized business often depends on the management skills, talents and efforts of one or a small number of people, and the death, disability or resignation of one or more of these

7 unchanged sentences

interest income will be adversely affected if market interest rates change so that the interest we pay on deposits and borrowings increases faster than the interest we earn on loans and investments.

In addition, an increase in interest rates

could adversely affect clients’ ability to pay the principal or interest on existing loans or reduce their borrowings.

This may lead to an increase in our non-performing assets, a decrease in loan originations, or a reduction in the value of and

income from our loans, any of which could have a material and negative effect on our operations.

Fluctuations in market rates and other market disruptions are neither predictable nor controllable and may adversely affect our financial condition

and earnings.

During 2022, inflationary pressures began to affect many aspects of the U.S.

An inverted yield curve, such as the one that

has existed in recent years, places further stress on interest rate risk management.

In addition, an increase in interest rates could adversely affect clients’ ability to pay the principal or interest on existing loans or reduce their borrowings.

This may lead to an increase in our non-performing assets, a decrease in loan originations, or a reduction in the value of and income from our loans, any of which could have a material and negative effect on our operations.

Fluctuations in market

rates and other market disruptions are neither predictable nor controllable and may adversely affect our financial condition and earnings.

Since 2022, inflationary pressures have affected many aspects of the U.S.

economy, including gasoline and fuel prices, and global and domestic supply-chain issues have also had a disruptive effect on many

industries, including the agricultural industry.

In response, the FRB increased short-term interest rates by 4.25% in 2022, and further increases are generally expected in 2023.

The impact of these developments on the business of our clients and

on our business cannot be predicted with certainty but could present challenges in 2023 and beyond.

In January 2022, due to elevated levels of inflation and corresponding pressure to raise interest rates, the Federal Reserve announced after several periods of historically low federal funds rates

and yields on Treasury notes that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time.

The FOMC since has increased the target range 11 times or 525 basis points from March 2022

to July 2023.

As of December 31, 2023, the target range for the federal funds rate had been increased to 5.25% to 5.50%.

It remains uncertain whether the FOMC will further increase the target range for the federal funds rate to attain a monetary

policy sufficiently restrictive to return inflation to more normalized levels, begin to reduce the federal funds rate or leave the rate at its current elevated level for a lengthy period of time.

The impact of these developments on the business

of our clients and on our business cannot be predicted with certainty but could present challenges in 2024 and beyond.

Beginning in 2021, the U.S.

5 unchanged sentences

other economic indices.

Pandemic-related supply chain disruptions may be contributing to this development.

economy encounters a significant, prolonged rate of inflation, this could pose higher relative risks to the banking industry

and our business.

Such inflationary periods have historically corresponded with relatively weaker earnings and higher loan losses for banks.

economy encounters a significant, prolonged rate of inflation, this could pose higher relative risks to the banking industry and our business.

Such inflationary periods have historically corresponded with

relatively weaker earnings and higher loan losses for banks.

In the past, inflationary environments have caused financing conditions to tighten and have increased borrowing costs for some marginal borrowers, which, in turn, has impacted bank credit quality and loan growth.

3 unchanged sentences

Higher interest rates can also present challenges for commercial real estate projects, pressuring valuations and loan-to-value ratios.

In addition, the outbreak of hostilities between Russia and Ukraine and global reactions thereto have increased U.S.

In addition, the conflict between Russia and Ukraine and global reactions thereto have increased U.S.

domestic and global energy prices.

Oil supply disruptions related to the Russia-Ukraine

conflict, and sanctions and other measures taken by the U.S.

Oil supply disruptions related to the Russia-Ukraine conflict, and sanctions

and other measures taken by the U.S.

or its allies, have led to higher costs for gas, food and goods in the U.S.

and exacerbated the inflationary pressures on the economy, with potentially adverse impacts on our customers

and on our business, results of operations and financial condition.

and exacerbated the inflationary pressures on the economy, with potentially adverse impacts on our customers and on our business,

results of operations and financial condition.

We face strong competition from banks, credit unions and other financial services providers that offer banking services, which may limit our ability to attract

35 unchanged sentences

loans repaid in late fall and winter as crops are harvested and sold.

Disruptions in the global supply chain arising from the COVID-19 pandemic may adversely affect the ability of some of our agricultural customers to efficiently export their

agricultural products and in turn may adversely affect their results of operations or financial condition and their ability to repay loans we have made to them.

The impact of climate change and governmental and societal responses to climate change, including on the availability of water and the transition to a low-carbon

economy, could adversely affect our business and our clients’ businesses.

Despite the fact that 2023 began with significant levels of precipitation in California, the State has experienced severe drought conditions at times over the

past several years.

Despite the fact that 2023 had significant levels of precipitation in California, the State has experienced severe drought conditions at times over the past

several years.

These weather patterns reinforce the fact that the long-term risks associated with the availability of water are significant.

The farming belt of the Central Valley is often cited as an example of an area that experienced

extreme drought.

The farming belt of the Central Valley is often cited as an example of an area that experienced extreme

However, not all areas of the state are impacted equally, and this is particularly true in the Central Valley, which stretches some 450 miles from Bakersfield in the south to Redding in the north.

The vast majority of the

Company’s agricultural customers are located in the mid Central Valley, an area that benefits from the drainage of the Sacramento, American, Mokelumne and Stanislaus rivers.

In addition to the impact of climate has on the availability of water, State and Federal regulators ultimately manage this resource, which may also impact that access of our customers’ water.

The vast majority of the Company’s

agricultural customers are located in the mid Central Valley, an area that benefits from the drainage of the Sacramento, American, Mokelumne and Stanislaus rivers.

In addition to the impact that climate has on the availability of water, State and Federal regulators ultimately manage this resource, which may also impact the access of our customers’ water.

For example, in 2014,

3 unchanged sentences

even prior to 2014 most of the water districts in the Bank’s service area had been developing and implementing management plans, it is possible that some water districts will have to ultimately fallow some ground to achieve compliance with the

In recent years, the federal banking agencies have increased their focus on climate-related risks impacting the operations of banks, the communities they serve and the broader financial system.

Accordingly, the

agencies have begun to enhance their supervisory expectations regarding the climate risk management practices of larger banking organizations, including by encouraging such banks to:

ensure that management of climate-related risk exposures has

been incorporated into existing governance structures;

evaluate the potential impact of climate-related risks on the bank’s financial condition, operations and business objectives as part of its strategic planning process;

account for the effects

of climate change in stress testing scenarios and systemic risk assessments;

revise expectations for credit portfolio concentrations based on climate-related factors;

consider investments in climate-related initiatives and lending to communities

disproportionately impacted by the effects of climate change;

evaluate the impact of climate change on the bank’s borrowers and consider possible changes to underwriting criteria to account for climate-related risks to mortgaged properties;

incorporate climate-related financial risk into the bank’s internal reporting, monitoring and escalation processes;

and prepare for the transition risks to the bank associated with the adjustment to a low-carbon economy and related changes in

laws, regulations, governmental policies, technology, and consumer behavior and expectations.

On October 21, 2021, the Financial Stability Oversight Council published a report identifying climate-related financial risks as an “emerging threat” to financial stability.

On October 24, 2023, the FDIC, the OCC

and the Federal Reserve jointly finalized principles for climate-related financial risk management for national banks with more than $100 billion in total assets.

Although these risk management principles do not apply to the Bank directly based

upon our current size, the FDIC has indicated that all banks, regardless of their size, may have material exposures to climate-related financial and other risks that require prudent management.

As climate-related supervisory guidance is

formalized, and relevant risk areas and corresponding control expectations are further refined, we may be required to expend significant capital and incur compliance, operating, maintenance and remediation costs in order to conform to such

requirements.

Additional legislation and regulatory requirements and changes in consumer preferences, including those associated with the transition to a low-carbon economy, could increase expenses of, or otherwise adversely

4 unchanged sentences

Regulatory changes or market shifts to low-carbon products could also impact the creditworthiness of some of our customers or reduce the value of assets securing loans, which may require the Company to adjust our lending portfolios and business

Changes to LIBOR may adversely affect the value of, and the return on, our financial instruments that are indexed to LIBOR .

In July 2017, the United Kingdom’s Financial Conduct Authority (the “FCA”) which regulates LIBOR announced that it would stop compelling banks to submit rates for the calculation of LIBOR after 2021 .

In March 2021, the FCA and LIBOR’s administrator, ICE Benchmarks Administration, announced that LIBOR would no longer be provided (i) for the one-week and two-month U.S.

dollar settings and for various foreign currency settings after

December 31, 2021, and (ii) for the remaining U.S.

dollar settings after June 30, 2023.

In addition, the FRB issued guidance urging market participants in the U.S.

to cease using LIBOR as a reference rate for new contracts entered into after

December 31, 2021.

There are on-going efforts to establish an alternative reference rate to LIBOR.

The Secured Overnight Financing Rate (or SOFR) published by the Federal Reserve Bank of New York (the “FRBNY”) is considered a likely alternative

reference rate suitable for replacing LIBOR.

SOFR is a broad measure of the cost of overnight borrowings collateralized by U.S.

Treasury securities.

The Alternative Reference Rates Committee, a group of private-market participants convened by

the FRBNY to help ensure a successful transition from U.S.

dollar LIBOR to a new reference rate, has recommended adoption of SOFR as the alternative reference rate.

The scope of the acceptance of SOFR and the consequent impact on rates,

pricing, the value and liquidity of our financial instruments and liquidity of such instruments and the ability to manage risk, including through derivatives, remain uncertain at this time.

While some of our existing products or contracts

include fallback provisions to alternative reference rates, other products or contracts may not include adequate fallback provisions and may require consent of all parties to any modification.

The market transition from LIBOR and similar

benchmarks could adversely affect the return on and pricing, liquidity and value of our outstanding products and contracts, cause market dislocations, increase the cost of and access to capital and increase the risk of disputes and litigation

in connection with the interpretation and enforceability of our outstanding products and contracts.

Failure of the U.S.

Congress to increase the federal government’s debt limit could have material and adverse impacts on the U.S.

and global economies and our business.

Discussions are occurring between the

Administration and the Republican-controlled House of Representatives regarding the increase in the federal government’s statutory debt limit that is expected to be required later in 2023 in order to allow the U.S.

to meet its outstanding

obligations, including on its borrowings.

If the debt limit were not raised and the U.S.

were to default on its obligations, there could be material and adverse impacts on the U.S.

and global economies with consequent impacts on the business of

our customers and our business.

Reductions of the ratings on U.S.

sovereign debt as a result of issues over the debt ceiling could also have material and adverse impacts on the U.S.

Risks Related to Our Growth

If we are not able to maintain our past levels of growth, our future prospects and competitive position could be diminished and our profitability could be

We may not be able to sustain our deposit, loan, and asset growth at the rate we have attained during the past several years, including the significant deposit growth experienced since the onset of the COVID-19 pandemic.

growth over the past several years has been driven primarily by agricultural and commercial real estate growth in our market areas, growth in non-real estate agricultural and commercial loans, commercial leasing, and residential real estate.

failure to attract and retain high performing employees, heightened competition from other financial services providers, and an inability to attract additional core deposits and lending clients, among other factors, could limit our ability to

grow as rapidly as we have in the past and as such could have a negative effect on our financial condition and operations.

We may not be able to sustain our deposit, loan, and asset growth at the rate we have attained during the past several years.

Our growth over the past several years has been driven primarily by agricultural and commercial real

estate growth in our market areas, growth in non-real estate agricultural and commercial loans, commercial leasing, and residential real estate.

A failure to attract and retain high performing employees, heightened competition from other

financial services providers, and an inability to attract additional core deposits and lending clients, among other factors, could limit our ability to grow as rapidly as we have in the past and as such could have a negative effect on our

financial condition and operations.

If we are unable to manage our growth effectively, we may incur higher than anticipated costs, and our ability to execute our growth strategy could be impaired.

24 unchanged sentences

timetables may not be achieved and price and profitability targets may not prove feasible.

External factors, such as compliance with regulations, competitive alternatives in these markets and shifting market preferences, may also affect the

successful implementation.

External factors, such as compliance with regulations, competitive alternatives in these markets and shifting market preferences, may also affect or limit

their successful implementation.

Failure to successfully manage these risks could have an adverse effect on our business, financial condition and results of operations.

40 unchanged sentences

Companies must consider all relevant information when estimating expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts.

We adopted and implemented

this accounting standard fully effective January 1, 2022.

We adopted and fully

implemented this accounting standard effective January 1, 2022.

The adoption of ASU 2016-13 did not have a material negative effect on the level of allowance for credit loss held by us or on our reported earnings.

The potential negative effect that

the adoption of this new accounting pronouncement may have on future lending by us or the banking industry in general is still not well known.

The potential negative effect

that the adoption of this new accounting pronouncement may have on future lending by us or the banking industry in general is still not well known.

We believe that our allowance for credit losses as of December 31, 2023 was adequate to absorb

1 unchanged sentence

however, we cannot assure that such levels will be sufficient to cover actual or future losses.

Our financial and accounting estimates and risk management framework rely on analytical forecasting and models.

The processes we use to estimate our

inherent credit losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and operations, depend upon the

use of analytical and forecasting models.

Some of our tools and metrics for managing risk are based upon our use of observed historical market behavior.

Our financial and accounting estimates and risk management framework rely on analytical forecasting and models, and our risk exposures and losses could be

significantly greater than our models indicated.

The processes we use to estimate our inherent credit losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing

interest rates and other market measures on our financial condition and operations, depend upon the use of analytical and forecasting models.

Some of our tools and metrics for managing risk are based upon our use of observed historical market

We rely on quantitative models to measure risks and to estimate certain financial values.

Models may be used in such processes as determining the pricing of various products, grading loans and extending credit, measuring interest rate and other market risks, predicting losses, assessing capital adequacy and calculating regulatory

capital levels, as well as estimating the value of financial instruments and balance sheet items.

Models may be used in such processes as determining the pricing of various products, grading loans and extending credit, measuring interest rate

and other market risks, predicting losses, assessing capital adequacy and calculating regulatory capital levels, as well as estimating the value of financial instruments and balance sheet items.

Poorly designed or implemented models present the risk that our business decisions based on information incorporating such models will be adversely affected due to the inadequacy of that information.

11 unchanged sentences

We maintain a significant amount of

our assets in investment securities, and must periodically evaluate investment securities for impairment under previously adopted accounting guidance during 2021 or for current expected credit losses after the adoption of ASU 2016-13.

evaluate our investment securities portfolio for impairment as of each reporting date.

our assets in investment securities, and must periodically evaluate investment securities for current expected credit losses after the adoption of ASU 2016-13.

We evaluate our investment securities portfolio for impairment as of each reporting

At December 31, 2023, we had no investment securities that were impaired.

16 unchanged sentences

ability to continue to pay dividends depends on various factors.

FMCB is a legal entity separate and distinct from the Bank, and does not conduct stand-alone operations, which means that the Bank must first pay dividend(s) to the Company.

FDIC, the DFPI and California corporate and banking laws may, under certain circumstances, prohibit the Bank’s payment of dividends to FMCB.

FRB policy requires bank holding companies to pay cash dividends on common shares only out of net income

available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition.

FMCB’s Board of Directors may determine that, even though funds are available for

dividend payments, retaining the funds for other internal uses, such as expansion of our operations, is necessary or appropriate in light of our business plan and objectives.

A failure to pay dividends may negatively affect your investment.

The Company is a legal entity separate and distinct from the Bank, and does not conduct stand-alone operations, which means that the Bank must first pay dividend(s) to the

The FDIC, the DFPI and California corporate and banking laws may, under certain circumstances, prohibit the Bank’s payment of dividends to the Company.

Federal Reserve policy requires bank holding companies to pay cash dividends on

common shares only out of net income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition.

The Company’s Board of Directors may determine

that, even though funds are available for dividend payments, retaining the funds for other internal uses, such as expansion of our operations, is necessary or appropriate in light of our business plan and objectives.

A failure to pay dividends

may negatively affect your investment.

The price of our common shares may fluctuate significantly and our stock may have low trading volumes, which may make it difficult for you to resell common

6 unchanged sentences

resell common shares owned by you at times or at prices you find attractive.

The low trading volume in our common shares on the OTCQX means that our shares may have less liquidity than other companies, who shares are more broadly traded.

We cannot ensure that the volume of trading in our

common shares or the price of our common shares will be maintained or will increase in the future.

Our stock price can fluctuate significantly in response to a variety of factors discussed in this section, including, among other things:

anticipated variations in quarterly results of operations;

The historically low trading volume in our common shares on the OTCQX, under the symbol “FMCB,” means that our shares may have less liquidity than other companies, whose shares are more broadly traded.

ensure that the volume of trading in our common shares or the price of our common shares will be maintained or will increase in the future.

Our stock price can fluctuate significantly in response to a variety of factors discussed in this section,

including, among other things:

actual or anticipated variations in quarterly results of operations;

operating and stock price performance of other companies that investors deem comparable to our Company;

news reports relating to trends, concerns and other issues in the financial

services industry;

news reports relating to trends, concerns

and other issues in the financial services industry;

available investment liquidity in our market area since our stock is not listed on any exchange;

9 unchanged sentences

We rely on customer deposits, advances

from the Federal Home Loan Bank of San Francisco (“FHLB”), lines of credit at other financial institutions and the Federal Reserve Bank to fund our operations.

Although we have historically been able to replace maturing deposits and advances if

desired, we may not be able to replace such funds in the future if our financial condition, the financial condition of the FHLB or market conditions were to change.

Our financial flexibility will be severely constrained if we are unable to

maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates.

Finally, if we are required to rely more heavily on more expensive funding sources to support future growth, our

revenues may not increase proportionately to cover our costs.

from the Federal Home Loan Bank of San Francisco (“FHLB”), lines of credit at other financial institutions and the Federal Reserve Bank (“FRB”) to fund our operations.

Although we have historically been able to replace maturing deposits and

advances if desired, we may not be able to replace such funds in the future if our financial condition, the financial condition of the FHLB or market conditions were to change.

Our financial flexibility will be severely constrained if we are

unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates.

Finally, if we are required to rely more heavily on more expensive funding sources to support future

growth, our revenues may not increase proportionately to cover our costs.

In this case, our profitability would be adversely affected.

FHLB borrowings and other current sources of liquidity may not be available or, if available, not sufficient to provide

adequate funding for operations.

FHLB borrowings and other current sources of liquidity may not be available or, if available, may not be

sufficient to provide adequate funding for operations.

Furthermore, our own actions could result in a loss of adequate funding.

For example, our borrowing capacity at the FHLB could be reduced if we are deemed to have poor documentation or processes.

Accordingly, we

may be required to seek additional higher-cost debt in the future to achieve our long-term business objectives.

Additional borrowings, if sought, may not be available to us or, if available, may not be available on favorable terms.

If additional

financing sources are unavailable or are not available on reasonable terms, our growth and future prospects could be adversely affected.

For example, our borrowing capacity at the FHLB could be reduced if we are deemed to have poor documentation or

Accordingly, we may be required to seek additional higher-cost debt in the future to achieve our long-term business objectives.

Additional borrowings, if sought, may not be available to us or, if available, may not be available on

favorable terms.

If additional financing sources are unavailable or are not available on reasonable terms, our growth and future prospects could be adversely affected.

We may be adversely affected by the lack of soundness of other financial institutions or financial market utilities.

Our ability to engage in routine

funding and other transactions could be adversely affected by the actions and commercial soundness of other financial institutions.

Financial institutions are interrelated because of trading, clearing, counterparty or other relationships.

Defaults by, or even rumors or questions about, one or more financial institutions or financial market utilities, or the financial services industry generally, may lead to market-wide liquidity problems and losses of client, creditor and

counterparty confidence and could lead to losses or defaults by us or by other financial institutions.

Risks Related to Cyber-security and Information Technology

Financial institutions are

interrelated because of trading, clearing, counterparty or other relationships.

Our ability to engage in routine funding and other transactions could be adversely affected by the actions and commercial soundness of other financial institutions.

The high-profile bank failures of Silicon Valley Bank, Signature Bank and First Republic Bank last year, and related negative media attention, also generated significant market trading volatility among

publicly-traded bank holding companies and, in particular, regional and community banks.

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

The FDIC took steps to ensure that

depositors of these failed banks would have access to their deposits, including uninsured deposit accounts.

bank regulators have taken action in an effort to further strengthen public confidence in the banking system through the creation of

a new Bank Term Funding Program.

There can be no assurance that these actions will be successful in restoring customer confidence in regional and community banks and the banking system more broadly.

These events may also result in potentially adverse changes to laws or regulations governing banks and bank holding companies, enhanced regulatory supervision and examination policies and priorities, and/or the

imposition of restrictions through regulatory supervisory or enforcement activities, including higher capital requirements and/or an increase in the Bank’s deposit insurance assessments.

Although these legislative and regulatory actions cannot be

predicted with certainty, any of these potential legislative or regulatory actions could, among other things, subject us to additional costs, limit the types of financial services and products we may offer, and reduce our profitability, any of

which could materially and adversely affect our business, results of operations or financial condition.

Defaults by, or even rumors or questions about, one or more financial institutions or financial market utilities, or the financial services

industry generally, may lead to market-wide liquidity problems and losses of client, creditor and counterparty confidence and could lead to losses or defaults by us or by other financial institutions.

Risks Related to Cybersecurity and Information Technology

Cyber-attacks or other security breaches could have a material adverse effect on our business.

59 unchanged sentences

adverse effect on our financial condition and operations.

We depend on the accuracy and completeness of information about clients and counterparties.

In deciding whether to extend credit or enter into other

transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of clients and counterparties, including financial statements and other financial information.

We also may rely on representations of clients

and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors.

In deciding whether to extend credit, we may rely upon our clients’ representations that

their financial statements conform to U.S.

generally accepted accounting principles, or GAAP, and present fairly, in all material respects, the financial condition, operations and cash flows of the client.

We also may rely on client

representations and certifications, or other auditors’ reports, with respect to the business and financial condition of our clients.

Our financial condition, operations, financial reporting and reputation could be negatively affected if we rely

on materially misleading, false, inaccurate or fraudulent information provided by or about clients and counterparties.

Catastrophic events including, but not limited to, hurricanes, tornadoes, earthquakes, fires, floods, prolonged drought, and pandemics may adversely affect the general economy,

financial and capital markets, specific industries, and the Bank.

The Bank has significant operations and a significant customer base in regions where natural and other disasters may occur.

These regions are known for being vulnerable

to natural disasters and other risks, such as earthquakes, fires, floods, and prolonged drought.

These types of natural catastrophic events at times have disrupted the local economy, the Bank’s business and clients, and could pose physical risks

to the Bank’s property.

In addition, catastrophic events, such as natural disasters or global pandemics, occurring in other regions of the world may have an impact on the Bank’s clients and in turn on the Bank.

Although we have business

continuity and disaster recovery programs in place, a significant catastrophic event could materially adversely affect the Bank’s operating results.

We depend on the accuracy and completeness of information about clients and counterparties, and our financial condition, operations, financial reporting and

reputation could be negatively affected if this information is materially misleading, false, inaccurate or fraudulent.

In deciding whether to extend credit or enter into other transactions with clients and counterparties, we may rely on

information furnished to us by or on behalf of clients and counterparties, including financial statements and other financial information.

We also may rely on representations of clients and counterparties as to the accuracy and completeness of

that information and, with respect to financial statements, on reports of independent auditors.

In deciding whether to extend credit, we may rely upon our clients’ representations that their financial statements conform to U.S.

generally accepted

accounting principles, or GAAP, and present fairly, in all material respects, the financial condition, operations and cash flows of the client.

We also may rely on client representations and certifications, or other auditors’ reports, with

respect to the business and financial condition of our clients.

Our financial condition, operations, financial reporting and reputation could be negatively affected if we rely on materially misleading, false, inaccurate or fraudulent information

provided by or about clients and counterparties.

Catastrophic events including, but not limited to, hurricanes, tornadoes, earthquakes, fires, floods, prolonged drought, and pandemics may adversely affect the

general economy, financial and capital markets, specific industries, and the Bank.

The Bank has significant operations and a significant customer base in regions where natural and other disasters

These regions are known for being vulnerable to natural disasters and other risks, such as earthquakes, fires, floods, and prolonged drought.

These types of natural catastrophic events at times have disrupted the local economy, the

Bank’s business and clients, and could pose physical risks to the Bank’s property.

In addition, catastrophic events, such as natural disasters or global pandemics, occurring in other regions of the world may have an impact on the Bank’s clients

and in turn on the Bank.

Although we have business continuity and disaster recovery programs in place, a significant catastrophic event could materially adversely affect the Bank’s operating results.

The physical effects of climate change, as well as governmental and societal responses to climate change could materially adversely affect our operations,

16 unchanged sentences

financial institutions.

Supervision, regulation, and examination of the Company and the Bank by the bank regulatory agencies are intended primarily for the protection of consumers, bank clients and the Deposit Insurance Fund of the

FDIC, rather than holders of our common shares.

As a bank holding company under federal law, we are subject to regulation under the BHCA, and the examination and reporting requirements of the FRB.

holders of our common shares.

As a bank holding company under federal law, we are subject to regulation under the BHCA, and the examination and reporting requirements of the Federal Reserve.

In addition to supervising and examining us, the

FRB, through its adoption of regulations implementing the BHCA, places certain restrictions on the permissible activities for bank holding companies.

Changes in the number or scope of permissible activities could have an adverse effect on our

ability to realize our strategic goals.

Federal Reserve, through its adoption of regulations implementing the BHCA, places certain restrictions on the permissible activities for bank holding companies.

Changes in the number or scope of permissible activities could have an adverse

effect on our ability to realize our strategic goals.

As a California state-chartered bank that is not a member of the Federal Reserve System, the Bank is separately subject to regulation by both the FDIC and the DFPI.

The FDIC and DFPI regulate numerous

aspects of the Bank’s operations, including adequate capital and financial condition, permissible types and amounts of extensions of credit and investments, permissible non-banking activities and restrictions on dividend payments.

required to invest significant management attention and resources to evaluate and make any changes necessary to comply with applicable laws and regulations.

The FDIC and DFPI regulate

numerous aspects of the Bank’s operations, including adequate capital and financial condition, permissible types and amounts of extensions of credit and investments, permissible non-banking activities and restrictions on dividend payments.

be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with applicable laws and regulations.

This allocation of resources, as well as any failure to comply with applicable

2 unchanged sentences

actions to which we become subject because such examinations could materially and adversely affect us.

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

The DFPI, the FDIC, and the Federal Reserve periodically conduct examinations of our business, including compliance with laws and

Accommodating such examinations may require management to reallocate resources that would otherwise be used in the day-to-day operation of other aspects of our business.

If, as a result of an examination, the DFPI or a federal banking agency were

to determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of our operations had become unsatisfactory, or that we or our management were in violation of any law or

regulation, it may take a number of different remedial actions as it deems appropriate.

These actions could include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any

violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against us, our officers or directors, to remove officers

and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to clients, to terminate our deposit insurance.

FDIC deposit insurance is critical to the continued operation of the Bank.

become subject to such regulatory actions, our business operations could be materially and adversely affected.

If, as a result of an examination, the DFPI or a federal

banking agency were to determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of our operations had become unsatisfactory, or that we or our management were in

violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate.

These actions could include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any

conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against us, our officers or

directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to clients, to terminate our deposit insurance.

FDIC deposit insurance is critical to the continued

operation of the Bank.

If we become subject to such regulatory actions, our business operations could be materially and adversely affected.

Changes in laws, government regulation and monetary policy may have a material adverse effect on our operations.

7 unchanged sentences

Further, federal monetary policy

significantly affects the Bank’s credit conditions, as well as the Bank’s clients, particularly as implemented through the FRB, primarily through open market operations in U.S.

government securities, the discount rate for bank borrowings and

reserve requirements.

significantly affects the Bank’s credit conditions, as well as the Bank’s clients, particularly as implemented through the Federal Reserve, primarily through open market operations in U.S.

government securities, the discount rate for bank

borrowings and reserve requirements.

A material change in any of these conditions could have a material impact on us, the Bank and the Bank’s clients, and therefore on our financial condition and operations.

26 unchanged sentences

Pursuant to the Dodd-Frank Act, the federal banking agencies adopted final rules, or the U.S.

Basel III Capital Rules, to update their general risk-based capital and leverage capital requirements to incorporate

agreements reflected in the Third Basel Accord adopted by the Basel Committee on Banking Supervision, or Basel III Capital Standards, as well as the requirements of the Dodd-Frank Act.

Basel III Capital Rules are described in more detail

in “Supervision and Regulation — Capital Standards” in this report on Form 10-K.

Capital Rules, to update their general risk-based capital and leverage capital requirements to incorporate agreements reflected in the Third Basel Accord adopted by the Basel Committee on Banking Supervision, or Basel III Capital Standards, as

well as the requirements of the Dodd-Frank Act.

Basel III Capital Rules are described in more detail in “Supervision and Regulation — Capital Standards” in this Form 10-K.

The failure to meet the established capital requirements could result in one or more of our regulators placing limitations or conditions on our activities or restricting the commencement of new activities.

15 unchanged sentences

Any debt would be entitled to a priority of payment over the claims of

the Company’s general unsecured creditors or equity holdings.

the Company’s general unsecured creditors or equity holders.

Thus, any Company borrowing to make the required capital injection may be expensive and adversely affect our cash flows, financial condition, operations, and business prospects.

33 unchanged sentences

tax laws could adversely affect our business and result of operations in a variety of ways.

The Tax Cuts and Jobs Act (“TCJA”), signed into law on December 22, 2017, enacted sweeping changes to the U.S.

federal tax laws generally, effective January 1, 2018.

The TCJA reduced the corporate tax rate to 21%

from 35%, which resulted in a net reduction in our annual income tax expense and which benefitted many of our corporate and other small business borrowers.

However, our ability to utilize tax credits, such as those arising from low-income housing

and alternative energy investments, was constrained by the lower tax rate.

There are presently ongoing discussions in the U.S.

Congress and the White House which could result in changes in the tax laws that would substantially increase the U.S.

corporate tax rate.

If enacted, such measures could adversely affect our profitability and that of our customers.

Unresolved Staff Comments

We are subject to changes in tax

law that could increase our effective tax rates.

These law changes may be retroactive to previous periods and as a result could negatively affect our current and future financial performance.

In particular, the Tax Cuts and Jobs Act, which was

signed into law in December 2017, includes a number of provisions impacting the banking industry and the borrowers and the market for residential and commercial real estate.

Changes include a lower limit on the deductibility of interest on

residential mortgage loans and home equity loans;

a limitation on the deductibility of business interest expense;

and a limitation on the deductibility of property taxes and state and local income taxes.

The law's limitation on the mortgage

interest deduction and state and local tax deduction for individual taxpayers has increased the after-tax cost of owning a home for many of our existing clients.

The Inflation Reduction Act, which was signed into law in the United States in

August 2022, among other things, imposes a surcharge on stock repurchases.

The value of the properties securing loans in our loan portfolio may be adversely impacted as a result of the changing economics of home ownership, which could require an

increase in our provision for loan losses, which would reduce our profitability and could materially adversely affect our business, financial condition and results of operations.

Further, these changes implemented by these tax laws could make

some businesses and industries less inclined to borrow, potentially reducing demand for our commercial loan products.

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

What changed 10-K

Item 1A. Risk Factors